An end to the lawless crypto space
G7 Issue

An end to the lawless crypto space

The Financial Action Task Force is working on multiple fronts to help its members go after the digital financial flows that fuel crime and terrorism – and the G7 has a critical role to play in its success

Illicit financial flows weaken the global financial system, delay growth and hinder development. They fuel serious crimes – such as terrorism, drug trafficking, human trafficking, corruption and environmental crime – that threaten our safety, security and society.

Concerted global action is needed to keep financial flows with links to crime and terrorism out of the financial system and to strengthen economies around the world. The Financial Action Task Force is committed to leading strong, coordinated and effective action against the threats posed by illicit finance.

The G7 must lead by example in fully and effectively implementing the FATF Recommendations, which are the global standards on combatting money laundering, terrorism financing and proliferation financing. Around the globe, countries have made progress in implementing most of the standards; however, progress on implementing FATF’s updated requirements on crypto assets has been relatively poor.

In 2019, FATF extended its global anti-money laundering and countering terrorist financing standards to crypto assets. However, 73% of countries – including some G20 countries – are still non-compliant or only partially compliant with the FATF Standards and have not yet begun to supervise crypto activity. This unacceptable situation must be urgently addressed.

The risks posed by crypto assets continue to grow. The recently published FATF report on ransomware financing highlighted that ransomware payments have increased significantly in recent years, almost exclusively using crypto assets. Crypto assets are also used to evade sanctions, and by terrorist groups to raise and move funds.

While the risks have increased, crypto assets continue to operate in a virtually lawless global environment.

Countries need to take urgent action to shut down lawless spaces, which allow criminals, terrorists and rogue states to use crypto assets. At its February 2023 Plenary, FATF agreed to accelerate implementation of AML/CFT controls and supervision in the crypto asset sector. The sector is challenging to regulate and many countries lack experience or expertise in this area. FATF will roll out an initiative to help countries take appropriate action, in particular those with materially important crypto sectors. G7 countries should lead by example and regulate the crypto sector so that no virtual safe havens exist for illicit financial transactions. This includes implementation of the ‘travel rule’, which requires virtual assets service providers to identify the sender and receiver of the transaction.

Critical transparency

Transparency of beneficial ownership is also crucial in fighting money laundering, corruption, tax evasion and sanctions evasion. Lack of transparency enables criminals to use complex corporate structures or legal arrangements such as trusts to hide illegal assets or activities. Access to beneficial ownership information helps investigators follow financial footsteps and detect and disrupt criminal activity. FATF has strengthened its recommendations on beneficial ownership requirements for both legal persons and legal arrangements. Countries must ensure that their competent authorities have access to adequate, accurate and up-to-date information on the true owners of companies, trusts and other legal arrangements. By fully and effectively implementing FATF’s strengthened beneficial ownership requirements, countries can close the loopholes that have allowed criminals to hide their illegal activities and assets.

Finally, recovering the proceeds of crime is effective in stopping money laundering and other economic crimes. Asset recovery aids victims, targets the economic driver behind the criminal activity and prevents more crime from occurring. There is much room for improvement: many countries have yet to prioritise asset recovery, and authorities are only recovering a tiny percentage of global illicit financial flows. 

As a result, criminals retain huge profits and are growing in strength and capability – posing even greater risks. FATF has thus made it a priority under the Singapore Presidency to improve global asset recovery. In September 2022, the inaugural FATF-INTERPOL Roundtable Engagement (FIRE) brought together senior operational professionals from around the world. It agreed on key takeaways that would enhance the effectiveness of national systems, and will review progress and chart next steps at FIRE 2 in September in Lyon. In February, the first FATF Learning and Development Forum on Asset Targeting and Recovery Systems hosted by Italy’s Guardia di Finanzia allowed FATF Global Network participants to hear how GDF tackled organised crime using asset recovery, share experiences and learn from each other.

FATF is working on multiple fronts to help members go after the financial flows that fuel crime and terrorism. The G7’s leadership role in fully and effectively implementing FATF’s global standards is crucial to our collective success.