Virtual Currency: New Challenge in AML/CFT Regime

Kamaljit Kaur, Mahima Sikka


In the present international regime, virtual currencies, such as Bitcoin is receiving an ever growing recognition as the most powerful payment option with global acceptance. Virtual Currency is a digital representation of the value that is controlled by its developers. Virtual currencies are very unique and unfamiliar mode of payment but at the same time are cheap and flexible. The key appeal is that the virtual currencies industry attracts a lot of criminals in their anonymous nature allowing them to take part in the financial markets and transfer, convert and withdraw funds without detection. While some countries are embracing this new technology some are severely limiting its use.

Virtual currencies are basically virtual money exchanges that occupy a grey area for the exploitation of the criminals which requires an immediate address by its developers. Its legitimate use offers many benefits such as increased payment efficiency and lower transaction costs. However, other characteristics of virtual currencies, coupled with their global reach, present potential Anti Money Laundering (AML) /Countering Financing of Terrorism (CFT) risks, such as:

  • the anonymity provided by the trade in virtual currencies on the internet
  • the limited identification and verification of participants
  • the lack of clarity regarding the responsibility for AML/CFT compliance, supervision and enforcement for these transactions that are segmented across several countries
  • the lack of a central oversight body

Virtual currencies present a twofold risk in terms of committing criminal offences, as it facilitates the commission of the underlying crime and serves as a tool for laundering the proceeds of such a crime. Regulations concerning virtual currency exchanges should be harmonized at international levels to prevent international virtual exchanges circumventing foreign laws.

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