The Effectiveness of Regulatory Regimes in Combating Virtual Currencies’ Money Laundering Activities


Thesis (M.A.), 2019

50 Pages, Grade: 68% (UK) 3.88 (USA)


Excerpt

Table of Contents

Abstract

Introduction

Chapter 1: An overview on Money Laundering and Virtual Currencies
Introduction
The definition of money laundering
The economic and social effects of money laundering
The use of virtual currencies in money laundering activities
The effect of virtual currencies on the financial system
Conclusion

Chapter 2: An Evaluation on the FATF
Introduction
An overview on the FATF
A critique on the FATF's regulatory approach
An evaluation on the FATF's enforcement mechanism
a) The process of black-listing
b) The effectiveness and the economic implications of black-listing
c) The limitations of black-listing
The FATF and the regulation of virtual currencies
An evaluation on the Virtual Assets and Virtual Asset Service Providers Guidance Paper
a) The limitations of the guidance paper
b) The advantages of the guidance paper
Conclusion

Chapter 3: An Evaluation on Different Regulatory Approaches
Introduction
The banning approach
a) An overview on the banning process
b) The effectiveness of the banning process
c) The implications of banning virtual currencies
The ‘wait and see' approach
An action-based regulatory approach
a) An evaluation on the EU's action-based regulatory approach
Conclusion

Chapter 4: Recommendations to Effectively Regulate Virtual Currencies
Introduction
The incorporation regulatory collaboration into the AML regime
a) The effectiveness of a hybrid regulatory approach
b) A solution to regulating decentralised virtual currencies
c) The effectiveness of regulatory sandboxes in enhancing the AML regime
The creation of national virtual currencies
The FATF's standards as the only viable AML regime for virtual currencies
Conclusion

Conclusion

Bibliography

Abstract

This paper will evaluate the effectiveness of different virtual currency regulatory approaches in combating money laundering activities. The objective behind this evaluation is to determine the most suitable AML regime for virtual currencies. The limitations of these approaches is used create an enhanced AML regime that eliminates these weaknesses. This paper has determined that the current risk of virtual currencies pose on financial markets require the implementation of a regulatory framework that will assist in mitigating them. It was also concluded that regulatory collaboration with virtual currency platforms will significantly enhance the AML regime. This collaboration will assist in regulating decentralised virtual currencies, which is the main challenge experienced by the existing regulations. In addition, the effectiveness of regulation is dependent on international harmonization. Only a uniform international AML regime will be successful in combating money laundering activities through virtual currencies.

Introduction

This dissertation will examine money laundering activities through virtual currencies. The development of technology in these past years has created a new financial medium known as the virtual currency market1. The use of virtual currencies has become wide-spread, due to the development of this financial market2. As a result, virtual currencies are in the process of becoming an international financial instrument that may hold significant economic value to the global financial market in the future. Regulations have only started responding to virtual currencies, due to their novelty. The instant growth of this financial instrument and its virtual element is bound to create unique regulatory challenges3. For this reason, this paper intends to study the different approaches regulating virtual currencies. These different regulatory approaches will be evaluated to ensure their effectiveness as Anti-Money Laundering (AML) regimes. Money laundering activities without the virtual element are already considered a global economic concern4. Virtual currencies have the ability of amplifying this issue, because they pose a serious threat to functioning of financial markets if they are employed in money laundering activities5. Jurisdictions only recently have comprehended the implications of this issue, which resulted in developing this new area of law that regulates virtual currencies. The emergence of virtual currency regulations provides a conducive field of study, that is relevant to the current changes undergoing the financial system.

The purpose of this paper is to evaluate the existing national and international regulatory approaches in detecting and preventing money laundering activities through virtual currencies. The objective of this evaluation is to determine if these current regulatory approaches require modifications to enhance their effectiveness. The evaluation of these different approaches will also be used to determine the most suitable regulatory approach for virtual currencies that acts as an effective AML regime. As stated previously, virtual currency regulation is a developing area of law. Hence, the majority of regulations discussed in this paper has not come into effect. As a result, the evaluation on the effectiveness of these regulations is only a projection based on academic sources. The recent reform on this area also means that there is a limited number of academics that evaluated these regulations.

