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On regulating digital currencies: One year on

Digital currencies exchanges (DCEs) vary in their maturity, when it comes understanding their regulatory obligations under the Anti-Money Laundering and Counter Terrorist Financing 2006 (AML/CTF) Act.

Yet, one year after the AML/CTF Act was extended to a Tranche 1.5 to cover DCEs, two digital currency exchanges have had their registrations suspended.

GRC Professional spoke to Australian Digital Commerce Association Member (ADCA) and Principal of Aub Chapman Consulting Services, Aub Chapman, who said that, while only a small population of DCEs existed back in April of last year, now there are approximately 200 registered digital currency exchanges in Australia.

“At one end of the scale, there are a number of Digital Currency Exchanges that have developed and implemented very sound AML/CTF-related policies, procedures and controls to manage ML/TF risks,” Chapman said. “At the other end of the spectrum, there are those that do not fully understand the AML/CTF obligations imposed on their businesses and/or those that seek to implement the bare minimum when it comes to compliance. In many ways, this diversity mirrors that which can be seen in other sectors, such as the remittance sector.”

According to some banks also, DCEs were considered to be an unnecessary risk. And yet a lot of work was being done in background.

In a 2016 interview with GRC Professional, ADCA CEO Nick Giurietto said, of the-then Australian Digital Currency and Commerce Association (ADCCA), that it was hoped the-then new code of conduct for digital currencies, along with amendments to the AML/CTF Act to cover digital currencies, would bring regulatory certainty to Australian banks.

In a GRC Professional Magazine article AML/CTF Lens on Digital Currencies, Giurietto said about the code, "Someone following that code of conduct should be seen as a bankable prospect.”

DCEs breach their obligations

A joint press release from the Australian Transaction Reports and Analysis Centre (Austrac) and the Australian Federal Police (AFP) said criminal proceeds of $2 million have been seized in a separate case.

“When you take the profit out of crime, you hit offenders where it hurts most. Combined with serious criminal charges attracting long prison sentences, this highlights how trafficking drugs is simply not worth it in the long-run,” Superintendent Paul Hopkins said, in an official statement from Austrac.

Last Friday, the Financial Intelligence Agency, in partnership with the AFP, said their initial investigation led to several men being charged in 2017. In a release last Thursday, the AFP stated they had also arrested a 27-year-old Bulleen man, whom they said ”…played a key role in directing the operations of the criminal syndicate.”

In the same release, Austrac also alluded to a separate investigation from the Criminal Assets Confiscation Taskforce (CACT) where property relating to financial crime to the value of $2million was restrained

“This included several bank accounts, real estate properties, motor vehicles, a motorbike, cash, and cryptocurrency. The restraining orders were made under the Proceeds of Crime Act 2002 (Cth.),” Austrac said.

Last week, law enforcement and the intelligence agency wanted to remind the DCE industry of their obligations. Together, New South Wales Police and Austrac published a reminder to the DCE industry that they should, by now, be compliant with the AML/CTF legislation passed in April last year.

“Digital currency exchange providers have had adequate time and opportunity to comply with these new laws and AUSTRAC has already refused the registration of two digital currency exchange providers. We continue to actively monitor the sector’s compliance,” said Austrac National Manager for Regulatory Operations, Dr Nathan Newman.

The regulatory and enforcement focus on digital currencies is directly related to their increase used for financial crime.

“While cash is still ‘king’, digital currencies are fast-becoming the preferred choice for organised criminal networks involved in money laundering, funding terrorism, and cybercrimes,” Cyber Crime Squad Commander, Detective Superintendent Matt Craft, said.

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