Cryptocurrency News Update

Australia’s financial crime monitoring agency announced on Friday the creation of an internal cryptocurrency task force aimed at identifying and addressing compliance issues among crypto ATM providers concerning the country’s anti-money laundering regulations.

The Australian Transaction Reports and Analysis Centre (AUSTRAC) revealed that its research indicated an increasing use of cryptocurrency for laundering money, scams, and money mule schemes.

The newly formed taskforce by AUSTRAC will ensure that digital currency exchanges offering crypto ATM services implement strong measures to reduce the chances of their machines being misused for transferring funds linked to scams or fraudulent activities, according to the government agency.

A crypto ATM enables users to buy and sell cryptocurrencies such as bitcoin and dogecoin using cash. Presently, Australia hosts 1,200 operational crypto ATMs, while roughly 400 digital currency exchange providers are registered with AUSTRAC.

Thus far in the year, the entire cryptocurrency market’s value has nearly doubled. Bitcoin reached an all-time high exceeding $100,000 as the election of Donald Trump as U.S. president heightened expectations for a favorable regulatory environment for cryptocurrencies under his administration. AUSTRAC CEO Brendan Thomas noted that the agency is observing a troubling number of Australians falling victim to scams conducted via cryptocurrency.

“Criminals view cryptocurrency and crypto ATMs as appealing channels for money laundering due to their accessibility and the speed and irreversibility of transactions,” he stated, emphasizing that crypto ATMs found violating anti-money laundering laws will face financial penalties.

The Australian Transaction Reports and Analysis Centre (AUSTRAC) is intensifying its scrutiny of cryptocurrency ATM providers in Australia that fail to adhere to the country’s anti-money laundering framework.

AUSTRAC’s intelligence indicates that cryptocurrency carries a heightened risk of money laundering and is increasingly being exploited for such activities, as well as scams and money mule operations.

An internal AUSTRAC taskforce focused on cryptocurrency has been set up to guarantee that digital currency exchanges (DCEs) providing crypto ATM services maintain minimum standards and robust practices to detect and mitigate the risk that their machines could handle funds related to scams, fraud, or other criminal proceeds.

According to the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Act 2006, DCEs, including those offering crypto ATM services, are required to register with AUSTRAC and must also:

• monitor transactions,
• perform know your customer (KYC) checks on their clients,
• report any suspicious activities through suspicious matter reports (SMRs),
• file threshold transaction reports (TTRs) for cash deposits and withdrawals exceeding $10,000.
• Brendan Thomas, the CEO of AUSTRAC, asserted that the agency will enhance its monitoring of crypto ATM providers and cautioned that AUSTRAC would take measures against those who disregard the regulations.

“As the popularity of cryptocurrency grows, criminal exploitation will also increase, which is why this taskforce is dedicated to eliminating non-compliant high-risk operations.

Operators of cryptocurrency ATMs must ensure they meet their money laundering responsibilities and minimize criminal risk. Failing to adhere to these obligations could result in substantial financial penalties, and AUSTRAC is prepared to take action.

This initiative marks the initial step in AUSTRAC’s commitment to curbing the illicit use of cryptocurrency in Australia, with a focus on this sector in the upcoming year.”

Currently, about 400 digital currency exchange providers are registered with AUSTRAC. While a limited number of these DCEs operate crypto ATMs, Australia has 1,200 crypto ATMs in operation, ranking third in the world for their quantity.

Crypto ATM operators that fail to comply with their AML/CTF responsibilities—such as verifying customer identities, reporting suspicious activities, and identifying, managing, and mitigating associated risks—may face enforcement measures.

Individuals who suspect fraudulent or scam activities related to a crypto ATM should report such incidents directly to law enforcement and to the National Anti-Scam Centre’s Scamwatch, or the Australian Cyber Security Centre’s ReportCyber.

What is the role of AUSTRAC?

AUSTRAC is a key player in Australia’s strategy against AML/CTF, providing tools, guidance, and enforcement actions for the entities it oversees. It has been vital in improving Australia’s framework to fight money laundering and terrorism financing.

