Security & Fraud

Terrorists And Scammers Raise Government Alarms Over Crypto

With Terrorists And Scammers Lurking, Is A Crypto Storm Looming?

Across the globe, terrorists and criminals are leveraging cryptos in what is gearing up to be a significant national security threat to the United States.

That’s according to the U.S. Department of Justice, which said in a report that rogue nations and other risks loom as exchanges are lightly (or not at all) regulated – making it difficult to, as the maxim goes, follow the money.

In the report from the U.S. Attorney General’s Cyber-Digital Task Force, the “Cryptocurrency Enforcement Framework,” the authors noted that “cryptocurrency is increasingly used to buy and sell lethal drugs on the dark web (and by drug cartels seeking to launder their profits) … rogue states like Russia, Iran and North Korea may turn to cryptocurrency to fund cyberattacks, blunt the impact of U.S. and international sanctions, and decrease America’s influence in the global marketplace. And, while terrorist use of cryptocurrency is still evolving, certain terrorist groups have solicited cryptocurrency donations running into the millions of dollars via online social media campaigns.”

The report also found that the fact that regulation is piecemeal and inconsistent across peer-to-peer exchanges and kiosks is detrimental to the safety and stability of the international financial system.

The terrorist threat, in particular, represents what the report termed “the first raindrops of an oncoming storm.” Cryptos also help bad actors avoid sanctions. The report relays a series of anecdotes, such as Ponzi schemes and other fraudulent methods, and points out that in 2019, over $4.5 billion of cryptocurrency reportedly was lost to theft or fraud – double that of the previous year.

The report also provided a summary of actions and investigations into various cases involving crypto. But to spotlight how hard it can be to catch criminals, the report noted that some of them engage in what is known as “jurisdictional arbitrage,” which means they look to exploit the lack of standard legal and anti-money laundering (AML)- focused rules and regulations.

The problem is felt right here at home, stated the report: “In the United States, AML/CFT standards have been in place for [money services businesses, or MSBs] engaged in virtual asset activities since 2011, and yet many [virtual asset service providers, or VASPs] still are operating in ways that do not comply with the [Bank Secrecy Act, or BSA] and other regulatory requirements.”

In fact, there exists a complete lack of consistent AML and other regulatory schemes elsewhere in the world – leaving cross-border and global transactions vulnerable.

“This inconsistency also impedes law enforcement’s ability to investigate, prosecute and prevent criminal activity involving or facilitated by virtual assets,” the report added. Past recommendations of the Financial Action Task Force (FATF) have stated that “to manage and mitigate the risks emerging from virtual assets, countries should ensure that virtual asset service providers are regulated for AML/CFT purposes, and licensed or registered and subject to effective systems for monitoring and ensuring compliance with relevant measures.”

The DOJ report stands as only the latest of warnings over the risks tied to cryptos. As recently noted by PYMNTS, Kenneth A. Blanco, director of the Financial Crimes Enforcement Network (FinCEN), said that banks need to be wary of risks associated with cryptocurrency, per remarks made to the ACAMS AML virtual conference.

"These risks are not unique to money services businesses or virtual currency exchangers; banks must be thinking about their crypto exposure as well," he said. And with a nod to the financial institutions (FIs), he said: "These are areas your examiners, and FinCEN, will ask you about when assessing the effectiveness of  your AML program.”

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NEW PYMNTS DATA: HOW WE SHOP – SEPTEMBER 2020 

The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.

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