The rise of cryptocurrencies has opened new paths for money laundering. Criminals use the privacy and global reach of digital currencies to hide the source of illegally obtained money. AML (anti-money laundering) measures aim to fight this issue in the crypto sector. For example, the PlusToken scam tricked people into investing in a fake project and disappeared with users’ money. Another case is Suex, a company hit with U.S. sanctions for processing ransomware payments, showing how some crypto services can be misused. These examples highlight the need for strong AML rules in the crypto sector to prevent financial crimes.
Who Sets the Сryptocurrency AML Rules?
The Financial Action Task Force (FATF) is a global body committed to combating money laundering and financing terrorism. It has established AML guidelines targeting virtual asset service providers (VASPs), such as crypto exchanges and digital wallet providers. These guidelines mandate exchanges to implement anti money laundering checks and customer due diligence. They include ongoing monitoring of transactions for any signs of illicit activities and necessary reporting to regulatory bodies. The goal is to curb the potential exploitation of digital currencies for unlawful activities.
Stages of AML Verification
Here are the best practices for AML screening:
- Crypto transaction monitoring. This process involves continuously observing crypto transactions to identify and flag any activities that deviate from the norm or appear suspicious.
- Customer due diligence (CDD). It is the initial step in the AML screening process, requiring the verification of customer identities and assessing their risk profiles.
- Enhanced due diligence (EDD). For higher-risk customers, EDD goes a step further than CDD. It involves a deeper investigation into a customer’s background, source of funds, and the nature of their transactions, ensuring risk assessment.
- Name screening. This measure involves checking customer names against various databases and watchlists to ensure they are not engaged in criminal activities. It’s a fundamental part of the verification process.
- Sanctions screening is critical for complying with international laws. It involves checking transactions and entities against global sanctions lists to ensure no dealings with banned or sanctioned organizations and states.
- PEP screening. Politically exposed persons screening identifies and monitors transactions by individuals with prominent public positions or close associates. Due to their status, PEPs are at a higher risk of involvement in corruption and money laundering.
- Negative news screening. This screening involves searching for adverse media or news related to customers. It helps identify potential risks not captured through other screening processes.
AML verification is crucial in preventing financial crimes and ensuring compliance with international regulations. By implementing AML best practices, VASPs can contribute to the integrity of the financial ecosystem globally.
