South Africa identifies crypto-related risks for Virtual Asset Service Providers – Report findings

South Africa identifies crypto-related risks for Virtual Asset Service Providers – Report findings

In a bid to combat money laundering and terrorist financing, the Financial Intelligence Centre (FIC) in South Africa has issued a warning to virtual asset service providers (VASPs), urging them to strengthen their controls against criminal activities. As of February 10, the number of VASPs registered with the FIC has grown to 256.

The FIC has identified key vulnerabilities in crypto operations, with criminals exploiting regulatory gaps, the anonymity and decentralization of crypto transactions, and continuously evolving fraud methods. These tactics outpace traditional compliance measures, making it essential for VASPs to be vigilant against bad actors.

Criminals launder money through cryptocurrency in South Africa primarily by exploiting regulatory gaps, the anonymity and decentralization of crypto transactions, and rapidly evolving fraud methods. They also leverage technological tools for anonymization and obfuscation of transactions, increase the use of rapid transfers and layering through multiple wallets or platforms to obscure illicit fund origins, and purchase assets through fake legal intermediaries, converting them into privacy coins.

To counter these risks, the FIC has specified that VASPs should be aware of tactics that bad actors might use to capitalize on these vulnerabilities. The FIC has also stated that customers who regularly move large amounts from multiple wallets to one or make several small deposits just under reporting limits should be reported.

Since 2022, South Africa has been taking proactive steps to bring crypto under regulation, adding crypto firms to a list of accountable institutions and granting the asset class a legal status. The FIC has been brought under regulatory control of the South African government in this regard.

The FIC's sector risk assessment report, published by the Financial Watchdog in South Africa, highlights money laundering and terrorist financing risks for VASPs in the country. Nine VASPs have been found to be associated with child sex abuse, terrorism financing, purchase of darknet materials, and other crimes designated as severe risk.

In response, the FIC is advising VASPs to tighten controls against criminal exploitation, emphasizing the need for crypto exchanges to take measures to prevent criminal exploitation. The FIC is also concerned about potential criminal exploitation of VASPs and has gathered information on 31 other companies operating without licenses.

The FIC's efforts reflect a global trend towards increased regulation of cryptocurrencies and a growing recognition of the risks associated with digital finance. As the crypto market continues to evolve, the FIC will undoubtedly continue to adapt its compliance framework to effectively counter crypto-related money laundering risks.

1. The Financial Intelligence Centre (FIC) in South Africa has urged virtual asset service providers (VASPs) to strengthen their controls against criminal activities due to the growing risks of money laundering and terrorist financing in the crypto industry.
2. The FIC has identified various tactics used by bad actors to exploit the vulnerabilities in crypto operations, including leveraging regulatory gaps, the anonymity and decentralization of crypto transactions, and continuously evolving fraud methods.
3. To mitigate these risks, the FIC has specified that VASPs should be aware of tactics that bad actors might use to capitalize on these vulnerabilities, especially customers who regularly move large amounts from multiple wallets to one or make several small deposits just under reporting limits.
4. South Africa has been proactively taking steps to bring cryptocurrencies under regulation, adding crypto firms to a list of accountable institutions and granting the asset class a legal status, with the FIC now under the regulatory control of the South African government.
5. The FIC's sector risk assessment report has highlighted money laundering and terrorist financing risks for VASPs in the country, with nine VASPs found to be associated with child sex abuse, terrorism financing, and other severe crimes.
6. In response, the FIC is advising VASPs to tighten controls against criminal exploitation, emphasizing the need for crypto exchanges to take measures to prevent criminal exploitation, while also gathering information on 31 other companies operating without licenses. This reflects a global trend towards increased regulation of cryptocurrencies and a growing recognition of the risks associated with digital finance.

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