Funding for an ICO comes in the form of cryptocurrencies (such as bitcoin) and is then redeemed for another – usually a token – which can be traded and transferred for other cryptocurrencies or currencies on exchanges worldwide.
Cryptocurrencies and Initial Coin Offerings raise many questions with regards to Anti-Money Laundering (AML), Know Your Customer (KYC), crime and terrorism financing regulation.
The funding system presents significant risks for Initial Coin Offerings – such as being used to launder proceeds of crime, by redeeming those proceeds as tokens and swapping those tokens for a cryptocurrency, to then later being sold or exchanged Sterling, Dollars, Euros or another currency.
The lack of recordkeeping in Initial Coin Offerings, the vast sums involved and the speed at which tokens and current can be obtained, traded or exchanged make them attractive proposition money laundering.