The paper will start by providing background information on money laundering and virtual currencies. Even though money laundering and terrorist financing are two different financial crimes, they are usually regulated under the same regime. This is because they undergo the same investigative process for their risk assessment and management, so it is efficient to group them under the same regime6. However, this paper intends to solely focus on one financial crime which is money laundering. The first chapter will also explain the relationship between money laundering activities and virtual currencies. The economic effect of both these entities will also be studied in this chapter to determine if regulation is a necessity. The second chapter will be an evaluation on the Financial Action Task Force's (FATF) AML regime in relation to virtual currencies. This is the only international regulatory approach that will be addressed by this paper. This is due to the fact that the FATF is currently the only international body that created an AML regime specifically for virtual currencies. The third chapter will focus on the different regularity approaches implemented by individual jurisdictions in response to virtual currencies. These approaches will also be assessed to determine their effectiveness as AML regimes. The last chapter of this paper will provide recommendations that will enhance the effectiveness of virtual currencies regulatory approaches. This was achieved by identifying the weaknesses of the current regulatory approaches, then attempting to find solutions that will assist in eliminating these shortcomings. This comprehensive evaluation was produced by referring to regulations, academic writings, consultation papers and the publications of financial authorities.

Chapter 1: An overview on Money Laundering and Virtual Currencies

Introduction

This chapter aims to provide introductory information about money laundering activities through virtual currencies. First, the general process of money laundering will be explained in detail. After that the focus will move on to the financial and societal impact of money laundering activities. Then the chapter will exclusively address virtual currencies. The features of these virtual currencies are studied along with their association to money laundering. The purpose of this chapter is to determine if virtual currencies are an effective tool that is used to launder money. This is an important step, because a deeper understanding of this issue needs to be gained, before attempting to address it from a legal perspective.

The definition of money laundering

Money laundering is the process of making money that was generated from criminal activities to appear legitimate7. This process is described as laundering because the criminal origin of the money is basically cleaned. As a result, the proceeds would no longer be associated to the crime that generated it8. This process is complex and consists of three stages9. The initial stage to laundering money is called placement. In this stage, the illegal earnings are introduced into the financial system in a manner that would not give rise to detection. In the USA any deposit exceeding $10,000 must be reported as a 'significant cash transactions' to the authorities10. This shows that large transactions are investigated more thoroughly than smaller transactions. Hence, money in the placement stage is usually broken up then deposited in numerous bank accounts or used to buy financial instruments to avoid any detection11. The second stage is known as layering, this entails complex transactions that would further dissociate the money from its criminal source12. The aim of this stage is to provide anonymity. This is achieved by passing the money through multi-layers of financial transactions.

Money could be used in various investments or it could also be transferred to numerous banks based in different jurisdictions13. Launderers often choose jurisdictions that have lax AML regulation14. This shows that money laundering has a transnational effect. Consequently, this makes it an issue that effects the global financial system. The final stage to laundering money is integration. In this stage, the money can no longer be traced to its origin15. As a result, it is re-introduced to the financial system as legitimate money. The money is then used in various legitimate investments such as real estate or other business ventures16. In this stage it is difficult to distinguish between the legitimate and illegitimate proceeds as they are completely integrated.

The economic and social effects of money laundering

Money laundering is a financial crime so it will consequently have a negative impact on the financial market and its participants. One of the main objectives of financial systems is to preserve the integrity of the market17. Money laundering has the ability to undermine the efficiency of financial markets, therefore affecting its integrity. For example, money laundering can disturb the allocation of money in the financial system18. The previous section has shown that this crime introduces illegitimate money into the market. The integration of laundered money will subsequently affect the accuracy of economic statistics19. Furthermore, money laundering can also disturb the pricing system of financial markets20. Businesses used in money laundering activities such as shell companies have different priorities than legitimate businesses21. Their aim is not to generate profit from their legitimate transactions, because their profits are subsidised from the proceeds of criminal activities22. As a result, these businesses have the ability to lower their prices, this means that there will be no fair competition in the market23. Consequently, money laundering has the indirect effect of bankrupting legitimate businesses24. Furthermore, financial markets that are associated with money laundering activities will likely discourage investors25. It is challenging to overcome a tarnished reputation in the global financial market. For example, international investors are often reluctant to deal with Russian businesses, because they associate all entities operating in that region with organised crime and money laundering activities26. This negative reputation will not just affect private businesses, but also the interest and currency exchange rates of the financial market27. All these factors will diminish the financial market's economic development28.

Financial institutions can also be negatively affected by money laundering activities. A banking system that is heavily infiltrated by organised crime may experience liquidity issues29. Large sums may disappear or appear without notice, due to their criminal origin30. Money laundering enables criminals to have to financial assets. If these assets have significant monetary value, then these transactions have the ability to impact the jurisdiction's economy31. These repercussions illustrate that money laundering distorts the effectiveness of the whole financial system. It should be noted that money laundering also affects the global financial market. Financial markets around the world interconnected due to globalisation32. The fact that the financial crises of 2008 has affected financial markets in different states is evidence if the interlinked relationship between these markets. Consequently, the global exchange rate and capital flow will be distorted by money laundering activities33. Moreover, these activities will also affect the functioning of society, because money laundering proceeds stem from organised crimes such as drug trafficking34. Ineffective AML regimes will encourage criminals to generate more profit, which will result an increase of criminal activity35. The damaging effects of this financial crime on individuals, societies and economies demonstrate that effective international and national AML regulations are an absolute necessity36.

