Cryptocurrencies and convertible virtual currencies present several well-documented money laundering and terrorist financing risks, as identified in FATF guidance and national AML frameworks. These risks largely stem from the pseudonymous nature, speed, and borderless design of virtual asset transactions.
One key risk is the ability to obscure the source of illicit funds. Criminals can move value through wallets and exchanges in ways that make tracing the origin of funds more difficult, particularly when using privacy-enhancing technologies or poorly regulated platforms.
Another significant risk is the facilitation of payments for illicit goods and activities, including drugs, cybercrime services, ransomware, and sanctions evasion. Virtual currencies can be used to settle transactions outside the traditional financial system.
Additionally, criminals frequently engage in layering transactions, rapidly transferring funds across multiple wallets, platforms, or blockchains to hide the origin of illicit proceeds.
Difficulty converting into physical currency is not a recognized AML risk, as most convertible virtual currencies can be exchanged through regulated platforms. Theft of funds is a cybersecurity concern but is not itself a core AML risk indicator.
