A new report by the Financial Action Task Force, or FATF, details a series of red flags that can help identify illicit activity involving cryptocurrencies. Among them are a general set of guidelines involving exchanges in jurisdictions with weaker regulations, where Binance is seemingly singled out for often moving to avoid stronger regulatory oversight.
The report, published on Sept. 14, lists a variety of red flags for spotting money laundering or terrorism financing, grouped by categories. Most red flags cited are commonly seen in traditional finance as well: young or old people suddenly transacting for huge sums of value, or transfers split into many chunks just below the reporting threshold, for example.
In the section relating to geographical risk, however, the report clearly states that users transacting with exchanges located in jurisdictions with low anti-money laundering regulations are a red flag.
In a separate note, the report details how a particular exchange moved several times to avoid harsher policies:
“Ahead of the implementation of a policy to prohibit VASP operation in Jurisdiction A in Asia in 2017, a VASP (exchange) established in Jurisdiction A transferred its operation to Jurisdiction B in the same region. In 2018, Jurisdiction B stepped up its AML/CFT legal regime on VAs following significant hacks of some major VASPs (exchanges). In March 2018, the VASP announced its intentions to relocate its headquarters to Jurisdiction C in Europe (a jurisdiction which had not yet introduced a comprehensive AML/CFT regime in relation to VAs and VASPs at the time). Later in November 2018, Jurisdiction C introduced certain regulations on VASPs, and in February 2020, it confirmed that no authorisation was given to the corresponding VASP to operate. More recent reports in 2020 indicated that the VASP had already relocated its registration and domicile status to Jurisdiction D in Africa.”
The exchange in question is very likely to be Binance, which started in China and moved to Japan and eventually Malta. Following February 2020 reports from Maltese authorities that the exchange was never licensed in the country, Binance became evasive as to its current jurisdiction. Some placed its current registration in the Cayman Islands, though the FATF seems to believe that its true location is in Africa, possibly the Seychelles.
Binance did not immediately reply to Cointelegraph’s request for comment.
The wording of the report suggests that FATF would consider any transaction with Binance and other exchanges incorporated in countries with “inadequate AML/CTF regulations” as a potential red flag.
Strict adherence to these rules could mean that fully regulated exchanges would be forced to ban direct transfers to any of these exchanges. Other rules involving mixing and tumbling of funds would also disqualify indirect withdrawals that go through user wallets.
Still, worldwide jurisdictions and exchanges have been slow to adopt FATF guidelines, and individual interpretations could create loopholes for some types of exchanges.
Technical challenges to their implementation also abound, as blockchain’s pseudonymous nature can make it hard to attach the user metadata that the FATF Travel Rule requires.
Despite a deadline for this past June, some experts believe that full implementation is still years away.