The use of virtual currencies in money laundering activities

It should be noted that there is no fixed method to launder money. Money laundering is a crime that relies on the non-detection of financial authorities across the globe. The nature of money laundering as a crime makes is difficult to evaluate the extent of this problem37 38. The most recent evaluation on the extent of global money laundering was conducted in 2009 by the United Nations Office on Drugs and Crime (UNODC) which reported that approximately 1.6 trillion US Dollars were globally laundered 38. This estimate shows that a significant portion of the money in the financial market is not legitimate.

Furthermore, criminals are constantly discovering new channels to launder their proceeds, this further complicates the detection of this crime39. These new channels are often unregulated due to their novel nature40. Consequently, criminals will exploit any loopholes in the regulatory system. It is believed that virtual currencies which are also known as digital or cryptocurrencies are one of these relatively new channels. In 2014, an FBI investigation found that the administrator of the Silk Road website was engaged in money laundering activities through Bitcoins41. The amount of money laundered was around 4 million US Dollars42. Even though the Silk Road was dismantled by the authorities, other websites on the dark web similar to this black market have appeared and are using Bitcoins as their currency43. This is real-world evidence that confirms that money laundering activities are occurring in virtual environments.

Cryptocurrencies differ from fiat currencies because they are not issued by a public or governmental authority.44 Virtual currencies come in different formats they can be centralised or decentralised45. Centralised virtual currencies are controlled by a central authority or organisation that would facilitate the transactions between different parties46, an example would be the Linden Dollar. While decentralised virtual currencies such as the Bitcoins do not have a centralised organisation, server, or website47. This means that transactions do not pass through any central virtual entity. It could be described as a self-operating software48. In addition, Bitcoin transactions are known to have a degree of anonymity. The Bitcoin software contains a ledger that records all the transaction by referencing the Bitcoin's address49. However, there is no information about the parties that participated in that transaction50. Consequently, this encouraged criminals to use Bitcoins as a money laundering method, because it allows individuals to hold numerous accounts without any detection51. Furthermore, the conversion from fiat currency to Bitcoins and vice versa is instantaneous, users are only required to download the Bitcoin software52. This shows that Bitcoins can be used in the initial stage of money laundry. It could also be used for layering because Bitcoins can continuously be moved between different accounts till it becomes difficult to link it to its criminal origin. It is important to note Bitcoins and other virtual currencies are not bound by logistical and geographical limitations such as fiat currencies53. As stated previously the majority of money laundering activities depend on having a transnational nature in order to further obscure the money trail. Virtual currencies undisputedly provide this required feature. In fact, an empirical study that aimed to assess the risk of money laundering in virtual environments concluded that money laundering activities conducted through virtual currencies have a significantly lower chance of detection54. This is due to the fact that the virtual environment eliminates some of the risks associated with laundering physical money. A primary example is that cryptocurrency transactions are not scrutinised by regulatory authorities in the same manner as fiat currency55. It is suitable to state that money laundering in virtual environments further complicates the detection of this already undetectable crime.

The effect of virtual currencies on the financial system

It could be argued that virtual currencies can only minimally affect the financial market because it is still a niche market56. This is because the majority of places of business do not accept virtual currencies as a method of payment57. The reluctance of private business to accept virtual currencies is likely due to the association of these virtual payments with illegitimate markets such as the Silk Road58. This could indicate that money laundering through virtual environment is not a serious threat to the financial market and its participants, due to this isolation. However, Bitcoins have integrated with the fiat currency without the acceptance of most private businesses. As stated previously, virtual currencies can be exchanged with fiat currency very easily59. This currency exchange builds a relationship between virtual currencies and fiat currencies. As a result, money laundering activities in virtual environments would eventually disturb the financial market. In addition, the same externalities that would affect stock market prices also affect the value of Bitcoins60. The fact that Bitcoin prices can fluctuate due to inflation, economic development and oil prices proves that there is a link between virtual currencies and the financial market61. Furthermore, the USA's Bitcoin transactions and market capitalisation have exceeded 5 Billion US dollars in 201562. Statistic has also shown that the number of venues accepting Bitcoins has been annually increasing63. All these factors illustrate that virtual currencies are in the process of becoming a recognised financial instrument, which makes it an integral part of the global financial system. This means that it is critical to address their involvement in money laundering activities, before organised crime completely infiltrates the virtual currency market.

