On December 2, 2020, the Monetary Transactions and Experiences Evaluation Centre of Canada (FINTRAC) revealed guidance on cash laundering (“ML”) and terrorist financing (“TF”) crimson flag indicators for digital forex transactions. In Canada, companies dealing in digital forex are topic to the Proceeds of Crime (Cash Laundering) and Terrorist Financing Act (Canada). Reporting entities are required to have efficient inside methods for figuring out, assessing and reporting suspicious transactions. These ML/TF crimson flag indicators present helpful steering for companies dealing in digital forex to refine their anti-ML/TF compliance technique.
The crimson flag indicators are comprised of factual traits, behaviors and patterns related to suspicious monetary transactions. FINTRAC developed the crimson flag indicators primarily based on their evaluation of ML/TF circumstances, suspicious transaction reviews (“STR”), enter from reporting entities and supplies revealed by worldwide organizations such because the Monetary Motion Activity Drive (FATF). The steering from FINTRAC follows the current report on crimson flag indicators related to digital belongings revealed by FATF, summarized here.
The crimson flag indicators will be grouped into the next classes:
1. Purple Flag Indicators Associated to the Transaction – Purple flags related to conventional transactions additionally apply to digital forex transactions. For instance:
- Funds flowing by a lot of intermediate addresses in a really quick time frame previous to being deposited in a consumer’s pockets, or instantly after being withdrawn.
- A dealer charging abnormally excessive fee charges in comparison with trade requirements.
- A consumer’s digital forex pockets or deal with being linked to fraudulent exercise in media reviews and/or cyber safety bulletins.
2. Purple Flag Indicators Associated to Transaction Patters – ML/TF will be recognized by uncommon transaction patterns resembling:
- Excessive quantity and frequency of transfers between several types of digital currencies.
- A number of transactions going down on the similar time of day. Transfers from fiat to digital forex and digital forex to fiat.
3. Purple Flag Indicators Associated to Anonymity – The character of digital forex permits for a degree of anonymity that makes it tougher to determine suspicious transactions. Further measures in digital forex transactions to hide the identification of the events and the supply of funds is usually a crimson flag:
- A consumer offering an nameless electronic mail deal with obtained by an encrypted electronic mail service.
- A consumer’s portfolio solely consisting of, or having a excessive worth of, privateness cash (for instance, Monero, Sprint, Zcash).
- A consumer transferring Bitcoin in massive volumes in alternate for privateness cash.
4. Purple Flag Indicators Associated to the Sender or Recipients – The profile and habits of the sender or recipient can determine ML/TF:
- Digital forex addresses matching addresses on acknowledged watch lists resembling these maintained by the Workplace of Overseas Belongings Management (OFAC) or different regulation enforcement.
- Many people registering with the alternate inside a brief interval utilizing a shared deal with, cell gadget, telephone quantity, IP addresses and different frequent identification indicators.
5. Purple Flag Indicators Associated to the Supply of the Funds – There are a variety of indicators that recommend a prison group is utilizing digital forex to obscure the unique supply of funds, resembling:
- The builders are nameless or data offered in regards to the preliminary coin providing can’t be verified.
- Digital forex passes by mixers/tumblers and is transferred to a number of wallets, the place the funds are cashed out.
- Shopper is unwilling or unable to supply details about the supply of privateness cash they as soon as held or at the moment have.
The total record of digital forex ML/TF crimson flag indicators will be discovered within the revealed steering. FINTRAC notes that in isolation, a single crimson flag might not seem suspicious. Nonetheless, it might require organizations to conduct additional investigation. Organizations ought to use the crimson flag indicators of their inside investigations together with different details and contextual circumstances to find out if there are affordable grounds to imagine a transaction is related to ML/TF actions. If there are affordable grounds, a STR have to be submitted to FINTRAC. The crimson flags ought to then be used to explain the transaction within the narrative part of the STR. Moreover, throughout its assessment of a STR, FINTRAC will assess how a company makes use of the crimson flag indicators in its personal investigations.