FATF Publishes Illegal Crypto Use ‘Red Flags’

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  • The FATF has published a series of red flags it says could illustrate illegal use of cryptocurrencies
  • The red flags include large one-off crypto deposits out of the blue, prior criminal connections, and prolonged use of privacy coins
  • The FATF has been instrumental in clamping down on illegal cryptocurrency use in recent years

The Financial Action Task Force (FATF) has published a list of ‘red flags’ that it says regulators in its member countries can use in order to detect illegal use of cryptocurrencies. The report, published yesterday, outlines certain behaviors and characteristics that serve as warning signs that observers can use when trying to detect illegal or illicit crypto transactions.

FATF Identifies Illicit Crypto Usage Signals

The FATF has been instrumental in regulation of the cryptocurrency space in recent years, and the tremendous amount of research they have conducted in the space has led to them being able to identify patterns that are consistent with illegal cryptocurrency activity, patterns they have now shared with their 200 members.

One of the primary methods FATF suggests using is to compare a user’s transaction activity with their profile, which can detect instances where a deposit or transaction amount is anomalous with their known available wealth or historical activity. A one-off surge in income might be the result of money laundering activity; the proceeds of a scam; or may reflect the individual’s role as a money mule, where they are used to ferry out proceeds of crypto crime.

The FATF also recommends looking further into the person behind the activity, suggesting that a subject much older than the average age of a crypto user can warrant further investigation, as well as whether they have any connections with criminal activity. This could be membership and activity in websites and public forums associated with illicit activity or having a prior criminal record.

Privacy Coin Use Could be Flagged

Other red flags pointed out by the FATF include instances where users send tokens to exchanges with no KYC/AML processes in place, or where they send transactions that fall just below their country’s Travel Rule threshold.

The type of tokens typically used could also represent potential illicit activity according to the FATF, with heavy use of privacy coins like Monero and Zcash warranting further investigation as coins like this are typically associated with users wishing to disguise their usage.