Suspicious transactions involving virtual currency trading on the rise

Suspicious transactions and activities involving virtual currency and online forex trading have increased more than three times in a span of one year, according to the Bangladesh Financial Intelligence Unit (BFIU).

As per its annual report, the unit has so far received a total of 107 suspicious transaction reports (STRs) and suspicious activity reports (SARs) from different banks and mobile financial services (MFS) providers like Bkash, Rocket or Nagad in the last five fiscal years.

The BFIU study report has found that 36% of the suspicious reports were lodged upon screening social media and websites where the account number was mentioned to facilitate virtual currency or online forex trading and 10% of the reports were lodged for unusual transaction patterns.

In the fiscal 2021-22, MFS providers and banks submitted 49 reports to the unit, compared to 15 reports in the previous fiscal year.

Infographic: TBS

The number of such reports submitted to the financial intelligence unit was three and 29 in the 2019-20 and 2018-19 fiscal years respectively.

For the first time, the BFIU received 11 reports on suspicious transactions and activity regarding virtual currency and online forex trading in the fiscal 2017-18.

According to the annual report, 55% or 59 of the total suspicious reports received so far came from just two MFS providers while 22 other reports came from two banks. Besides, seven other banks submitted 26 such reports to BFIU.

"This is a reflection that reporting entities try for stringent customer due diligence measures to prevent the transaction involving virtual currency and online forex trading since it is not permitted in Bangladesh," read the annual report.

When reporting entities get any information about virtual currency and online forex trading, they have lodged the reports and 21% of them were lodged due to negative news.

Ninety-two persons have been reported in the suspicious transactions related to virtual currency and online forex trading. Four-fifths of them are male. The reported persons are mostly young people – 39% are 20-30 years old and 28% are 31-40 years old. By profession, the majority of them are businessmen at 38% and service holders at 21%.

 ccording to the annual report, most of the suspicious transactions and activities take place through internet banking, apps, CDM or ATMs. A significant portion of such transactions also takes place using cash. 

Law enforcement agencies' activity decreases amid rising suspicious transactions

Although the reporting of suspicious transactions and activities has tripled, the activities of law enforcement agencies to detect or file cases or arrest culprits by law enforcement agencies have declined compared to the previous year.

According to the BFIU report, law enforcement agencies have detected and filed only five cases of virtual currency and illegal online forex trading so far this year. In 2021, 10 cases were detected and seven cases were filed. Since 2018, the agencies have detected a total of 17 cases and filed 14 cases.

The BFIU said the number of arrests in suspicious transaction and activity cases was also lower than in 2021. While 39 people were arrested in 2021, 13 have been brought under the law till October this year. Law enforcement agencies have arrested 53 people since 2018.

How virtual currency transactions work

Each of the activities or provided facilities of the described websites are different. Websites other than localbitcoins.com and paxful.com (which are operated from outside of the country) are conducted by a Bangladeshi operator who manually executes the transaction.

Asked about this, a senior official of the central bank told The Business Standard that usually the websites dealing with virtual currency employ an operator in Bangladesh. These operators collect money from customers through MFS providers or banks like Bikash, Rocket or Nagad.

Later, the dollar or the virtual currency equivalent of the money collected is transferred to the virtual currency e-wallet of the customer. It is also possible to trade foreign currency in this way, he added.

Stated websites act as operators or intermediaries in case of buying and selling or exchanging foreign currency (dollars) and cryptocurrencies and work as a primary communication channel between the operator and the customer/service recipient, the annual report mentioned.

Generally, the five types of transactions and facilities are available.

These are dollar exchanges between operators' and customer's e-wallets of the different service providers.  

Buy/sell foreign currency with taka

Operators and customers buy and sell dollars through mobile/bank accounts maintained in Bangladesh and e-wallet (Neteller, Skrill and Perfect Money).

Virtual currency exchange

Operators and customers exchange virtual currency (Bitcoin, Litecoin and Tether Ethereum) through the same or different virtual currency exchange platforms.

Buy/sell virtual currency with the dollar

Operators and customers buy and sell virtual currency through virtual currency exchange platforms and e-wallet.

Buy/sell virtual currency with taka

Operators and customers buy and sell virtual currency through a virtual currency exchange platform and mobile/bank accounts maintained in Bangladesh.

BFIU's recommendations  

The study proposes four recommendations for mitigating risk of money laundering and terrorist financing that may arise from virtual currency and online forex transactions.

These include non-face-to-face customers' know your customer and transaction monitoring; internet banking, mobile banking app based transactions should be monitored properly; increasing the expertise of BFIU officials and forming vigilance teams and acquiring knowledge to identify and detect virtual currency transactions.