As part of the UCIF programme, on 22 January a training session was held for professions exposed to an increased risk of money laundering involving virtual assets
The Strengthening Ukraine’s Capacity to Counter Illicit Finance (UCIF) aims to lay the foundations for a long-term, systemic reform of Ukraine’s financial ecosystem. The project brings together government institutions, regulators, law enforcement agencies, financial institutions, and international partners to reduce the scale of the shadow economy, increase transparency in the financial sector, and combat money laundering. It is implemented by DAI Global with the support of the UK Foreign, Commonwealth & Development Office (FCDO).
This training was organised by the Center for Financial Integrity in partnership with the Centre for Finance and Security (CFS) at RUSI and the Academy of Financial Monitoring.
Virtual assets have become an integral part of the modern financial system, while at the same time creating new risks to financial stability and national security. Due to the nature of their activities, FIs and DNFBPs face a higher likelihood of being exploited by criminals for the laundering of proceeds of crime. The event was organised to familiarise representatives of these professional communities with the threats associated with the use of virtual assets, as well as with practical approaches to mitigating such risks.
The first session was delivered by Yevhenii Panchenko, First Deputy Head of the Department of International Police Cooperation, National Police of Ukraine. During the session, participants were introduced in detail to virtual assets, their key categories, and their operating principles, including blockchain technology and digital wallets.
Virtual assets are a digital form of value or rights that are transferred and stored electronically using distributed ledger technology or similar technologies.
Virtual assets are divided into:
One type of virtual asset is cryptocurrency. Cryptocurrency is a digital asset secured by cryptography and used as a medium of exchange which, unlike fiat money, is not controlled by a central bank or government. Cryptocurrencies operate on distributed ledger technology (DLT), the most common implementation of which is blockchain.
It is a common misconception that cryptocurrency is fully anonymous. In reality, once a user interacts with a centralised platform that require KYC (Know Your Customer) procedures, the user becomes identifiable.
огії розподіленого реєстру (DLT), найпоширенішою реалізацією якої є блокчейн.
Помилково вважається, що криптовалюта є повністю анонімною. Насправді, як тільки користувач починає взаємодіяти з централізованою платформою, що вимагає процедури KYC (Know Your Customer), він стає ідентифікованим.
During the second session, Allison Owen, Associate Fellow at RUSI, outlined the key financial crime risks involving virtual assets, presented money laundering case studies using virtual assets, and shared recommendations on virtual asset risk assessment.
As a result of criminal activity, offenders obtain funds which they subsequently attempt to launder by concealing their true origin. After the stage of converting cryptocurrencies into fiat currency, such assets may appear “clean”. Exchange brokers typically apply robust anti-money laundering (AML) systems, which reduces associated risks. At the same time, Over-The-Counter (OTC) brokers, who act as intermediaries in exchanges, reduce transaction transparency, making them a more attractive tool for money laundering and sanctions evasion, while also complicating the tracing of asset provenance.
A representative of the ChainComply platform, Co-founder and CPO Lukasz Lukaszewski, focused participants’ attention on regulatory requirements in the crypto sector for banks and the specific features of implementing crypto compliance.
Crypto compliance is an important component of banks’ activities; however, only a small proportion of financial institutions work directly with cryptocurrencies. Most often, funds are transferred via crypto exchanges, where cryptocurrencies are converted into fiat money. As a result, banks are required to independently trace the movement of such transactions in order to identify the source of funds.
Manual customer due diligence and source-of-funds checks are resource-intensive and time-consuming processes. Therefore, specialised technologies and products are used to automatically track fund flows, assess customer risk levels, and ensure full transparency of financial transactions.
The final session of the training, dedicated to the link between virtual assets and national security, was delivered by Andrew Fierman, Head of National Security Intelligence at Chainalysis.
Previously, fictitious companies were primarily used to circumvent international sanctions, allowing criminals to conceal beneficial ownership and the true origin of funds. Over time, however, there has been a shift towards the use of cryptocurrencies, which offer transaction speed and a transnational nature.
In addition to sanctions evasion, virtual assets are actively used to finance terrorist organisations, support Russian disinformation campaigns, conduct cyberattacks, and interfere in electoral processes, as well as other hybrid threats to national and international security. The anonymity of certain instruments and the decentralised nature of cryptocurrencies create additional challenges for law enforcement agencies and regulators.
At the same time, blockchain analytics plays a key role in countering these threats. It enables financial investigations, tracking the movement of virtual assets, identifying linked wallets and transaction networks, and the timely detection, blocking, and neutralisation of financial flows associated with illicit activity.
Virtual assets are already widely used in criminal activity; therefore, understanding how they function, typical typologies, and risk detection tools is critically important. An adequate level of awareness makes it possible to minimise these threats.
