Report Suggests Banks are More Susceptible to Money Laundering than Cryptocurrencies

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The Financial Information Unit (FIU) has released a risk assessment report suggesting that banks are more vulnerable to illicit financial activities including money laundering and terrorist financing compared to digital currencies, Business Korea reported November 28.

As detailed in the report, a research has been conducted by the division of South Korea’s Financial Services Commission in an effort to assess a number of financial entities, including banks, insurers, securities firms, credit card services, mutual financing companies, and digital currency trading platforms. Based on the findings, it was concluded that while banks provide a much more effective measure for countering money laundering and terrorist financing activities, these establishments proved to be far more vulnerable to such illicit activities than any other financial business.

As indicated in the report:

“The banks have better systems against money laundering and terrorist financing than other financial companies. Yet the former’s vulnerability is higher due to the larger size of the banking sector and the innate characteristics of their products and services like trade financing, cash management service, and forex trading.”

While the study noted that fiat and crypto-related transactions also pose a number of vulnerabilities to such illegal financial activities, there is less chance that digital assets would be exploited for terrorist financing.

According to the FIU:

“The anonymity of cryptocurrency trading hinders tracking, and criminals can take advantage of it. The same applies to cash dealing as large-denomination bills rarely return.”

The findings yielded from the report released the South Korean financial regulator shares a number of similarities with a previous Intenet Organized Threat Assessment 2018 report published by Europol. As indicated in the 72-page study, terrorists are more inclined to employ traditional banking methods as opposed to digital currencies for funding illicit operations in Europe.

As findings indicated:

“Despite the clear potential, none of the attacks carried out on European soil appear to have been funded via cryptocurrencies. The use of cryptocurrencies by terrorist groups has only involved low-level transactions – their central funding still stems from conventional banking and money remittance services.”

A month following the report’s release, the director of analysis for the Foundation for Defense of Democracies Center on Sanctions and Illicit Finance, Yaya Fanusie, also indicated with the U.S. Congress the same observation, that terrorists have largely failed to raise funds using digital currencies.

While the report revealed that digital currencies are less utilized for illicit financial activities, the FIU also emphasized the need to establish a clear crypto legislation in South Korea in response to the rising incidents of crypto-related crimes in the country. At the time, one Korean legislator has also reportedly proposed a bill entitled the Digital Asset Trading Promotion Act, in an effort to support the crypto industry’s development and digital asset trading in general.

As confirmed by a report previously published by Business Telegraph, National Assembly Political Committee member Kim Sun-dong has presented a comprehensive framework for regulating digital currency trading platforms without curbing the industry’s innovative potential. As quoted in the draft legislation:

“Those who want to operate a digital asset trading business should have more than 3 billion won [~$2.66 million] in [the] capital, enough manpower, computerized systems, and physical equipment to be approved by the Financial Services Commission.”

A financial audit to be conducted by South Korea’s Financial Action Task Force (FATF) is set to begin on January 2019 until February 2020, the results of which would determine whether or not there would be a need to implement potential capital restrictions.