North Korean Crypto-to-Fiat Activity

This paper delivers critical insights into how North Korea exploits virtual asset-to-fiat conversion services to launder billions in stolen cryptocurrency, directly supporting its weapons of mass destruction program. By analysing the intersection of blockchain-based and traditional financial systems, the research identifies key vulnerabilities and offers actionable recommendations for the defence and security sector to mitigate proliferation financing risks.

Key Recommendations

• Regulatory Guidance: Issue clear guidance on managing correspondent relationships between Virtual Asset Service Providers (VASPs), especially when interacting with unlicensed VASPs, to reduce misuse and exploitation.
   
• Standardised Onboarding: Develop standardised questionnaires for onboarding VASPs, capturing essential information on ownership, compliance and operations, supported by an International Banking Association.
   
• Secure Information Sharing: Establish secure channels for intelligence exchange between financial institutions, regulators and VASPs, focusing on known exchange identifiers and suspicious wallet addresses.
   
• Payment Reference Requirements: Mandate that VASPs include specific references (such as a VASP identifier) in payment messages for bank transfers, enabling beneficiary banks to proactively identify and investigate VA-related activity.

The recommendations support stronger industry collaboration, improved detection and more robust regulatory oversight, helping to limit the regime’s access to illicit funds.