Conclusion

Overall, this chapter has illustrated the complexity of money laundering as a financial crime. The money laundering process consists of three stages that aim to obscure the money trail of the criminal proceeds. Subsequently, this makes it challenging for financial authorities to detect money laundering activities. This chapter has also explained the detrimental effect money laundering has on the financial system and society. This signifies the importance of effective regulation in combating money laundering activities. Finally, the relationship between money laundering activities and cryptocurrencies is studied. This chapter has concluded that virtual currencies are one of the mediums used by organised crime to launder their criminal proceeds. The features of virtual currencies have the ability to further complicate the detection of money laundering activities. Furthermore, virtual currencies have to potential of becoming a prevalent international financial instrument, this shows that this issue can negatively impact the global economy. Therefore, it is critical to effectively regulate cryptocurrencies in order to avoid the economic damage that would flow from them being used as a channel for money laundering activities. The subsequent chapters will focus on the international and national approaches used to regulate money laundering through virtual currencies.

Chapter 2: An Evaluation on the FATF

Introduction

This chapter will study the international standards that regulate money laundering activities. The focus will be on the FATF's regulation, because this organisation's primary function is to combat money laundering activities in a global level. The purpose of this chapter is to evaluate the effectiveness of the FATF's approach in relation to money laundering through virtual currencies. This chapter will start by providing an introduction on the FATF. The methods of operations used by the FATF will also be explained in this section. Then the focus will move onto critiquing the FATF's risk-based approach. The advantages and limitations of this approach will be studied in order to evaluate the overall effectiveness of the FATF. Then the black-listing process is explained and assessed. It is important to study the general elements of the FATF's operation before moving onto the focus of this paper, which is virtual currencies. The FATF's view on virtual currencies will be explained as well the guidance papers regulating this area of law. Lastly, the recently passed guidance paper on the regulation of virtual assets will be dissected in detail in order to showcase the positive and negative aspects of the new standards.

An overview on the FATF

The FATF is an intergovernmental organisation that combats money laundering activities and terrorist financing by promoting an international AML regime64. The FATF consists of 37 member states, however there are nine intergovernmental bodies that replicate the FATF's regime65. They ensure that the standards set by the FATF are enforced in regions such as the Middle East and Western Africa66. Consequently, there are more than 180 jurisdictions that adhere to these international standards67. This shows this organisation has a strong influence on the national AML regimes across the globe. The FATF operates by publishing guidelines that all states should enforce in order to obtain a strong AML regime68. The official guidelines are known as the FATF 40 Recommendations. The recommendations operate by setting out objectives. For example, the 9th recommendation states that “countries should ensure that financial institution secrecy laws do not inhibit implementation of the FATF Recommendations”69. This means that member states must draft regulations that can successfully meet this outcome. These recommendations are periodically revised to enhance their effectiveness in combating money laundering activities70. It is also amended to ensure that the AML regime is compatible to any trends or technological developments related to money laundering activities71. The overall aim of these recommendations is to have stable and transparent financial markets, because the FATF believes that these features are integral to obtain an effective AML regime72. The international standards set by the recommendations are not legally binding73. However, the FATF has mechanisms that ensure the compliance of all jurisdictions. The FATF individually assesses the national regulation of each member state, this process is called mutual evaluations74. After the evaluation process, the countries must submit progress reports to the organisation to ensure that inadequacies found in their regulation are being amended75.This shows that member states are continuously monitored by the FATF. When member states continuously fail to adhere to the standards, they are labeled as non-cooperative countries or territories76. In other words, they are black-listed which means that they are globally known as regions with poorly regulated money laundering activities.

A critique on the FATF's regulatory approach

The FATF requires countries to adopt a risk-based regulatory approach77. This means that member states should understand and asses the money laundering activities occurring within their jurisdiction78. They should also implement tailored mechanisms that still comply with the FATF's standards in order to mitigate any risk. Countries that identify a high risk of money laundering activities should allocate more resources and prioritise the importance of creating a regime that will lower this risk79. This shows that each country's response must be proportionate to the risk within its territory. There are many advantages to adopting a risk-based approach. This approach allows countries with low risk levels not to over regulate which will reduce the excessive compliance costs80. Furthermore, a risk-based approach would reduce the high capacity of currency transaction reports and suspicious activity reports81. This will in turn increase the investigative capacity of the relevant financial authority82, as a result a more pragmatic system is implemented. As stated in the previous chapter, money launderers often look for loopholes in the regulatory system that would allow their activities to remain undetected. This approach will decrease the risk of any gaps in the regulatory system, because a risk-based approach calls for a constant assessment on the financial system83.

