The Financial Action Task Force (FATF) has published a report on offshore virtual asset service providers (oVASPs), describing how gaps in oversight are exploited for large-scale fraud, money laundering and terrorism financing, and setting out good practices for detecting, licensing or registering, supervising and sanctioning non-compliant oVASPs. The report defines oVASPs as VASPs created under the laws of one jurisdiction, with or without a physical presence, that provide services to clients in another jurisdiction, and explains how they structure operations to avoid or evade regulatory obligations. It finds that 46% of jurisdictions have adopted an activity-based approach to regulation and supervision, extending licensing or registration requirements based on the activities performed in their market regardless of where the VASP is created or located. It highlights techniques used to obscure illicit flows, including dispersing funds across multiple addresses, layering via intermediary wallets, and using multiple blockchains or bridges, as well as misuse of nested relationships where unlicensed offshore VASPs access services from licensed VASPs by posing as individual customers. Recommended measures include activity-based detection and licensing or registration, enforcement of sanctions for breaches of anti-money laundering, counter-terrorist financing and counter-proliferation financing (AML/CFT/CPF) obligations, stronger inter-agency and public-private coordination, and fuller use of supervisor-to-supervisor and financial intelligence unit (FIU)-to-FIU cooperation channels. The report also urges financial institutions and VASPs to assess exposure to unlicensed or unregistered oVASPs, apply consistent AML/CFT/CPF controls across groups, ensure no group entity operates as an oVASP abroad outside oversight, and avoid relationships with unlicensed or unregistered providers, illustrating risks and mitigants through case studies including a Nigeria-linked fraud analysis involving a VASP-linked wallet holding about USD 600 million and UK enforcement activity that included takedowns of more than 1,000 scam websites.
Financial Action Task Force 2026-03-11
Financial Action Task Force report urges activity-based licensing and stronger cross-border supervision of offshore virtual asset service providers
The Financial Action Task Force (FATF) released a report on offshore virtual asset service providers (oVASPs), highlighting regulatory gaps exploited for fraud, money laundering, and terrorism financing. The report recommends activity-based detection, licensing, and enforcement of anti-money laundering and counter-terrorist financing measures, alongside enhanced inter-agency and public-private coordination. It advises financial institutions to assess exposure to unlicensed oVASPs and apply consistent controls across groups.