The Banking Executive Magazine - June 2022 Issue

Digital Currency that might be used to support attacks and other terrorist activities. How- ever, there are concerns that terrorist organizations might increase their use of digital cryptocurrencies such as Bitcoin to support their activities. Regulatory oversight in the United States, Europe, and China makes it difficult to obtain bitcoin anony- mously on an exchange. However, if trading occurs on a decentralized ex- change or in a country without regu- latory oversight, the transactions could become much harder to trace. It is important to note that not all dig- ital currencies are alike and that the technology behind encryption and decryption is also rapidly evolving in a constant race. For example, Bitcoin is usually pseudonymous, not anony- mous, meaning that interactions can be tracked and often traced to phys- ical individuals. For law enforcement agents this means that smuggling funds in Bitcoin is more difficult to detect, but once it has been detected, it is sometimes easier to trace be- cause it is recorded on a public blockchain. The regulatory framework for Anti- Money Laundering and Counter-Ter- rorist Financing (AML-CTF) is improving. The traditional financial services and banking sector is bound by compliance programmes such as due diligence and Know-Your-Cus- tomer KYC regulations. While banks were trying to be away from digital currencies as part of their de-risking practices few years ago, financial in- stitutions are now entering the digital currencies domain. Digital curren- cies service providers such as com- panies offering digital wallets and digital currencies exchange plat- forms have also increasingly become subject to Anti Money Laundering and Counter Terrorism Finance AML- CTF regulations. Moreover, the Euro- pean Union EU adopted a measure requiring its member states to regu- late digital currencies exchanges and custodians operating in Europe. In the United States, companies selling virtual currencies have been fined for failure to protect their products from being used for terrorism financing. The rise of bitcoin and other virtual currencies poses new challenges in the fight against money laundering and terrorist financing (Money Laun- dering and Terrorist Finance ML/TF). With virtual currencies, users can make global payments that are be- yond the control of financial regula- tors and security authorities. In addition, there is a growing risk of terrorist financers evading state sur- veillance and tapping into new sources of funding. Recent evidence demonstrates that terrorist groups and their supporters have become increasingly familiar with new technologies. Terrorists use innovative technology that lacks reg- ulation to launder money or try to find new sources of finance. Below is an overview of regulations at global level, in Europe, and in Germany. Regulation at Global Level The Financial Action Task Force (FATF) is the global money launder- ing and terrorist financing watchdog. The inter-governmental body sets in- ISSUE 162 JUNE 2022 the BANKING EXECUTIVE 13