The FATF also requires bodies other than financial institutions such as designated non-financial businesses and professional bodies (DNFBPs) to be proactive in relation to the mitigation of risks84. This approach allows to take into account the views of market participants that have different economic backgrounds85. The exposure to experienced professionals will only assist in enhancing the effectiveness of the AML regime. Despite its benefits a risk-based approach may cause uncertainty. There is a level of vagueness on how the risks should be defined and the methods used to assess these risks and respond to them86. In addition, this whole approach will fail if member states prove to be ineffective in detecting money laundry activities or risks. However, the benefits provided by this approach outweigh this potential risk. Money laundering is a crime that is constantly changing, so it requires a flexible approach that will swiftly detect and adapt to any developments.

An evaluation on the FATF's enforcement mechanism

a) The process of black-listing

The FATF's general mechanism of compliance must also be studied before addressing the effectiveness of the AML regime in relation to virtual currencies. This is because compliance by all member states is an essential tool to combat money laundering activities in a global level. The FATF's enforcement mechanism is based on member states' fear of being labelled as high-risk countries. All countries periodically undergo a review process in order to ensure that their regulation does not pose a risk on the global AML regime87. Countries may also be reviewed if they are not a member of the FATF or its regional bodies88. Cooperative Countries may still be reviewed, because the results of their evaluation have shown that they have a weak AML regime89. Furthermore, states can also be nominated for the review process if there are specific money laundering and terrorist financing threats brought to the attention of the FATF90. After being reviewed member states are usually allowed a 12­month period to work with the FATF in order to address the deficiencies of their regulatory system91. If countries fail to adhere to the FATF's acceptable standards after this period passes, then they are placed on the list92.

b) The effectiveness and the economic implications of black-listing

Being labelled as a high-risk country comes with detrimental economic implications, which makes this process a very effective compliance mechanism. In 2001,23 countries were placed in the black-list93.

After a period of 3 years all the countries were removed from the list, except for Burma and Nigeria94. The list also had the indirect effect of encouraging other jurisdictions modify any deficiencies in their AML regime, that may initiate the review process95. This is evidenced by the fact that only Iran and North Korea are currently on the list96. This shows that list can also act as an effective AML preventive measure. The member states apprehension to being placed on the black-list is very legitimate. Currently, Pakistan is one of many countries that are undergoing the review process97. The Pakistani government fears that being black-listed will stunt its financial market's economic growth. It is predicted that Pakistan's remittance flow will be primarily affected by the potential black-listing. There is approximately more than 1 billion US Dollars flowing into Pakistan's economy, due to the large labour force residing oversees98. This means that this is a significant revenue to the country's economy. The black-listing will have the effect of limiting the money transfer channels99. This will not only affect the economy, but also the citizens of Pakistan. Furthermore, a black-listed country does not have the support of international organisations such as the International Monetary fund (IMF). The IMF as well as other international organisations have an observer status in the FATF100. This means that other than their primary functions, these organisations also work to promote effective AML regimes. This indicates that these international organisations fully support the FATF decisions. In fact, Pakistan is currently negotiating with the IMF for an interim lending arrangement101. It is predicted that FATF's review will be used against Pakistan in the negotiation process. The arrangement might be rejected or stringent conditions to the lending agreement may be enforced102. There are other economic implications of being black-listed such as inflation and global reputational damage that will disturb all international business ventures103. The consequential effects of back-listing show that jurisdictions have no choice but to adhere to the FATF's standards, regardless of the fact that it has no legally binding authority.

c) The limitations of black-listing

Even though black-listing is an effective enforcement method it still has its shortcomings. The results of an imperial study on black-listed countries has determined that countries with the highest GDP per capita and large financial service sectors responded the quickest to being black-listed104. In 2002, 15 countries were placed on the black-list; 5 countries were removed from the list within a period of 12 months105. Coincidentally, these 5 countries have the highest GDP per capita on the list. Meanwhile, the developing countries were black-listed for a period exceeding 3 years106. This can also be evidenced by the fact that in 2019 there are 12 countries undergoing the review process, and they are all developing countries107. Another study has shown that the majority of black-listed countries attempt to pass regulations that are in compliance to FATF's standards108. However, the implementation of these regulations fails to achieve the desired outcome, so member states obtain poor results in their mutual evaluation109. This can be attributed to the complexity of FATF standards and the limited resources of these countries that prevent them from assimilating to these standards110. In addition, the FATF's standards implementation process requires an established regulatory framework, which these countries do not possess111. The FATF should take into account the regulatory capabilities of these countries when drafting international standards112. Additional technical assistance113 and longer implementation time periods114 should also be provided to developing countries.

However, the current regime chooses to black-list these countries even though these factors are the reason they fail to meet these standards. As stated previously black-listing will ostracise countries from the international financial market. If countries remain on the black-list the likelihood of an increase in corruption and poverty is high. It is improbable that countries in that state will be capable of passing an effective regimes, that will remove them from the back-list. In this situation, it could be stated that black-listing process has amplified the issue instead of fixing it.