AUSTRAC receives reports from Australian financial institutions, including information on suspicious transactions, international money transfers, and transactions exceeding A$10,000. It investigates these reports and observes specific clients and accounts. In 2022, AUSTRAC announced a revision of its reporting system for supervised entities to enhance user-friendliness and efficiency. The Reporting Entity System Transformation (REST) program, which spans four years, is designed to bolster security and deliver a more user-responsive interface for reporting entities. This update will also enable these entities to access their reporting history and have increased control over their submissions, including the capacity to make necessary corrections.

To ensure that these enhancements cater to the requirements of regulated firms, REST has established a Customer Advisory Group (CAG) made up of entities reporting to AUSTRAC. This group actively gathers input and has hosted several workshops with CAG participants. AUSTRAC leverages this feedback to implement enhancements through the REST program, focusing on simplifying and improving the reporting process.

Moreover, AUSTRAC supervises the cryptocurrency sector, mandating digital asset businesses to maintain an accurate and up-to-date registration. After a shift in its legal framework concerning crypto assets in 2017, AUSTRAC collaborated with the Australian Digital Commerce Association (ADCA) to assist cryptocurrency firms in establishing an AML/CFT program. In 2022, AUSTRAC published a detailed guide on combatting illicit cryptocurrency activities, highlighting the risks of criminal misuse of virtual assets.

What transactions need to be reported to AUSTRAC?

All cash transactions above $10,000 are reported to AUSTRAC, in addition to any international fund transfers to or from Australia.

Which cryptocurrency exchanges have AUSTRAC registration?

All cryptocurrency exchanges operating in Australia must be registered with AUSTRAC. This includes major global platforms such as Coinbase, Binance, and Kraken, as well as Australian exchanges like CoinSpot, CoinJar, and Swyftx.

The Australian Transaction Reports and Analysis Centre (AUSTRAC) has issued updated guidance to assist firms in combating the misuse of digital currencies and preventing payments linked to ransomware attacks. This guidance comes after multiple recent updates from the regulator, including a report on forced sexual servitude. The guides contain practical insights, case studies, and crucial behavioral and financial indicators to aid firms in identifying, understanding, and reporting suspicious activities in these areas, making them essential reading for compliance teams.

Regulatory Framework for Crypto in Australia

In March, the Australian government proposed new legislation to create a regulatory framework that addresses crypto custody, market licensing, taxation, and decentralized autonomous organizations (DAOs), highlighting the importance of mitigating money laundering and terrorist financing (ML/FT) risks within the sector.

Steve Vallas, CEO of Blockchain Australia, stated: “The use of digital currencies for illegal activities is unacceptable in our industry. Open communication, proactive guidance, and strong partnerships between government and industry are essential to help businesses recognize and report behaviors that could endanger Australians.”

AUSTRAC’s report on digital currencies emphasizes that the growing usage of crypto assets – now utilized by approximately 3.6 million Australians according to Finder – has opened avenues for criminals to operate outside conventional financial systems. Specific emerging risks highlighted include decentralized finance (DeFi), staking, and non-fungible tokens (NFTs).

Nonetheless, AUSTRAC is eager to clarify that it does not want banks to completely sever ties with all crypto firms, acknowledging their potential to foster innovation and improve efficiency in sectors like payments, logistics, and healthcare.

Over 90% of central banks across the globe are exploring the possibility of introducing a central bank digital currency (CBDC) to complement current banknotes.

What exactly is a central bank digital currency?

A CBDC is not a new type of currency; instead, it serves as a digital representation of an existing national currency. For example, an Australian CBDC would be valued exactly the same as an Australian dollar and would be considered legal tender.

It could come in both retail and wholesale forms, but its use would be optional and would not replace physical currency.

Retail CBDCs are anticipated to facilitate point-of-sale transactions, government payments, and peer-to-peer transfers. Central banks are still evaluating many design aspects, but most believe that their retail CBDCs will not accrue interest.

Similar to the banknotes we carry, the CBDC we could use through our smartphones would be issued by the Reserve Bank.

However, it would allow for more advanced and innovative financial transactions, such as “smart contracts,” compared to current forms of electronic money like credit cards.

