It appears that, in order to quash illegal crypto activity, the Financial Action Task Force (FATF) is going to focus on cryptocurrency user profiling in the days to come.
In a report released today, 14th of September, the FATF informs regulators that cryptocurrency user profiling will improve identification of illegal crypto activity. As the providers of guidance to 200+ countries, the FATF’s publication supports regulators to highlight red flag user characteristics and behaviors.
FATF red flag indicators
The FATF publication states that the red flags indicate both “suspicious VA activities” and any potential “attempts to evade law enforcement detection”. In the post-COVID-19 world, many of the top firms are now switching to remote virtual assistance, marking the growth of Virtual Assets (VAs).
These indicators flag up when either transaction or deposit amounts are not congruent with a user’s current financial state or activity history. When there is a mismatch between these two factors, this transactional red flag can potentially indicate a possible scam, money laundering or money mule activity.
The implications of cryptocurrency user profiling
Primarily, cryptocurrency user profiling would support regulators in identifying crypto tracking and tracing. On the other hand, profiling historically always goes hand-in-hand with negative connotations. FATF red flag indicators monitor aspects such as multiple high-value transactions, the accepting of funds suspected as fraudulent/stolen and transfer frequency.
As reported in April this year, the U.S. general crypto-community is largely compliant with the guidelines set by the FATF. On the other hand, some other countries such as Canada were reportedly more resistant to the FATF regulatory guidelines. In lieu of this comparison, it is clear that FATF guidance’s will not be so easily welcomed by the whole.
Privacy Coin platform concerns
Cryptocurrency user profiling may be accompanied by some controversy, but in terms of efficiency, it may be able to remedy the major concerns related to Privacy coin platform such as Monero and Zcash.
The anonymity provided and mixture of transactional data found on such platforms can create prosperous habitats for crypto-criminal activity. Ultimately, FATF cryptocurrency user profiling would transfer the share of power back to regulators and prevent further criminality.
