MONEYVAL’s Report on Money Laundering and Terrorist Financing Risks in Digital Assets

The advent of virtual assets has brought forth considerable challenges to the financial and regulatory landscape. A pivotal analysis conducted by MONEYVAL, the Council of Europe’s anti-money laundering body, reveals that its member nations grapple with the complexity of these challenges. As indicated by the report, approximately 80% of assessed members are only partially or not compliant with the Financial Action Task Force (FATF) Recommendation 15. This recommendation is an international standard designed to counter money laundering and terrorist financing, specifically in the Virtual Asset Service Providers (VASPs) sector.

Simultaneously, Coinfirm’s latest VASPs analysis provides a unique perspective on how MONEYVAL member jurisdictions are adapting to this new digital world. Among the MONEYVAL members, Estonia and Lithuania significantly stand out in terms of VASP registrations.

Estonia, a member of MONEYVAL, leads the global pack with an 11.4% share in VASP registrations, according to Coinfirm, whereas Lithuania holds a 7.2% share. This notable presence in the VASP industry indicates a robust digital asset sector in these countries and could potentially reflect their strides in implementing effective regulations, thereby shaping the trajectory of the digital asset industry globally.

However, the MONEYVAL report starkly uncovers the reality that a majority of its members are still struggling to fully implement the FATF Recommendation 15. The challenges primarily revolve around accurately determining the materiality of the VASP sector and the effective implementation of licensing, registration, and regulation.

The Coinfirm analysis also reveals a potentially troubling misinterpretation within the VASP landscape – less reputable firms often use VASP registration as a stamp of legitimacy, misleading customers who rarely understand the distinction between registration and actual regulation. This calls for stringent oversight and comprehensive public communication in managing the industry.

Detecting unlicensed/unregistered VASPs has also surfaced as a key concern in the MONEYVAL report, implying an underlying gap in the system that could be capitalized on by malevolent actors. Moreover, the oversight of cross-border transactions remains a complex issue, indicating a profound need for bolstered international collaboration and data sharing.

The MONEYVAL report also draws attention to the underwhelming number of suspicious transaction reports (STRs) received from VASPs. This finding underscores the importance of stringent regulation and supervision in heightening STR reporting awareness and volumes.

Technological tools for blockchain investigations play a crucial role in risk identification and assessment, with more advanced jurisdictions employing blockchain risk evaluation tools. However, the MONEYVAL report emphasizes that reliance on these tools should not replace human analysis and expertise. The sophistication of these tools is even more critical when considering the prevalence of fraud and child sexual exploitation as underlying offences identified by VASPs.

In conclusion, understanding the interplay between regulatory landscapes and VASP registrations is essential to decipher the intricacies of the digital asset sector. The insights from both the MONEYVAL report and Coinfirm’s analysis offer invaluable direction for jurisdictions, emphasizing the need for robust regulation, increased public education, and continual development of technological tools and expertise. As the sector continues to evolve, continuous dialogue and collaboration between the industry, regulators, and law enforcement agencies will be instrumental in fostering a sustainable and secure future for virtual assets.