* Global task force to announce measures on Friday
* FATF wants countries to tighten cryptocurrency oversight
* Europol warns digital coins being used for crime
By John O’Donnell and Tom Wilson
FRANKFURT/LONDON, June 21 (Reuters) - Cryptocurrencies such as bitcoin are set to be subjected to rules to prevent their abuse for money laundering, a global watchdog will announce on Friday, the first worldwide regulatory attempt to constrain the rapidly growing sector.
The Paris-based Financial Action Task Force (FATF), a coalition of countries from the United States to China, will tell countries to tighten oversight of cryptocurrency exchanges to stop digital coins being used to launder cash.
The move reflects growing concern among international law enforcement agencies that cryptocurrencies are being used to launder the proceeds of crime.
Simon Riondet, head of financial intelligence at Europol, the European police agency that coordinates cross-border investigations, told Reuters he saw a growing use of cryptocurrencies in laundering criminal money.
Earlier this year, Europol broke up a Spanish drugs cartel that laundered cash using two crypto ATMs, machines that issue cryptocurrencies for cash.
Riondet said cryptocurrencies were used to transfer money across borders, as well as to break down large criminal money transfers into smaller amounts that are harder to detect.
“We also have some investigation on the dark web in which the payments are made in cryptocurrencies, sometimes in bitcoin, and they are switching it to more anonymised cryptocurrencies,” he said.
So-called privacy coins such as Monero allow users to conceal nearly all details of transactions.
The move by the FATF comes amid heightened concern about a sector, championed by some as a means of shaking off government controls, but seen by central banks as a potential threat to their status as guarantors of the financial system.
Earlier this week, Facebook prompted criticism from regulators and policymakers when it unveiled its plans for a cryptocurrency it dubbed Libra.
Three European central bankers have claimed oversight over Libra to ensure it would not jeopardise the financial system or be used to launder money.
Germany’s central bank chief, Jens Weidmann, said virtual tokens pegged to official currencies, known as stablecoins, could undermine banks if they become widely used.
The FATF marks the first attempt to establish a global approach in regulating the $300 billion coin trading market, supplementing a current patchwork ranging from Japan’s move to license exchanges to an outright ban in China.
Global Digital Finance, an industry body that represents crypto-related companies worldwide, said it welcomed the FATF rules. But Teana Baker-Taylor, its executive director, said FATF recommendations to compel firms to include in cryptocurrency transactions details of senders and beneficiaries could be difficult to meet.
“We are obviously going to comply,” Baker-Taylor told Reuters. “The challenge is asking for something that there is the technical facility to do.”
There is little available data on the scale of money laundering using cryptocurrencies. Given the relatively small scale of the coin market, it is likely to be a fraction of money laundering using cash.
Although digital coins do not have the complete anonymity once believed - their movement can be traced on the blockchain technology that underpins them - numerous loopholes exist on identifying beneficial ownership.
Some cryptocurrency exchanges are seen to have lax standards on checking users’ identities, or verifying the source of funds. (Reporting by John O’Donnell and Tom Wilson Editing by David Holmes)