The Cyprus Securities and Exchange Commission (the “CySEC”) has issued on the 01 June 2023 Circular C580 about the issuance of a guide on identifying, assessing and understanding Terrorist Financing Risks in the context of Crypto Assets activities (the “Guidance”).
The Guidance includes relevant sources of information that should be considered when identifying and assessing terrorist financing risks associated with crypto-asset activities. It also includes general considerations for understanding terrorist financing risks in relation to crypto-asset activities, with relevant examples and types of activities that create red flags for potential terrorist financing in the context of these activities.
Regulated entities are required to assess the risk inherent in their business taking a holistic approach and considering all the factors to which they are exposed.
Although Money Laundering (“ML”) and Terrorist Financing (“TF”) have similarities, they have important differences which must be understood in order to distinguish suspicious terrorist financial activity from ML.
The most important difference involves the origin of funds, thus TF funds are not necessarily illegally obtained, they are often clean legal funds to commit a crime. ML involves funds derived from illicit proceeds with the purpose of using them to perform legitimate activities. Also, TF uses small amounts and transactions involving unrelated parties as opposed to ML activity which involves large amounts of money. Tracing money differs between TF and ML; in the case of TF money is used to fund TF activities by many and, in many cases, unrelated to the initiator whereas in the case of ML the funds are eventually transferred to the person (s) who initiated the proceedings.
Some illustrative examples are presented below:
These are not the only potential risk factors relevant to the CASPs business and should not be the only risks considered in the risk assessment – they are however important overarching themes relevant to the CASP sector.
In conclusion, regulated entities in Cyprus should implement robust AML/CFT measures, including, customer due diligence and transaction monitoring, and should remain alert for any red flags that may indicate TF activity.
The content of this article is valid as at the date of its first publication. It is intended to provide a general guide to the subject matter and does not constitute legal advice. We recommend that you seek professional advice on your specific matter before acting on any information provided. For further information or advice, please contact Stephanos Ayiomamitis, Senior Associate, at our Limassol office, Tel +357 25363685 or email stephanos.ayiomamitis@kyprianou.com