On December 2, 2020, the Monetary Transactions and Studies Evaluation Centre of Canada (FINTRAC) revealed guidance on cash laundering (“ML”) and terrorist financing (“TF”) purple flag indicators for digital forex transactions. In Canada, companies dealing in digital forex are topic to the Proceeds of Crime (Cash Laundering) and Terrorist Financing Act (Canada). Reporting entities are required to have efficient inside techniques for figuring out, assessing and reporting suspicious transactions. These ML/TF purple flag indicators present helpful steering for companies dealing in digital forex to refine their anti-ML/TF compliance technique.
The purple flag indicators are comprised of factual traits, behaviors and patterns related to suspicious monetary transactions. FINTRAC developed the purple flag indicators based mostly on their evaluation of ML/TF circumstances, suspicious transaction stories (“STR”), enter from reporting entities and supplies revealed by worldwide organizations such because the Monetary Motion Job Drive (FATF). The steering from FINTRAC follows the current report on purple flag indicators related to digital property revealed by FATF, summarized here.
The purple flag indicators might be grouped into the next classes:
1. Crimson Flag Indicators Associated to the Transaction – Crimson flags related to conventional transactions additionally apply to digital forex transactions. For instance:
- Funds flowing by way of a lot of intermediate addresses in a really brief time frame previous to being deposited in a consumer’s pockets, or instantly after being withdrawn.
- A dealer charging abnormally excessive fee charges in comparison with trade requirements.
- A consumer’s digital forex pockets or deal with being linked to fraudulent exercise in media stories and/or cyber safety bulletins.
2. Crimson Flag Indicators Associated to Transaction Patters – ML/TF might be recognized by way of uncommon transaction patterns equivalent to:
- Excessive quantity and frequency of transfers between various kinds of digital currencies.
- A number of transactions going down on the similar time of day. Transfers from fiat to digital forex and digital forex to fiat.
3. Crimson Flag Indicators Associated to Anonymity – The character of digital forex permits for a stage of anonymity that makes it more durable to determine suspicious transactions. Further measures in digital forex transactions to hide the id of the events and the supply of funds generally is a purple flag:
- A consumer offering an nameless electronic mail deal with obtained by way of an encrypted electronic mail service.
- A consumer’s portfolio solely consisting of, or having a excessive worth of, privateness cash (for instance, Monero, Sprint, Zcash).
- A consumer transferring Bitcoin in massive volumes in change for privateness cash.
4. Crimson Flag Indicators Associated to the Sender or Recipients – The profile and habits of the sender or recipient can determine ML/TF:
- Digital forex addresses matching addresses on acknowledged watch lists equivalent to these maintained by the Workplace of International Property Management (OFAC) or different regulation enforcement.
- Many people registering with the change inside a brief interval utilizing a shared deal with, cell machine, telephone quantity, IP addresses and different widespread id indicators.
5. Crimson Flag Indicators Associated to the Supply of the Funds – There are a selection of indicators that recommend a legal group is utilizing digital forex to obscure the unique supply of funds, equivalent to:
- The builders are nameless or data supplied in regards to the preliminary coin providing can’t be verified.
- Digital forex passes by way of mixers/tumblers and is transferred to a number of wallets, the place the funds are cashed out.
- Shopper is unwilling or unable to supply details about the supply of privateness cash they as soon as held or presently have.
The complete checklist of digital forex ML/TF purple flag indicators might be discovered within the revealed steering. FINTRAC notes that in isolation, a single purple flag could not seem suspicious. Nonetheless, it could require organizations to conduct additional investigation. Organizations ought to use the purple flag indicators of their inside investigations together with different information and contextual circumstances to find out if there are cheap grounds to consider a transaction is related to ML/TF actions. If there are cheap grounds, a STR should be submitted to FINTRAC. The purple flags ought to then be used to explain the transaction within the narrative part of the STR. Moreover, throughout its evaluate of a STR, FINTRAC will assess how a corporation makes use of the purple flag indicators in its personal investigations.