The Riffle
Virtual Assets (VAs) are now deeply embedded in the global financial system—but with that growth comes heightened exposure to financial crime. According to the UAE’s latest analysis, the virtual asset sector presents high money laundering (ML) exposure and significant terrorist financing (TF) vulnerability.
Between 2021 and 2025, over 4,000 suspicious reports were filed by registered entities, with fraud, illegal gambling, and complex laundering structures emerging as dominant risk themes. Stablecoins—particularly USDT on the Tron network—continue to feature heavily in illicit on-chain activity, while criminals increasingly leverage decentralized infrastructure to bypass traditional compliance controls .
Key Highlights
1. Fraud Remains the Primary Risk Driver
Fraud-related activity accounts for the majority of suspicious reports, including:
Investment and Ponzi schemes
Romance and employment scams
Website mirroring and impersonation fraud
Criminals are increasingly using AI-generated forged identification documents to defeat KYC controls, often combined with credential theft and third-party card misuse.
2. Sophisticated Money Laundering Techniques
Illicit actors are employing advanced layering methods, including:
Peel-chain transactions across multiple wallets
Use of DEXs and DeFi platforms to avoid due diligence
Cross-chain bridges to complicate tracing
Mixers and crypto-to-stablecoin swaps (USDT, USDC)
3. Rise in Virtual Assets-Based Illegal Gambling
A growing number of UAE residents are funding offshore online gambling platforms using virtual assets—raising concerns across both VASPs and the banking sector.
4. Exposure to High-Risk and Sanctioned Wallets
The analysis identifies:
Direct and indirect links to darknet markets and stolen funds
Attempts at sanctions circumvention via intermediaries
Limited but notable instances of terrorist financing routing, primarily through layered wallet structures
5. Unlicensed and Informal VA Practices
Key typologies include:
Crypto Hawala via unlicensed P2P arrangements
Individual brokers conducting high-volume trades using personal accounts
Trading activity inconsistent with customer profiles
Regulatory Landscape in the UAE
The UAE operates a multi-regulator supervisory framework, aligned with FATF standards under Federal Decree-Law No. (10) of 2025, with oversight distributed across:
Securities and Commodities Authority (SCA) – Mainland VA investment activities
Virtual Assets Regulatory Authority (VARA) – Dubai (excluding DIFC), risk-based VA supervision
Financial Services Regulatory Authority (FSRA) – ADGM, including prohibitions on privacy tokens
Dubai Financial Services Authority (DFSA) – DIFC crypto token regime
Central Bank of the UAE (CBUAE) – Fiat-pegged payment tokens
Why This Matters
The findings highlight a clear shift:
From centralised platforms to decentralized ecosystems
From basic typologies to technology-enabled financial crime
From regulatory arbitrage to cross-border opacity
A major constraint remains the “Sunrise Problem”—the uneven global implementation of the FATF Travel Rule, which limits effective international tracing and enforcement.
Key Challenges Identified
Difficulty identifying ultimate beneficial owners of wallets
Limited forensic capability across institutions
Inconsistent VASP readiness and response globally
Skills gap in blockchain analytics and investigations
Recommended Next Steps
Regulators and market participants are encouraged to focus on:
Advanced on-chain forensic tools and analytics
Specialised capacity-building for AML/CFT practitioners
Stronger FIU-to-FIU intelligence sharing
Deeper public-private collaboration
Strict enforcement of Travel Rule compliance across licensed VASPs
Conclusion
As virtual assets mature, so do the risks associated with their misuse. The UAE’s evolving supervisory framework reflects a clear regulatory intent: innovation must be matched with accountability, transparency, and technical capability. For firms operating in or entering this space, proactive compliance is no longer optional—it is foundational.
