Law enforcement agencies and regulators team up to tackle crypto abuse

Syedur Rahman and Ulrich Schmidt outline the working arrangements devised to combat illegal crypto-related conduct.

The Financial Conduct Authority (FCA), the Office of Financial Sanctions Implementation (OFSI), law enforcement agencies and other bodies are teaming up to tackle the abuse of cryptoassets and associated money laundering activities.

OFSI has said that the arrangement, called the Crypto Cash Fusion Cell (CCFC), is a response to sanctions enablers increasingly turning to cryptoassets to move and hide illicit funds. The bodies involved believe that working together will help them trace crypto transactions in order to identify, investigate and disrupt criminal activity.

The CCFC is a pilot, multi-agency initiative that brings together the National Crime Agency, the Metropolitan Police Service, HM Revenue and Customs, FCA, OFSI and the City of London Police. The aim is to improve how UK enforcement and regulatory agencies (working with private sector partners) identify, understand and respond to the criminal use of cryptoassets.

OFSI has already shared detailed intelligence with the CCFC to enable joint working against specific, prioritised targets. This has led to action against potential breaches of financial sanctions involving cryptoassets by UK-based individuals.

In a statement, OFSI said: “OFSI stands ready to investigate and pursue sanctions offences involving cryptoassets, alongside partners from across government, law enforcement and industry, as our intelligence continues to be developed. OFSI’s collaboration with the CCFC marks an important step forward on working operationally against the abuse of cryptoassets.’’

Multi-agency

A multi-agency approach will allow the greatest degree of knowledge and experience to be applied to identify - and commence action against - wrongdoers and those responsible for breaches of UK sanctions regulations. A closer collaboration should result in benefits for all agencies.

While it is too early to be ringing any alarm bells, it remains to be seen whether this collaboration can function as well as is hoped. Time will tell whether too many individual restrictions and checks across the agencies will slow down operations or whether “too many cooks spoil the broth’’, with more agencies becoming involved in cases than is necessary.

Yet it could be argued that this is something that could or even should have been started years ago. While it is always easy to make suggestions in hindsight, it should be pointed out that digital asset firms were added to the UK list of “relevant firms” - and thus came under the purview of sanctions regulations - in 2022. This meant that they were obliged to report a variety of information to OFSI; including suspected breaches of financial sanctions by their users.

However, there has been a low level of reporting by digital asset firms. Given that the use of cryptoassets by illicit actors is high (and certainly not novel), it is highly likely that there is a large degree of under-reporting, whether innocently or purposefully. A multi-agency approach should give the UK government the best opportunity to address this.