The widespread use of cryptocurrencies by financial criminals has raised concerns within regulatory and law enforcement agencies globally. The anonymous nature of transactions on blockchain networks often facilitates money laundering, fraud, and other illegal activities. In this article, we will discuss how criminals use digital assets and the importance of a crypto address AML check.
Cryptocurrency and Money Laundering: How Criminals Use Crypto
As with anything new, cryptocurrencies did not have a clear regulation framework in their early years. It gave a space for financial criminals who were the earliest adopters of crypto due to its anonymous nature. As a result, crypto assets were involved in numerous crime schemes, such as:
Extortion – by June 2023, criminals extorted $449 million.
Crypto scams – during the first 6 months of 2023 criminals earned $1 billion.
Trafficking – including the sale of drugs, weapons, and hacking tools.
Terrorism – donation of terroristic groups via crypto wallets. Help in bypassing sanctions.
Note, that these schemes are mostly organized through decentralized exchanges where users don’t have to provide documents or ID. Working with a regulated institutional crypto trading platform, the risk of being involved in a criminal scheme is much lower because such exchanges usually adhere to strict regulations and implement AML Bitcoin and other coins checks.
Red Flags for Bitcoins Money Laundering
Financial Action Task Force (FATF) is an authority that regulates financial markets, including crypto. In 2020, it issued a report helping crypto wallets and exchanges to comply with crypto AML rules, where they recommend to pay attention to the following:
Mandatory KYC verification, tracking inconsistencies in user IP addresses, and monitoring those users who often change their information.
Financial criminals can transact through jurisdictions that don’t adhere to AML bitcoin rules.
Making many high-value transfers for a short period or at amounts just below the reporting thresholds should raise concerns.
Frequent large-value transactions from many wallets to one account; accounts that don’t match the client’s profile.
The situation where several bank cards are connected to one crypto wallet, or when a user withdraws a deposit in fiat soon afterward means they are trying to hide their source of funds.
To stay ahead of financial crimes, financial institutions must incorporate AML checks and cooperate with crypto exchanges that comply with regulatory standards. Keeping a close eye on transactions through effective monitoring is vital for crypto companies. This process enables the prompt identification of any suspicious activities, allowing timely reporting to the relevant regulatory bodies.
Using the power of blockchain technology provides an added layer of control over regulatory compliance, offering a more robust defense against money laundering risks. By embracing these measures, the financial industry can become more reliable, secure, and coherent.