Following a meeting in end-May, the Financial Intelligence Unit (FIU-IND) individually told at least three leading crypto exchanges to share over-the-counter (OTC) trade data for transactions above $10,000, two persons told ET.
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The Financial Intelligence Unit (FIU-IND), an arm of the ministry of finance, tracks data on suspicious transaction to combat money-laundering.
OTC deals may have drawn attention due to the nature of such transactions, or in connection with specific intelligence received by the central agency.
Such deals outstrip volumes generated by individual traders on platforms and intermediaries which actively offer the product.
Unlike in a stock exchange where the buyer and seller is brought together by the bourse software carrying out anonymous order-matching exercise, in the OTC deals the platform takes the order on its books, uses its own funds to purchase the coins, and subsequently finds a counter-party. This protects such lump-sum transactions from price fluctuation as the order and price are negotiated.EASIER TO ‘WITHDRAW’ COINS
“Besides, these larger clients buying cryptos through the OTC window have a preference over others in withdrawing the digital assets to their private wallets,” said an industry person.
‘Withdrawals’ are probably the weakest link in the entire crypto industry. Once a coin is withdrawn from the custody of the exchange to an external private wallet, the cryptos can be moved to anyone, anywhere in the world.
ET BureauFIU-IND asks leading exchanges to share over-the-counter trade data for transactions above $10,000
While most large exchanges do carry out an enhanced due diligence, verifying the identity of the person owning the private wallets, they have no control over cryptos that are withdrawn. And, OTC investors, as part of the deal with the platforms, typically insist on having a greater say on withdrawals.
“OTC players are primarily private companies where the KYC (know-your-customer) procedure can be a greater challenge compared to retail investors. Doing a KYC boils down to checking the identities and credentials of directors and ultimate beneficial owners (UBOs). There are instances where fake IDs are used. This is typically the case with mule account holders in banks. The KYC and anti-money laundering software used by banks are almost the same as the one used by crypto service providers,” said another official with a crypto intermediary.
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FIU-IND did not respond to ET’s emails. However, a government official said that exchanges are expected to preserve record of OTC trades since January, and FIU can ask where suspicious transaction reports (STRs) submitted by platforms are not enough or more information has been sought by investigative agencies.
Exchanges routinely share a lot of data with the FIU-IND. Besides sharing suspicious transaction report (STRs) compiled from alerts generated by unusual transactions based on various parameters-from a spurt in volumes to user location in sensitive border regions-platforms and other FIO-IND registered crypto entities submit any other specific information sought by the agency.