Product Description:

Crypto Hawala is an informal value transfer system that combines the logic of the traditional hawala network with cryptocurrency as the settlement layer, allowing money to move across borders without any physical or traditional banking transfer ever taking place.

Inherent Risk Rating: High (70.2%)

Risk Indicators:

• Allows for Remittance of Funds Abroad: Digital assets can be easily transferred internationally, potentially bypassing regulatory controls and creating challenges for authorities in tracking illicit financial activities.
• Concealed Source of Payment: Source of payment is not available.
• Easily Converts Crypto to Currency or Currency Equivalent: Transactions involving digital assets that are convertible into traditional financial instruments pose risks related to fraud, illicit financial flows, and inadequate oversight.
• Facilitates Transfer of Funds to Multiple Jurisdictions Quickly: The ability to quickly move digital assets across borders increases exposure to jurisdictional inconsistencies, potentially facilitating regulatory arbitrage and illicit transactions.
• Favours Anonymity: The product favours anonymity where something or someone is unknown, hidden or opaque.
• High Sanctions Risk Jurisdictions: Involves transfers through multiple jurisdictions that are 'friendly' to countries subject to sanctions or that do not enforce United Nations sanctions.
• Involves Multiple Overseas Counterparties: Involves two or more counterparties in overseas jurisdictions.
• No Jurisdictional Restrictions on Transactions: Related transactions are not bound by jurisdictional restrictions or currency controls.
• Opaque Flow of Funds: Difficult to identify the fund flows and includes transactions which are not transparent.
• Payments from Medium- or Higher Risk Jurisdictions: Allows payments to be processed from firms in medium- or higher-risk jurisdictions.
• Permits Anonymous Funding: The ability to deposit funds without identity verification presents risks related to money laundering, terrorism financing, and circumvention of regulatory safeguards.
• Unverified Individual Can Fund or Transfer Funds In and Out of the Account: Financial systems that do not require identity verification for deposits, withdrawals, or transfers create opportunities for illicit actors to exploit regulatory loopholes.
• Used to Make Anonymous Transactions: The lack of transparency in transaction records makes it difficult for regulators and financial institutions to detect and prevent illicit activities such as fraud and tax evasion.
• [yPIGZBE] Allows Unlimited or Very High-Value Payments: Enables large or unlimited transactions, heightening the risk of laundering substantial sums.
• [yPIGZBE] Fully Decentralized With No Central Oversight: Lacks a central authority to monitor transactions, report suspicious activity, or support law enforcement efforts.
• [yPIGZBE] Transactions Involve Multiple Jurisdictions and Entities: Cross-border and multi-entity transactions obscure the source and destination of funds, complicating AML compliance.
• [yPIGZBE] Uses Privacy Enhancing Features: Employs advanced anonymization tools to conceal user identities and transaction details, significantly complicating the detection and tracing of illicit activity. Such tools include: Mixers, Tumblers, Obfuscated Ledger Technology, IP Anonymizers, Ring Signatures, Stealth Addresses, Ring Confidential Transactions, Atomic Swaps, Non-Interactive Zero-Knowledge Proofs, Privacy Coins, and Escrow Services.
• [yPIGZBE] Virtual Assets Can Be Rapidly Exchanged or Converted: Virtual Assets can be quickly converted into other assets or fiat, allowing rapid movement of illicit funds.
• [yPIGZBE] Wallet Can Receive Funds From Unverified Parties: The wallet can receive funds without verifying the sender’s identity, enabling anonymous transactions and increasing laundering risks.

Possible mitigation controls:

• Includes taking steps to gain an understanding of a customer's business activities, including the nature of the business to be taken with a bank and the anticipated volume and value of the business.
• Restricted capacity to make 3rd party payments.
• Entering into a transaction before completing CDD (Customer Due Diligence) or EDD (Enhanced Due Diligence), as appropriate, is not allowed.
• Daily sanctions and adverse press screening, in addition to the risk review cycle.
• Screens financial transactions to identify potential matches against international economic and financial sanctions.
• The Source of Wealth (SOW) of the client is understood.
• Conducts a detailed examination of specific transactions identified as being higher risk.
• Maintains a transparent flow of funds.
• Analyzes blockchain activity for suspicious transactions and illicit activity.
• Requires due diligence on Virtual Asset wallets, addresses, and transaction hashes.
• Restricts access to Virtual Asset services based on geographic location.
• Requires identity verification before account loading and transactions.
• Transfers are restricted to matching names on source and destination accounts when exchanging money for Virtual Assets.
• Implements time delays on transactions to prevent rapid fund movement based on risk.