The FATF and the regulation of virtual currencies

As established previously, money laundering is a crime that often relies on technological developments in order to remain undetected by financial authorities. Due to this reason, the FATF believes that understanding and accepting new technological development is an essential tool in implementing an effective global AML regime115. The importance of accepting technological development is verified by its inclusion in Recommendation 15. Cryptocurrencies are considered by the FATF as a new technology known as virtual assets. These are defined as “digital representations of value that can be digitally traded, or transferred, and can be used for payment or investment purposes.”116. In the past few years, the FATF has published guidance papers that are solely focused on an AML regime for virtual assets.

The guidance papers drafted by the FATF regarding virtual assets states that all member states should adopt a risk-based approach117. This means each member state must understand the virtual currency activities and transactions occurring within its jurisdiction. In order to mitigate any risk in relation to money laundering. The FATF believes that this will be achieved by setting out regulatory standards. As a result, all virtual assets service providers (VASP) should be registered or obtain license that is provided the country's financial regulatory authority118. VASPs are defined by the FATF as businesses, legal or natural persons that conduct transactions or operations associated with virtual assets119. These activities may consist of the exchange between fiat currency and virtual currency, the exchange or transfer between different forms of virtual assets, the administration and record keeping of virtual assets120. It also includes all other service transactions associated with virtual currencies121. Furthermore, each member state's regulation should restrict individuals that are associated with criminal activities from dealing with virtual currencies by rejecting their registration122. Countries must also impose punitive sanctions on unregistered individuals and platforms dealing with virtual currencies123. This means that the VASPs will be continuously monitored by relevant financial authorities. The guidance paper also stresses the importance of tasking competent public authorities that have powers delegated by the state to supervise and ensure compliance124. Virtual asset transactions will also be treated with the same scrutiny as fiat currency transactions. The details of customers involved in transactions that exceed 1000 US Dollars should be verified and recorded, because it is considered a large transaction in terms of virtual currency125. Lastly, the standards encourage global cooperation between member states regarding the exchange of information, in order to mitigate any global risks in a swift manner126. It should be noted that these rules are issued in the interpretive note to Recommendation 15. This interpretive note is parallel to the Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers Guidance Paper, which was passed in June 2019127.

[...]


1 Saleh Alghamdi and Natalia Beloff, 'Virtual currency concept its implementation, impacts and legislation' [2015] Science and Information Conference 175

2 Ibid

3 Ibid

4 Peter Alldridge, Money Laundering Law (1st edn, Hart Publishing 2003) 31

5 Lars Haffke and others, 'Virtual currencies and anti-money laundering: The shortcomings of the 5th AML Directive (EU) and how to address them' [2019] Journal of Banking Regulation 2

6 FATF, 'Money Laundering & Terrorist Financing Risk Assessment Strategies' (FATF, n.d) <https://www.fatf- gafi.org/publications/methodsandtrends/documents/moneylaunderingterroristfinancingriskassessment strategies.html> accessed 10 September 2019

7 FATF, 'What is Money Laundering?' (FATF, n.d) <https://www.fatf-gafi.org/faq/moneylaundering/> accessed 15 July 2019

8 Duncan Alford, 'Anti-money laundering regulations: a burden on financial institutions' [1994] 19(3) North Carolina Journal of International Law and Commercial Regulation 439

9 Financial action task force, 'What is money laundering?' (FATF, n.d) <https://www.fatf- gafi.org/faq/moneylaundering/> accessed 15 July 2019

10 Electronic Code of Federal Regulations 1938 (revised 2019), § 1010.311; Duncan Alford, 'Anti­money laundering regulations: a burden on financial institutions' [1994] 19(3) North Carolina Journal of International Law and Commercial Regulation 439

11 Friedrich Schneider and Ursula Windischbaue, 'Money laundering: Some facts ' [2008] 26(3) European Journal of Law and Economics 393

12 Ibid p.395

13 Financial action task force, 'What is money laundering?' (FATF, n.d) <https://www.fatf- gafi.org/faq/moneylaundering/> accessed 15 July 2019

14 Ibid

15 Ibid

16 Friedrich Schneider and Ursula Windischbaue, 'Money laundering: Some facts ' [2008] 26(3) European Journal of Law and Economics 395

17 John McDowell and Gary Novis, 'The Consequences Of Money Laundering And Financial Crime' [2001] 6(2) The Economic Perspective 6

18 Peter Alldridge, Money Laundering Law (1st edn, Hart Publishing 2003) 32

19 Ibid

20 John McDowell and Gary Novis, 'The Consequences Of Money Laundering And Financial Crime' [2001] 6(2) The Economic Perspective 7

