The Financial Action Task Force (FATF), an international enforcer of Anti-Money Laundering (AML) policies in the global financial space, has outlined the dangers that stablecoins provide as regards terrorist financing and money laundering.
Potential money laundering and terrorist financing enablers
According to a document released on October 18, the FATF convened a meeting of representatives from about 205 countries. In the meeting, which was led by FATF President Xiangmin Liu, several issues related to cryptocurrencies were discussed. The FATF reportedly referred to cryptocurrencies as a “major strategic initiative,” while also adding that there could be some significant impacts brought about by the operation and adoption of fiat-backed stablecoins.
However, while the AML enforcer sees certain advantages to the adoption of cryptocurrencies, it singles stablecoins out, claiming that these assets could significantly affect the crypto ecosystem and change the landscape of terrorist financing and money laundering risks.
“There are two concerns: mass-market adoption of virtual assets and person-to-person transfers, without the need for a regulated intermediary. Together these changes could have serious consequences for our ability to detect and prevent money laundering and terrorist financing,” the publication wrote.
In a second document titled “Money laundering risks from ‘stablecoins’ and other emerging assets,” the FATF claimed that it would continue examining the characteristics of stablecoins and assessing their risks, with a possible amendment to its guidance on virtual currencies that will address these assets coming as well.
It read, “The FATF will continue to ensure its standards remain relevant and responsive, and it will report to G20 Finance Ministers and Central Bank Governors in 2020 on the risks from global ‘stablecoins’ and other emerging assets.”
The Libra effect
The timing of the criticism, as well as the language used, makes it difficult to shake the feeling that all this is due to the continued scrutiny that Facebook’s Libra stablecoin has been able to garner. As an asset class and a subset of cryptocurrencies, stablecoins have been in operation for several years now. Tether, regarded by many as the world’s first stablecoin, was first listed on an exchange in 2015, and in that time, there have been quite a lot of stablecoin projects to be introduced to the crypto space.
However, the announcement of Libra changed the entire way that lawmakers and policy formulators have viewed stablecoins. Once thought to be just an asset class, many have begun to poke holes in the design and operation of stablecoins, dredging up potential dangers and risks along the way.
The report from the FATF is following a similar one from a G7 task force, which consisted of finance ministers and Central Bank governors. In the report, the task force notes that till now, no cryptocurrency has been able to provide a reliable case for being a store of value and a payment system. As it notes, stablecoins were able to break that jinx.
However, the task force also notes that the continued operation of stablecoins could pose challenges with areas such as public policy, government oversight, and regulatory compliance. As expected, issues with money laundering, taxation compliance, and terrorist financing were mentioned as well. For more than one reason, it would seem that the hatred for Facebook and Libra has spilled over to other assets in its class.