FinCEN Warns Public About Suspicious Activity Involving Convertible Virtual Currency

Jun 18, 2019

The Financial Crimes Enforcement Network (FinCEN) issued an advisory to assist financial institutions in identifying and reporting suspicious activity concerning convertible virtual currencies (CVCs).

The advisory includes ways in which criminals exploit convertible virtual currencies for money laundering, sanctions evasion, and other illicit financing purposes, particularly those involving dark web markets, peer-to-peer (P2P) exchangers, and CVC kiosks.

As people to increase their use of alternative payment methods, like virtual currency, financial institutions must evaluate and mitigate any possible money laundering, financing of terrorist actions, and any other illegal activity involving CVCs.

The advisory by the FinCEN, which aims to protect the financial system from illicit use, combat money laundering, and promote national security through the strategic use of financial authorities and the collection, analysis, and dissemination of financial intelligence, breaks down red flags associated with this illicit behavior.

Understanding Regulations Regarding Businesses Dealing with CVC

Many business models of entities dealing with CVC operate as money transmitters, which are required to register with FinCEN as money service businesses (MSB) and comply with:

  • Anti-money laundering/countering the financing of terrorism (AML/CFT) program
  • Record keeping
  • Reporting requirements

Domestic and foreign-located CVC money transmitters doing business in whole or substantial part within the United States, even if the foreign-located entity has no physical presence in the United States, must comply with requirements.

The Risks Posed by Virtual Currencies

Due to the global nature, distributed structure, limited transparency, and speed of the most widely utilized virtual currency systems, CVCs may create illegal financial vulnerabilities, according to the advisory.

Anonymity-enhanced CVCs have emerged that further hinder transparency of and obscure the source of the CVC through the incorporation of anonymizing features, such as mixing and cryptographic enhancements. Additionally, entities or actors mix or tumble to break connections CVC sending and receiving addresses. Some CVCs are even created to circumvent anti-money laundering controls.

All of the factors listed above make it more difficult for authorities and national security agencies to fight money laundering and other financial activities. Financial institutions that don’t comply with record keeping, regulatory, and reporting obligations administered by the Office of Foreign Assets Control (OFAC) put themselves in danger of exposing themselves to more illegal financial risk. Without sufficient controls in place, financial institutions cannot reasonably assess and mitigate possible risk to customers.

The prevalence of unregistered CVC entities without sufficient controls, and the limited transparency of their transactions make them alluring methods to criminals.

Red Flags of Virtual Currency Abuse

Knowing red flags can help CVC-focused MSBs and other financial institutions identify unregistered activity and suspicious virtual currency purchases, transfers, and transactions. Though no one suspicious act is indicative of illegal conduct, banks should consider a customer’s historical financial activity and whether the customer exhibits multiple indicators before validating that CVC activity is suspicious.

Overall, some red flags are easier to notice than others.

With dark web markets, major red flags may include:

  • A customer conducts transactions with CVC addresses that have been linked to darknet marketplaces or other illicit activity
  • A customer’s CVC address is listed on public forums associated with illegal activity
  • A customer’s transactions start form IP addresses associated with Tor
  • Blockchain analytics indicate that the wallet transferring CVC to the exchange has a suspicious source of funds
  • A transaction makes use of mixing and tumbling services, which suggests there may be intent to hide the flow of illegal funds

With unregistered or illicitly operating P2P exchangers, major red flags include:

  • A customer receiving multiple cash deposits or wires from disparate jurisdictions, branches, branches, or banks
  • A customer having a phone number or email connected to a known CVC P2P exchange platform advertising exchange services
  • Transactions with CVC addresses that have been linked to extortion, ransomware, and sanctioned addresses
  • Transactions initiated from non-trusted IP addresses, IP addresses from sanctioned jurisdictions or IP addresses flagged as suspicious
  • The use of virtual private network (VPN) services or Tor to access CVC exchange accounts

In Conclusion

Identifying and reporting suspicious activity concerning convertible virtual currencies (CVCs) protect businesses, financial institutions, and consumers. Money laundering and financial activity involving terrorists can disrupt markets and being detrimental to economies. Knowing the red flags can prevent this from occurring.

Apply for Merchant Account Services

Businesses in need of merchant account services, including those involving virtual currency should contact eMerchantBroker.com. EMB online application is simple and easy.

Let us help you get a high risk merchant account today!

Get Started

Award winning.

  • 2012
  • 2013
  • 2014
  • 2015
  • 2016

Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

After filling out EMB’s simple online application and submitting any necessary, requested documents, many merchants get approved within 24 and 48 hours.

EMB specializes in working with high-risk merchants. EMB works with many merchants, including but not limited to businesses in these industries: gambling and gaming, adult entertainment, nutraceuticals, vaping and e-cigarettes, electronics, tech support, travel, high-end furniture, weight loss programs, calling cards, e-books and software, and telecommunications.

Live Chat