The Financial Intelligence Analysis Unit (FIAU) would like to inform subject persons that the Financial Action Task Force (FATF) has published a new report entitled, ‘Understanding and Mitigating the Risks of Offshore Virtual Asset Service Providers’.
This report highlights how weaknesses in the oversight of offshore Virtual Asset Service Providers (oVASPs) are exploited to enable large-scale fraud, money laundering, and terrorism financing. Furthermore, it explores best practices for detecting, licensing or registering, supervising, and sanctioning non-compliant oVASPs.
Jurisdictions regulate oVASPs differently, thereby allowing criminals to exploit gaps while complicating authorities’ abilities to effectively supervise and cooperate internationally. This report describes methods used to obscure the movement of illicit proceeds, including dispersing victim funds across multiple addresses, routing transactions through layered intermediary wallets, and using multiple blockchains or bridges to enhance obfuscation.
It also focuses on how oVASPs have been used to convert illicit proceeds from scam compounds, to provide financial support to terrorist groups, and on how nested exchanges can be misused, allowing unlicensed oVASPs to deliberately misrepresent themselves as retail users to access services from a licensed VASP.
Lastly, the report also emphasises the importance for financial institutions and VASPs to assess their exposure to unlicensed or unregistered oVASPs, to apply AML/CFT/CPF rules across all entities in their group, to ensure that no group entity operates as an oVASP outside regulatory oversight, and to refrain from establishing or maintaining business relationships with unlicensed or unregistered oVASPs.
Interested parties may access the publication directly from the FATF’s website or from the FIAU’s website under the tab “FATF”.