Spotlight on the role of unlicensed cryptoasset exchanges in money laundering

Unlicensed exchanges operate outside regulatory frameworks meaning criminals may have the ability to exchange their cryptoasset for fiat and other cryptoassets whilst concealing their identity. The FIU report also sets out the fact that these unlicensed cryptoasset exchanges fit the profile of professional money launderers.

Cryptoassets are often not issued by a central authority meaning they can be decentralised. They are also pseudonymous, which means that the identity of the owner is not tied to the cryptoassets and whilst they can be traced to a particular private address, this address may not be linked to an identifiable individual. Additionally, some cryptoassets are characterised by their enhanced privacy features, for example, certain privacy coins like Zcash use advanced cryptographic techniques to obscure transaction details which makes it difficult to trace the flow of funds.

Cryptoassets can be transferred cross-border without regulatory oversight via the use of unlicensed cryptoasset exchanges who, by definition, are not supervised by relevant regulatory bodies. This highlights the importance for international cooperation among regulators and law enforcement agencies to tack the use of cryptoasset exchanges in money laundering.

Enhanced regulation and supervision of cryptoasset service providers is crucial to preventing their misuse for money laundering. The FIU report also calls out the need for more stringent measures for identifying and blocking suspicious activities on cryptoasset trading platforms and greater collaboration amongst international law enforcement bodies. Other entities in the ecosystem, such as banks, should also have sufficient monitoring in place to monitor suspicious transactions.