Cryptocurrency Money Laundering: 5 Latest Compliance Developments

5 mins

The discussions about the money laundering risks of cryptocurrency are seemingly on the rise. While these currencies are yet to match the traditional financial crime methods in terms of volume and size, the growing number of cases of money laundering through cryptocurrency make financial regulators uneasy. They appear to be patching the holes to catch offenders who have been making use of the lack of control and regulation over these digital currencies in many regions. In this article, we are looking at some of the latest news where regulators and crypto players are seen working towards better compliance measures to avoid money laundering through cryptocurrency.

1. Switzerland’s measures to address cryptocurrency money laundering risk

Switzerland’s monetary regulator – the Swiss Financial Market Supervisory Authority (FINMA) – is covertly imposing more stringent anti-money laundering rules on crypto platforms and brokers, according to reports. Facing international pressure as well as reputational damage, FINMA is looking to carefully supervise native crypto suppliers as an effort to clamp down on money laundering in cryptocurrency. The key changes expected are:

  • More stringent approach with the use of crypto ATMs, which were regarded as the preferred payment systems of drug dealers. Switzerland currently has a total of 130 Bitcoin ATMs.
  • Limiting the transaction amount threshold for cryptocurrency transactions to 1,000 Swiss francs per month. Any amount above the limit would require the identification of the party involved.
  • Crypto platforms and brokers in the country would be mandated to improve their transaction monitoring efforts to prevent laundering money with cryptocurrency.

FINMA is apparently taking cryptocurrency money laundering risk as a priority. Earlier, the regulator denied a banking license to Bitcoin Suisse, a crypto broker, due to money laundering concerns. It felt the broker’s money laundering defense mechanisms have indications of weaknesses.

2. Robinhood gets a new compliance chief for crypto unit

With regulators stepping up scrutiny on its crypto unit, Robinhood, a US-based trading app for stocks and exchange traded funds, hired Benjamin Melnicki as the compliance head of its crypto division. Melnicki was in charge of compliance at Grayscale Investments, which sells virtual currency investment products.

Earlier, the New York State Department of Financial Services accused Robinhood’s cryptocurrency division of violating anti-money laundering norms. The company is expected to pay a fine of $30 million for the lapse besides bringing on a monitor to prevent the use of cryptocurrency in money laundering schemes.

3. Binance makes key hire in Know Your Customer (KYC) compliance

Binance, one of the largest cryptocurrency exchanges in the world, brought on board Zane Wong as Director of KYC Compliance to further strengthen its compliance capabilities. Zane, who previously worked with Goldman Sachs, J.P. Morgan and Bank of America Merrill Lynch, will lead a team tasked with the oversight and enhancement of the onboarding process “to ensure highest standards of regulatory compliance”, according to the company.

Recently, the company appointed Nils Andersen Röed, the former project leader of the Dark Web Unit of the Dutch National Police, as the Director of Audit and Investigations. With a view to support its KYC and anti-money laundering (AML) efforts, Binance earlier said it will roll out the ‘intermediate verification requirement for all users across the globe.

4. US Treasury sanctions cryptocurrency exchange Suex

In a first of its kind, the US Treasury Department said on September 21 that it would sanction cryptocurrency exchange Suex for its alleged role in laundering ransoms for cyberattacks. The exchange “has facilitated transactions involving illicit proceeds from at least eight ransomware variants,” said the Treasury. As part of the procedure, the department’s Office of Foreign Assets Control (OFAC) will designate Suex for allegedly playing a role in facilitating financial transactions for ransomware actors.

5. Ukraine legalises bitcoin

Erasing the legal grey area related to cryptocurrencies, the Ukrainian Parliament unanimously adopted a law that legalises and regulates Bitcoin and other digital currencies. The law, however, does not seek to make bitcoin as a form of payment. Other countries that recently legalised the use of cryptocurrencies include El Salvador and Cuba.

How is cryptocurrency used for money laundering?

There are many countries where cryptocurrencies are either unregulated or under regulated, effectively helping financial criminals conduct their activities unrestrained. Giving a rough estimate of the criminal money involved, major crypto thefts, hacks, and frauds during the first four months of 2021 totaled $432 million, according to blockchain analytics firm Ciphertrace.

The use of cryptocurrencies to make transactions has many advantages and disadvantages. In general, criminals are making use of these shortcomings for their fraudulent activities and profiteering. China’s Payment & Clearing Association earlier said that cryptocurrencies “have increasingly become an important channel for cross-border money laundering” as they are global in nature, anonymous, convenient and fast to process. Here are some key factors that make cryptocurrencies attractive to money laundering.

  • Lack of regulation: Traditional financial channels are heavily regulated and legally protected across the globe. Meanwhile, cryptocurrencies are unregulated or loosely regulated in many countries and governments generally discourage their use of any kind. This lack of universal protection and regulation makes them attractive to criminals as effective means for cleaning illegal proceeds.
  • Anonymity or pseudonymity: Many money laundering acts are made possible by the relative anonymity of cryptocurrency transactions. Many wallet providers and crypto exchanges offer services with little-to-no anti-money laundering (AML) or Know Your Customer (KYC) regulations in place.
  • Payment option for crime: Cryptocurrencies have already become a popular means of payment for criminal activities such as ransomware attacks and illegal online gambling.

How technology can help mitigate cryptocurrency money laundering risk

While criminals are quick to adapt to technological advancement with financial transactions such as cryptocurrencies, financial institutions and regulators need to be more proactive to counter the misuse. Regulators across the world should invest time in creating effective rules pertaining to the crypto space and promote the use of technology to detect crime. Meanwhile, financial institutions should look at technological opportunities to prevent money laundering with these new-age transaction methods.

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Tookitaki provides the ability to consume specific money laundering patterns and automatically create thousands of relevant risk indicators when overlaid on an institution’s own dataset. Predefined machine learning models automatically pick these risk indicators to detect suspicious cases.

As our Global Typology Library can be scaled to include any typologies across products, locations, techniques and predicate offence, our solution can detect money laundering cases using cryptocurrency via crypto exchanges or their combination with banks. Our solution provides improved risk coverage for firms dealing in cryptocurrencies by detecting complex money laundering cases. It enhances process efficiency with accurate triaging of alerts and helps make faster business decisions with around a 70% reduction in manual work.

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