Crypto Underregulated Around Much of the World

As of last June, most of the world’s governments hadn’t begun regulating the cryptocurrency sector.

That’s according to a new report by the Financial Action Task Force (FATF), whose president told CoinDesk Thursday (March 28) that this low level of response — with under 30% of the world’s jurisdictions regulating crypto — requires a “call to action.”

“I would describe virtual assets as being akin to water, and essentially they will flow to jurisdictions that are less regulated,” T. Raja Kumar said. “Criminals and terrorists are very quick to spot the opportunity leading to regulatory arbitrage. We just can’t allow this. Every part of the global chain needs to be strong. This is not a trivial matter.”

The report recommends that jurisdictions need to get a stronger grasp on the money-laundering and terrorist-financing threats posed by crypto, and they should license or register virtual asset service providers (VASPs) and carry out reviews of their business practices, products and technology.

Coindesk notes that the FATF’s recommendations aren’t mandatory, though jurisdictions that ignore them risk being put on the organization’s watchlist along with the threat of global isolation.

Raja Kumar said this report was the first of its kind to deal with the concern that an underregulated crypto sector “creates significant loopholes for both criminals and terrorists to exploit” and is “a call to action that we need countries to take this problem seriously.”

The report follows one this week from the FBI’s Internet Crime Complaint Center (IC3) which shows that Americans made more than 43,000 complaints about cryptocurrency scams last year, with losses to crypto-based frauds and scams climbing to $3.9 billion, a 53% increase year-over-year.

“Scam factories, where criminals traffic tens of thousands of individuals, confine them to compounds and force them to conduct online scams targeting unsuspecting foreign nationals, are a driving force behind the rise in crypto scams,” PYMNTS wrote earlier this week.

Among the more popular tactics is “pig butchering,” in which scammers employ fictitious identities to forge relationships with victims via dating apps, social media platforms, professional networking sites, or encrypted messaging apps.

The schemes are socially engineered to establish trust, typically starting with a romance or confidence scam and mutating into cryptocurrency investment fraud — where the “pig,” after being fattened up, gets “butchered.”

“The crypto marketplace is already notorious for Ponzi-like schemes and other scams — and bad actors are increasingly taking advantage of victims who have lost cryptocurrency to fraud, scams and theft with recovery schemes that are themselves fraudulent,” the report noted.