Key Learnings

  • Cryptocurrency should be approached with caution, although the FCA has issues guidance on it
  • Cryptocurrency platforms rely on complex infrastructures that make it hard for law enforcement agencies and regulators to obtain details
  • If you are involved with cryptocurrency, keep up to date on developments and carry out due diligence on any possible trading partners
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Aziz Rahman

Aziz Rahman of business crime solicitors Rahman Ravelli explains the importance of exercising caution when using or investing in cryptocurrency.

Cryptocurrency has its admirers and its detractors. But there is no denying that it looks to be here to stay.

It is important, therefore, that those in business know how it works, the benefits it can bring – and the pitfalls.

There is little doubt that it offers new and exciting business opportunities. The Financial Conduct Authority’s (FCA) definition of cryptocurrency as a publicly available electronic medium of exchange that features a distributed ledger and a decentralised system for exchanging value, may sound like a bit of a mouthful but it is an accurate description. Cryptocurrencies can be accessed via the internet and used for cross-border payments and to fund transfers, all of which can make them useful in business. And being a relatively new concept, cryptocurrency offers investment opportunities.

But while these positives can be welcomed by the business world, it would be foolish – and possibly costly – to ignore the negatives.

There are plenty of informed observers who believe that cryptocurrency is as much an asset for those looking to commit fraud or launder money as it is for those looking to do legitimate business. Cryptocurrency was allowed to develop with very little regulation – although the FCA has now issued its guidance on it - and the anonymity it offers can certainly appeal to those who are looking for a vehicle to commit financial crime. Which is why it needs to be approached with caution.

It would be surprising if anyone with an ounce of business sense committed themselves to a deal or investment opportunity without first making all possible checks into the products involved and the people who are looking to trade. And that approach must also now be taken with cryptocurrency. While to many, cryptocurrency may seem a newly-arrived but relatively unknown quantity, it should be subjected to at least the same level of good, old-fashioned scrutiny that those in business apply to more traditional aspects of their work.

The FCA has emphasised the risks associated with cryptocurrency and the value of managing these risks by having proper procedures in place. But despite any advice that the FCA or other bodies put out regarding cryptocurrency, it remains the responsibility of those in business to make sure they have done all they can to counter the risks.

Cryptocurrency platforms rely on complex infrastructures spread across a variety of countries. Client details will be held by different entities in various countries and jurisdictions. This not only makes it hard for law enforcement agencies and regulators to obtain details they may need – it also creates the potential for money laundering and fraud. The result of this, unfortunately, is that it is essentially up to individuals in business and companies to make sure that they and their staff are fully aware of both the risks and the potential warning signs of wrongdoing. The only way to do this properly is by being aware of cryptocurrency developments and carrying out due diligence on any possible trading partners who want to do business involving cryptocurrency.

This may seem a daunting task for those in business who feel they are too busy to find the time and accumulate the expertise to take on such a role. If that is the case they need to seek help and advice from those who have such awareness. What they cannot do is go into any cryptocurrency-related activity not knowing the possible implications. It would be improper to suggest that all aspects of cryptocurrency are a breeding ground for criminality and that everyone who promotes or uses it has illegal gains on their mind. But it certainly offers scope for wrongdoing.

It is important, therefore, that those looking to become involved with it leave nothing to chance. To leap into the world of cryptocurrency without a full knowledge of it or without the necessary precautions in place is to invite problems. Most people in business do their homework and exercise caution in all aspects of their work. They would never think of taking up an opportunity without taking the time to make sure it is as genuine as they have been told. Cryptocurrency is the new kid on the business block. But it still has to be treated with the caution that is exercised in more established aspects of business activity.

Aziz Rahman is founder of Rahman Ravelli; a top-ranked business crime law firm in national and international legal guides. 

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