With rare exceptions, OTC vendors of cyber currency are performing zero effective compliance on their new customers; they are actually using Google to vet new clients, and calling this act due diligence is not only gross negligence, it is a recipe for disaster. It is widely known that organised crime, especially drug trafficking networks, are involved in moving the proceeds of crime through crypto, with impunity, given the ongoing American regulatory dispute over precisely which agency has jurisdiction, what controls should be implemented.
A routine due diligence check of a new six-figure client by an outside compliance officer confirmed the sad situation. The individual was identified as a narcotics trafficker based in Malta, and who was on the OFAC list. it gets worse; we have previously detailed how a Specially Designated Global Terrorist organisation, HAMAS, not only openly advertised that they wanted financing through crypto, they actually published the pipeline supporters could use to funnel wealth to them. We are aware that one of the jurisdictions where such funding is in progress today is Malta. See As Cryptocurrency Flows to HAMAS increase, how much is Coming from Malta? (July 2, 2021).
Until and unless there are actual mandatory due diligence regulations, on the same level as banking best practises, this loophole for money laundering, and transnational delivery of criminal profits will continue unabated. Cybersales companies need a designated compliance officer performing his duties, with a written compliance manual, a training regime for frontline sales staff, and a periodic audit of the aerogramme, to confirm that it is truly being followed. Anything less means that the laundrymen will still be able to avail themselves of this opportunity to move dirty money without any controls.
Contributed by Kenneth Rijock - Financial Crime Consultant
Chronicles of Monte Friesner - Financial Compliance Analyst