Shlomit Wagman [*]
[Full text of this Article in PDF is available at this link]
Introduction
Cryptocurrencies can be a haven for criminals, terrorists, and sanction evaders. The early, romantic ideology underlying blockchain technology envisioned a decentralized currency without geographical boundaries, governmental supervision, central bank control, or any identification required. Cryptocurrency was meant to be a fast, cheap, and reliable way of transferring value among strangers.
In 2014, the Financial Action Task Force (FATF), an international organization dedicated to combating money laundering and the financing of terrorism, identified the risks associated with cryptocurrency. By 2018, it developed an overall strategy to manage these risks and countermeasures designed by the FATF were enacted into binding global standards that all jurisdictions must adopt. Since then, the FATF has been leading coordinated implementation efforts around the world. The FATF’s response was the first global, coordinated regulatory response to cryptocurrency risks. Dozens of countries have already adopted the FATF’s cryptocurrency-related measures. It is imperative that the remaining countries follow suit, and that the FATF holds them accountable if they fail to do so.
This Article reviews the anti-money laundering and counter-financing of terrorism (AML/CFT) framework and its application to cryptocurrencies. Then, it presents case studies demonstrating the important contributions that the AML/CFT toolkit has made to countries’ security. The case studies include the seizing of cryptocurrency used by terrorists for fundraising, revealing the identity of attackers in a ransomware cyberattack, and arresting terrorists who were paid through cryptocurrency and tracked before completing their planned attack. The Article concludes with recommendations for further actions that the global community, individual countries, and the private sector should take to better tackle AML/CFT risks, including unaddressed cryptocurrency-related challenges posed by decentralized systems.
[*] Research Fellow, Mossavar-Rahmani Center for Business and Government, Harvard Kennedy School and Faculty Associate, Berkman Klein Center, Harvard Law School. Former Director-General of the Israel Money Laundering and Terror Financing Prohibition Authority, head of the Israeli delegation to the Financial Action Task Force (FATF) from 2016 to 2022, Co-Chair of the FATF’s Research, Typologies, and Methods Group from 2019 to 2022, and former Acting Director-General of the Israel Privacy Protection Authority. The author earned a B.A. from Hebrew University of Jerusalem and an L.L.M. and J.S.D. from Yale Law School. The author would like to thank Professor Howell Jackson, John Haigh, Katherine Ford, and David Izack-Haim for their valuable input and comments.