Digital currency can mean a digital representation of either virtual currency or e-money and thus is often used interchangeably with the term “virtual currency”.
Decentralised, math-based virtual currencies have attracted increasing attention from an AML/CFT perspective because digital currencies are the wave of the future for payment systems.
Digital currencies may also provide a powerful new tool for criminals, terrorist financiers and other sanctions evaders to move and store illicit funds, out of the reach of law enforcement and other authorities.
- Convertible virtual currencies can be exchanged for real money or other virtual currencies;
- A greater potential for anonymity than traditional non-cash payment methods;
- Being internet based, they are generally characterised by non-face- to-face customer relationships;
- The potentially to support anonymous funding (cash funding or third-party funding through virtual exchanges if they do not properly identify the funding source); and
- The potential to support anonymous transfers, if sender and recipient are not adequately identified.
A number of National Risk Assessments have assessed the ML/TF risk of digital currencies as low to medium. This is primarily due to their lack of widespread use rather than inherent vulnerabilities.
Digital currencies present similar risks to other methods to store value and make payments, although the risks may present themselves differently.
Digital currency providers must ensure the organisation conducts a comprehensive ML/TF risk assessment to identify, assess, mitigate and manage ML/TF risk exposures as a critical first step in complying with AML/CFT laws.