21 Ibid

22 Peter Alldridge, Money Laundering Law (1st edn, Hart Publishing 2003) 34

23 John McDowell and Gary Novis, 'The Consequences Of Money Laundering And Financial Crime' [2001] 6(2) The Economic Perspective 7

24 Peter Alldridge, Money Laundering Law (1st edn, Hart Publishing 2003) 34

25 John McDowell and Gary Novis, 'The consequences of money laundering and financial crime' [2001] 6(2) The Economic Perspective 8

26 Peter Alldridge, Money Laundering Law (1st edn, Hart Publishing 2003) 39

27 John McDowell and Gary Novis, 'The consequences of money laundering and financial crime' [2001] 6(2) The Economic Perspective 8

28 Ibid

29 Ibid p.7

30 Ibid p.7

31 Peter Alldridge, Money Laundering Law (1st edn, Hart Publishing 2003) 32

32 René Stulz, 'The limits of financial globalization' [2005] 60(4) The Journal of Finance 1595

33 John McDowell and Gary Novis, 'The Consequences Of Money Laundering And Financial Crime' [2001] 6(2) The Economic Perspective 8

34 FATF, 'What is Money Laundering?' (FATF, n.d) <https://www.fatf-gafi.org/faq/moneylaundering/> accessed 15 July 2019

35 Ibid

36 Peter Alldridge, Money Laundering Law (1st edn, Hart Publishing 2003) 29

37 Financial action task force, 'What is money laundering?' (FATF, n.d) <https://www.fatf- gafi.org/faq/moneylaundering/> accessed 15 July 2019

38 Ibid

39 Catherine Christopher, ‘Whack-a-mole: Why prosecuting digital currency exchanges won't stop online money laundering' [2014] 18(1) Lewis and Clarke Law Review 10

40 Ibid

41 Andy Greenberg, 'End of the Silk Road: FBI says it's busted the web's biggest anonymous drug black mark' (Forbes, 2 October 2013)<https://www.forbes.com/sites/andygreenberg/2013/10/02/end- of-the-silk-road-fbi-busts-the-webs-biggest-anonymous-drug-black-market/#9c63dcf5b4f9> accessed 15 July 2019

42 Ibid

43 Jonathan Lane, 'Bitcoin, silk road, and the need for a new approach to virtual currency regulation' [2014] 8(4) Charleston Law Review 511-556

44 Danton Bryans, 'Bitcoin and money laundering: mining for an effective solution' [2014] 89(1) Indiana Law Journal 443

45 Ibid

46 Ibid

47 Ibid p.444

48 Catherine Christopher, ‘Whack-a-mole: Why prosecuting digital currency exchanges won't stop online money laundering' [2014] 18(1) Lewis and Clarke Law Review 11

49 Ibid p.14

50 Ibid p.14

51 Ibid p.20

52 Danton Bryans, 'Bitcoin and money laundering: mining for an effective solution' [2014] 89(1) Indiana Law Journal 447

53 Catherine Christopher, ‘Whack-a-mole: Why prosecuting digital currency exchanges won't stop online money laundering' [2014] 18(1) Lewis and Clarke Law Review 20

54 Angela Irwin and others, 'Money laundering and terrorism financing in virtual environments: a feasibility study' [2014] 17(1) Journal of Money Laundering Control 70

55 Ibid

56 Catherine Christopher, ‘Whack-a-mole: Why prosecuting digital currency exchanges won't stop online money laundering' [2014] 18(1) Lewis and Clarke Law Review 22

57 Ibid

58 Ibid

59 Danton Bryans, 'Bitcoin and money laundering: mining for an effective solution' [2014] 89(1) Indiana Law Journal 447

60 Pavel Ciaian and others, 'The digital agenda of virtual currencies: can Bitcoin become a global currency?' [2016] 14(4) Information Systems and e-Business Management 898

61 Ibid

62 Ibid p.884

63 Ibid p.884

64 Ben Hayes, 'Counter-terrorism, "policy laundering," and the FATF: Legalizing surveillance, regulating civil society' [2012] 14(2) The International Journal of Not-for-Profit Law 11

65 FATF, 'FATF Members and Observers' (FATF, n.d) <https://www.fatf- gafi.org/about/membersandobservers/> accessed 10 August 2019

66 Ibid

67 Ben Hayes, 'Counter-terrorism, "policy laundering," and the FATF: Legalizing surveillance, regulating civil society' [2012] 14(2) The International Journal of Not-for-Profit Law 13

68 Ibid

69 FATF (2012-2019), International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation, FATF, Paris p.12

70 Ben Hayes, 'Counter-terrorism, "policy laundering," and the FATF: Legalizing surveillance, regulating civil society' [2012] 14(2) The International Journal of Not-for-Profit Law 13

