Cryptocurrency and the need for action

Aziz Rahman is founder of Rahman Ravelli

Concerns have been voiced about the lack of regulation regarding cryptocurrency and its potential use in financial crime. Aziz Rahman, of business crime solicitors Rahman Ravelli, outlines the importance of taking precautions when investing in it or using it to conduct transactions.

Cryptocurrency is an issue that is attracting increasing attention. Some see it as an exciting development while others think of it as an opportunity for those looking to commit crime. To be fair, both views have merit. Which is why those in business need to approach cryptocurrency cautiously.

Cryptocurrency offers new business possibilities. There is the ability to both use and invest in crypto assets, which are defined by the Financial Conduct Authority (FCA) as “any publicly available electronic medium of exchange that features a distributed ledger and a decentralised system for exchanging value.” These asset systems can be accessed via the internet (including mobile phones) and used to make cross-border payments and fund transfers. While it is one of the newest elements in business, cryptocurrency still offers what has attracted people to commerce for centuries – the chance to invest and make a profit.

It is early days for cryptocurrency, yet it has already attracted plenty of negative publicity. Many have accused it of creating the perfect conditions for committing fraud or laundering money. Such an argument is understandable: at present, cryptocurrency is unregulated and offers a large amount of anonymity, which can be attractive to those looking to commit financial crime.

But nobody with a proper head for business goes into any transaction or makes any investment without making proper checks on what they are obtaining and the individuals or organisations that are offering it. And cryptocurrency should be no different.

In its official guidance, headed “Dear CEO, Crypto assets and Financial Crime’’, the FCA has issued a letter offering advice to financial institutions on how to handle cryptocurrency risks. In it, the FCA emphasises both the risks posed by cryptocurrency and the importance of devising procedures to deal with these risks. If anything, the FCA’s guidance is more of a stark reminder that those in business need to stand on their own two feet when it comes to cryptocurrency. And I don’t mean that as a criticism of the FCA, as it is really up to those in business to recognise the value of crime prevention in all aspects of their operations – including cryptocurrency, if they are involved in it.

In order to transfer funds and execute payments, crypto asset platforms rely on complex infrastructures and entities that are spread across numerous countries. Client details will be held by different entities in those different countries and jurisdictions. This offers the potential for both money laundering and fraud and makes it extremely difficult for regulators and any law enforcement agency to have access to those details. As there isn’t, at present, a robust anti-money laundering framework in place for crypto assets, there is an obvious risk that they could be used to launder money.

This means that companies must ensure that their staff are aware of the risks of cryptocurrency and can recognise the potential warning signs in a deal or a person’s behaviour that may indicate possible wrongdoing. This will involve staying abreast of cryptocurrency developments and carrying out due diligence on current or potential trading partners who are looking to do business involving cryptocurrency.

If anyone in business believes they do not have the time or the expertise to carry out such activities, they must seek advice from those who do. Companies and individuals cannot be expected to have an instant and comprehensive awareness of the plus and minus points of cryptocurrency. It is, after all, a very new concept. But if they are intending to become involved in it, they have to get “up to speed’’ so they know what it is they are dealing with.

The argument that cryptocurrency is the perfect playground for those looking to commit financial crime is simplistic and misleading. While cryptocurrency is, at present, an unregulated industry there will be scope for fraud or for it to be used to launder the proceeds of crime. But there is scope for such criminal behaviour in all areas of business.

The important thing is to take the necessary steps to ensure you know all that you need to know about cryptocurrency and have all necessary precautions in place before becoming involved. Cryptocurrency is new. But it is yet another reminder of the value of the old saying – look before you leap.

Aziz Rahman is founder of Rahman Ravelli; a top-ranked business crime law firm in national and international legal guides.

www.rahmanravelli.co.uk

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