The latest round of sanctions against Russia have sparked fears that cryptocurrency may offer an innovative way for these sanctions to be circumvented. More than this, recent developments have also served to highlight how important it is for financial services firms to always ensure effective sanctions screening.
- In recent years, crypto markets have enjoyed huge growth. The IMF says that in September 2021 the total market value exceeded $2trn.
- Recent developments have served to highlight how important it is for financial services firms to always ensure effective sanctions screening.
- Refinitiv’s digital identity solutions leverage a powerful, proprietary combination of digital identity verification, document proofing and risk screening, as well as our World-Check risk screening capabilities.
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Ramping up sanctions against Russia
Following Russia’s invasion of Ukraine in February 2022, a host of countries imposed swift and severe sanctions on the former.
From the U.S., the UK and the EU to Canada, Australia, Japan, Singapore, Switzerland and more, governments almost immediately sought to clamp down on the aggressor by implementing harsh new sanctions targeting Russia’s financial system.
While sanctions have long been regarded as an effective means of imposing, inter alia, financial pressure on specific countries, with the express intent of ensuring a particular outcome, the rapid and ongoing digitalisation sweeping the globe may have altered their effectiveness.
In the wake of COVID-19, financial markets are experiencing hyper-digitalisation. On the plus side, this has afforded the industry a plethora of new opportunities, but the caveat is that it has also opened the door for sophisticated financial crime networks to leverage technology to avoid detection.
Against this backdrop, many are now asking whether the digital landscape could be exploited to circumvent sanctions, with a particular question mark over the use of cryptocurrency.
Developments in the cryptocurrency space
Crypto markets have burgeoned in recent years with a total market value surpassing $2 trillion in September – a 10-fold increase since early 2020 according to the IMF (International Monetary Fund). And now – in addition to concerns surrounding Russian sanctions – present a growing financial crime risk to many banks and financial institutions (FIs).
Of particular concern is the fact that FIs could find themselves inadvertently contravening regulations even if they do not provide direct banking services to a virtual asset service provider (VASP).
In order to mitigate such risks, there have been several developments in the virtual asset regulatory space, with the Financial Action Task Force (FATF) releasing updated guidance around virtual assets and VASPs in 2021.
Specific guidance has been offered in terms of the Travel Rule, which extends anti-money laundering and counter-financing of terrorism (AML/CFT) obligations to cryptocurrency transfers over a specified threshold.
These developments highlight that virtual assets are firmly on the regulators’ radar and underscore the importance of thorough due diligence.
Across the globe, AML professionals are finding themselves tasked with doing more with less. Fewer available resources and stretched budgets can lead to due diligence gaps that inadvertently allow financial crime, including the avoidance of sanctions, to flourish.
The good news is that better data and leading-edge technology are increasingly delivering solutions that save time and money and can pinpoint potentially illicit activity with speed and precision.
The benefits of screening cannot be over-emphasised, since this has consistently proven to be a powerful tool that can allow compliance teams to pinpoint potential risks as quickly as possible.
Refinitiv’s industry-leading World-Check risk intelligence data and our advanced screening software can help compliance teams to accelerate their KYC (know your customer) processes; integrate large volumes of information into existing workflows, and streamline the screening process.
We are also able to deliver client-friendly digital onboarding solutions that boost compliance, speed up time-consuming manual processes and lower costs.
Our digital identity solutions leverage a combination of digital identity verification, document proofing and risk screening, as well as our World-Check risk screening capabilities.
As the world continues to watch the unfolding events in Russia and Ukraine, it is vitally important that all financial markets participants, including but not limited to those active in the virtual asset space, play their part in conducting robust screening and due diligence, and remain vigilant in the complex sanctions environment that currently prevails.