71 Ibid

72 Ross Leckow, 'Virtual currencies: The regulatory challenges' [2016] 109(1) Legal developments in the ESCB central banking functions 141

73 Ben Hayes, 'Counter-terrorism, "policy laundering," and the FATF: Legalizing surveillance, regulating civil society' [2012] 14(2) The International Journal of Not-for-Profit Law 16

74 Ibid p.17

75 Ibid p.17

76 Ibid p.16

77 FATF (2012-2019), International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation, FATF, Paris p.9

78 Ibid

79 Ibid

80 Stuart Ross and Michelle Hannan, 'Money laundering regulation and risk-based decision-making' [2007] 10(1) Journal of Money Laundering Control 107

81 Ibid

82 Ibid

83 Ibid p.108

84 FATF (2012-2019), International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation, FATF, Paris p.9

85 Stuart Ross and Michelle Hannan, 'Money laundering regulation and risk-based decision-making' [2007] 10(1) Journal of Money Laundering Control 108

86 Ibid p.106

87 FATF, 'Review Process' (FATF, n.d) <http://www.fatf-gafi.org/countries/#high-risk> accessed 13 August 2019

88 Ibid

89 Ibid

90 Ibid

91 Ibid

92 Ibid

93 Ben Hayes, 'Counter-terrorism, "policy laundering," and the FATF: Legalizing surveillance, regulating civil society' [2012] 14(2) The International Journal of Not-for-Profit Law 17

94 Ibid

95 Ibid p.16

96 FATF, 'High-risk and Other Monitored Jurisdictions' (FATF, n.d) <http://www.fatf- gafi.org/countries/#high-risk> accessed 13 August 2019

97 Ibid

98 Usman Chohan, 'The FATF in the global financial architecture: Challenges and implications' [2019] 1(1) Centre for Aerospace & Security Studies 12

99 Ibid p.13

100 FATF, 'FATF Members and Observers' (FATF, n.d) <https://www.fatf- gafi.org/about/membersandobservers/> accessed 10 August 2019

101 Usman Chohan, 'The FATF in the global financial architecture: Challenges and implications' [2019] 1(1) Centre for Aerospace & Security Studies 13

102 Ibid

103 Ibid p.12

104 Jackie Johnson, 'Repairing legitimacy after blacklisting by the Financial Action Task Force' [2004] 7(1) Journal of Money Laundering Control 43

105 Ibid

106 Ibid

107 FATF, 'High-risk and Other Monitored Jurisdictions' (FATF, n.d) <http://www.fatf- gafi.org/countries/#high-risk> accessed 13 August 2019

108 Omar Normah and Zulaikha Johari, 'An international analysis of FATF recommendations and compliance by DNFBPS' [2015] 28(1) Procedia Economics and Finance 22

109 Ibid

110 Neil Jensen and Cheong-AnnPng, 'Implementation of the FATF 40+9 Recommendations: A perspective from developing countries' [2011] 14(2) Journal of Money Laundering Control 114

111 Ibid p.115

112 Ibid p.115

113 Ibid p.114

114 Ibid p.117

115 FATF (2012-2019), International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation, FATF, Paris 15

116 Ibid p.126

117 FATF (2019), Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers, FATF, Paris 19; FATF (2015), Guidance for a Risk-Based Approach to Virtual Currencies, FATF, Paris 3

118 FATF (2012-2019), International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation, FATF, Paris 70

119 Ibid p.126

120 Ibid p.126

121 Ibid p.126

122 Ibid p.70

123 Ibid p.70

124 Ibid p.70

125 Ibid p.71

126 Ibid p.71

127 FATF, 'Public Statement on Virtual Assets and Related Providers' (FATF, 21 June 2019) <http://www.fatf-gafi.org/publications/fatfrecommendations/documents/public-statement-virtual- assets.html> accessed 10 August 2019

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Details

Title
The Effectiveness of Regulatory Regimes in Combating Virtual Currencies’ Money Laundering Activities
College
Northumbria University  (Northumbria University Law school)
Course
International Trade Laws Masters
Grade
68% (UK) 3.88 (USA)
Author
Year
2019
Pages
50
Catalog Number
V508693
ISBN (eBook)
9783346086747
ISBN (Book)
9783346086754
Language
English
Tags
virtual currencies, FATF, Money Laundering, International, Bitcoins, Crypto-currencies
Quote paper
Sara Aljufaili (Author), 2019, The Effectiveness of Regulatory Regimes in Combating Virtual Currencies’ Money Laundering Activities, Munich, GRIN Verlag, https://www.grin.com/document/508693

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