Productopedia

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:

• Digital assets can be easily transferred internationally, potentially bypassing regulatory controls and creating challenges for authorities in tracking illicit financial activities.
• Source of payment is not available.
• Transactions involving digital assets that are convertible into traditional financial instruments pose risks related to fraud, illicit financial flows, and inadequate oversight.
• The ability to quickly move digital assets across borders increases exposure to jurisdictional inconsistencies, potentially facilitating regulatory arbitrage and illicit transactions.
• The product favours anonymity where something or someone is unknown, hidden or opaque.
• Involves transfers through multiple jurisdictions that are 'friendly' to countries subject to sanctions or that do not enforce United Nations sanctions.
• Involves two or more counterparties in overseas jurisdictions.
• Related transactions are not bound by jurisdictional restrictions or currency controls.
• Difficult to identify the fund flows and includes transactions which are not transparent.
• Allows payments to be processed from firms in medium- or higher-risk jurisdictions.
• The ability to deposit funds without identity verification presents risks related to money laundering, terrorism financing, and circumvention of regulatory safeguards.
• Financial systems that do not require identity verification for deposits, withdrawals, or transfers create opportunities for illicit actors to exploit regulatory loopholes.
• 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.
• Enables large or unlimited transactions, heightening the risk of laundering substantial sums.
• Lacks a central authority to monitor transactions, report suspicious activity, or support law enforcement efforts.
• Cross-border and multi-entity transactions obscure the source and destination of funds, complicating AML compliance.
• 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.
• Virtual Assets can be quickly converted into other assets or fiat, allowing rapid movement of illicit funds.
• 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.