Following the charges of money laundering this week against digital currency company Liberty Reserve, banks need to tighten their anti-money laundering (AML) controls especially with regard to digital currency.
US Attorney’s office for the Southern District of New York has said that the Costa Rica-based company is believed to have laundered more than US$6 billion in criminal proceeds, described the firm as a "financial hub of the cybercrime world".
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Hamish Thomas, director in the financial services practice at Ernst & Young, said: "This news is likely to increase the scrutiny on AML and sanctions screening measures that banks have in place already.
"It may also raise questions as to whether existing measures are sufficient in the face of emerging methods of making payments and transferring value."
Micah Willbrand, director of risk and payments within Europe, the Middle East and Africa at data and software provider BankersAccuity, said: "Financial institutions need to respond to the money laundering challenges posed by digital currencies."
"Other digital currencies include Bitcoin and Amazon Coins. Financial institutions need to ensure they know what type of payments their corporate customers are accepting.
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By GlobalData"If the corporates are accepting digital currencies, they need to investigate what methods are used to exchange those digital currencies into national currencies," Willbrand says, adding that firms also need to decide which digital currency exchanges they will or will not work with.
In the US, firms also need to determine if the organization is registered as a Money Services Business (MSB), as required by the US Financial Crimes Enforcement Network (FinCEN).
Thomas suggests that banks test the robustness of existing measures by running potential scenarios in the context of new modes of money transfer. He argues, however, that the issue is not just a banking challenge.
"Participants in new methods of money transfer across industries, governments and regulatory bodies must address pressing questions around regulatory oversight of these new forms of payment.
"This includes agreeing who should be responsible for implementing the necessary checks to prevent new methods being abused for criminal enterprise, and to what extent these controls should be applied across the different activities and businesses that support the flow of money," Thomas concluded.
