The head of the Financial Action Task Force (FATF), T Raja Kumar, said G7 countries should take a more proactive approach to regulating the “legal crypto space” as it continues to allow illegal financial transactions around the world .
Kumar made the comments in a letter published ahead of the 2023 G7 summit in Hiroshima, scheduled for May 19, where the group will discuss several agenda items for the year, including the regulation of cryptocurrencies and the overall industry.
Illegal digital cash flows
The FATF chief said the watchdog is working on “multiple fronts” to help countries fight “digital financial flows” that “fuel crime and terrorism”.
However, stamping out these flows will require “coordinated global action” to ensure that no “safe haven” can exist in the world’s financial system for such transactions, Kumar said.
The FATF has updated its Recommendations – the global anti-money laundering, counter-terrorist financing and proliferation financing standards – to cover crypto-assets and related financial activities.
However, Kumar said countries have made “relatively poor” progress in implementing these new standards as part of the recommendations.
As of 2019, the regulator suspected that only 27% of countries were compliant with the updated standards that include crypto, while the remaining 73% majority are fully or partially non-compliant and have yet to begin overseeing the crypto industry.
Kumar added that the non-compliant 73% includes some G20 countries. He wrote:
“This unacceptable situation needs to be addressed urgently.”
The FATF chief said many countries lack the experience of tackling illicit money flows as they go digital and the watchdog plans to roll out a new program – which will include the so-called “travel rule” – to help them to adjust.
The travel rule will require virtual asset service providers, such as exchanges, to pass information to each other – and regulators – for crypto transactions that exceed a certain threshold.
Updated recommendations
Kumar said the FATF recommends that countries immediately start working on two areas to ensure that cryptocurrencies cannot be used for illicit financial transactions.
The first area is ensuring transparency of beneficial ownership, which is “critical in the fight against money laundering, corruption, tax evasion and sanctions evasion”.
Kumar said criminals are taking advantage of the lack of transparency in property laws to hide their financial activities through complex corporate structures and countries should implement FATF’s updated recommendations to close these loopholes.
The second area countries should focus on is collecting the proceeds of crime. Kumar wrote that asset recovery helps build confidence in law enforcement because it directly helps victims and is an “effective” method of stopping economic crimes. However, countries have barely done any work on asset recovery and only a small fraction of global illicit money flows are ever recovered.