In contrast, the wholesale version would be exclusively available to financial institutions, functioning similarly to the deposit (or “exchange settlement”) accounts that these institutions already maintain with the central bank.

Global trends highlighted by a report

A recent report from the Bank for International Settlements (BIS) has highlighted the increasing interest in CBDCs among central banks.

According to the BIS report, 94% of central banks are contemplating CBDCs, with roughly a third of them conducting pilot projects. However, many are proceeding cautiously and do not anticipate launching their own digital currency in the near future.

Several countries are already implementing them
Retail CBDCs have already been introduced in a few nations.

The first was the “sand dollar,” which was launched by the Central Bank of the Bahamas in 2020. The Eastern Caribbean Central Bank also launched its own CBDC, called DCash, in 2021. Similarly, Nigeria and Jamaica have both adopted CBDCs.

China is the major economy that is the most advanced in its development of a retail CBDC, with the digital yuan or e-CNY undergoing extensive trials.

The potential CBDC from the Bank of England, often referred to as the digital pound or “Britcoin,” has not yet been officially approved.

If the decision is made to pursue it, parliamentary approval would be necessary followed by a multi-year implementation process.

What are the implications and challenges?

Central banks may be inclined to adopt CBDCs to maintain the role of central bank money, ensuring that monetary policy remains an effective mechanism for economic management.

CBDCs could also enhance the speed and reduce the cost of cross-border payments, benefiting families in countries that rely heavily on remittances from abroad.

For nations with a significant portion of the population lacking bank accounts, CBDCs could provide an opportunity to improve financial inclusion.

One concern is that a retail CBDC could supplant commercial bank accounts, leading customers to shift their funds to the safety of a CBDC.

This shift could potentially facilitate illegal activities, as CBDCs may offer a degree of anonymity similar to physical cash. Yet, there may be privacy issues if users are required to register in order to utilize a CBDC.

Smart coins for smart contracts

A smart contract consists of an instantaneous payment that is contingent upon the transfer of ownership of an asset.

Vending machines serve as a useful analogy; inserting $2 and pressing B4 results in the machine delivering the cookies located in the B4 slot. This highlights that the action is performed only if the vending machine receives the specified item of value.

Thus far, smart contracts have primarily been utilized for purchasing digital assets like NFTs. In theory, they could also facilitate transactions involving shares or real estate, ensuring that ownership transfer occurs automatically and simultaneously with the payment.

When employed for significant transactions such as purchasing shares or properties, the payment must come from a medium that maintains its value consistently from the moment a buyer makes a decision until the transaction is executed.

Most discussions regarding smart contracts have suggested that they could be founded on stablecoins like Tether and USDC, which claim to be backed by reserves in high-quality assets, thereby maintaining parity with national currencies like the US dollar.

In practice, however, stablecoins are seldom used for transactions outside the cryptocurrency environment, and one major Australian bank, the National Australia Bank, has recently halted its stablecoin initiative.

Even Meta/Facebook, despite its substantial resources and large user base, eventually abandoned its Libra/Diem stablecoin project.

Nonetheless, a CBDC could provide a reliable foundation for implementing smart contracts.

As Hyun Song Shin, the chief economist of BIS, noted, “anything that crypto can do CBDCs can do better.”

The Reserve Bank’s perspective

To date, Australia’s Reserve Bank has adopted a cautious stance regarding the issuance of a CBDC.

Then governor Philip Lowe said in 2021 “we have not seen a strong public policy case to move in this direction, especially given Australia’s efficient, fast and convenient electronic payments system”.

As more than 99% of Australian adults have a bank account, the financial inclusion motive does not apply here. And few Australian families rely on international remittances.

Also, Australia’s payments system has been improved over recent years. There is no sign of stablecoins or other crypto making a meaningful challenge to the use of the Australian dollar for payments.

But the Reserve appears to have become more interested of late. An assistant governor said last year a CBDC could “spur innovation” and a study conducted jointly by the Reserve Bank and the Digital Finance Cooperative Research Centre has identified possible uses, including smart contracts, faster settlement of financial transactions and a back-up payments system.

The Bank will be releasing a paper soon setting out a “roadmap for future work”.