WASHINGTON (7/10/14)--The Financial Action Task Force (FATF) called virtual currencies both "the wave of the future" and a powerful new tool for criminals to move and store illicit funds, in a paper released last month. The FATF is an intergovernmental body that develops and promotes policies to protect the global financial system from money laundering and terrorist financing. The United States is one of 37 member countries.
For the FATF's purposes, a virtual currency is defined as "a digital representation of value that can be digitally traded and functions as a medium of exchange; and/or a unit of account; and/or a store of value, but does not have legal tender status of payment in any jurisdiction."
The FATF lists several benefits of virtual currencies, particularly the potential to improve payment efficiency and reduce transaction costs.
"For example, Bitcoin functions as a global currency that can avoid exchange fees, is currently processed with lower fees/charges than traditional credit and debit cards and may potentially provide benefit to existing online payment systems, like Paypal," the report reads.
However, the anonymous nature of many such currencies create many opportunities for money laundering and terrorist financing, two activities which the FATF exists to combat. The FATF's primary mission is to develop recommendations that are recognized as the global anti-money laundering (AML) and counter-terrorist financing (CFT) standard.
"Virtual currency's global reach likewise increases its potential AML/CFT risks. Virtual currency systems can be accessed via the Internet, including via mobile phones, and can be used to make cross-border payments and funds transfers," the report reads. "In addition, virtual currencies commonly rely on complex infrastructures that involve several entities, often spread across several countries, to transfer funds or execute payments. This segmentation of services means that responsibility for AML/CFT compliance and supervision/enforcement may be unclear."
The report also lists several high-profile cases that have come up in recent years, all of which involve abuse of virtual currency for money-laundering purposes:
In May 2013, the U.S. Department of Justice charged Liberty Reserve, a Costa Rica-based money transmitter, and seven of its principals and employees with facilitating the movement of more than $6 billion in illicit proceeds. This is the largest online money-laundering case to date.
In September 2013, the U.S. Department of Justice seized the website known as Silk Road, which included approximately 173,991 bitcoins, worth more than $33.6 million. The site operated as a "global black-market bazaar" used by thousands of drug dealers and other vendors distributing unlawful goods.
An eight-year investigation of Western Express International, a multinational Internet-based cybercrime group, resulted in convictions or guilty pleas from 16 individuals. It was an enterprise composed of individuals buying and selling nearly 100,000 stolen credit card numbers and other personal information using virtual currencies.
Use the resource link below to access the full report.