FATF warns: Offshore crypto companies may create gaps in money laundering and sanctions regulation

The Financial Action Task Force (FATF), a global anti-money laundering regulatory body, has released a new report indicating that offshore virtual asset service providers (oVASP) pose risks of money laundering, sanctions evasion, and other illegal financial activities.

The report points out that some offshore cryptocurrency companies exploit differences in regulatory and supervisory coverage, making it difficult for authorities to effectively monitor transactions and enforce anti-money laundering (AML) and counter-terrorist financing regulations. As many offshore crypto businesses operate across multiple jurisdictions, such as different locations for company registration, infrastructure, and clients, regulators find it challenging to clarify regulatory responsibilities, which also limits international cooperation. FATF recommends that countries require registration or licensing for services provided to foreign companies, even if they are offshore, and enhance cross-border regulatory and law enforcement cooperation. Additionally, FATF has previously warned that peer-to-peer stablecoin transactions and non-custodial wallets may undermine AML regulation, necessitating national-level risk assessments and the establishment of protective mechanisms.