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Cryptocurrencies – a Transaction Monitoring Challenge for the New Age

Cryptocurrencies surfaced rapidly, bringing with them a host of new financial possibilities. But the rise of cryptos goes hand-in-hand with a rise in crime – and as criminals the world over take advantage of regulatory loopholes to increase terrorism financing, money laundering, fraud, and other forms of criminal activity, regulatory bodies and financial institutions have been caught off guard.

Regulators are scrambling to keep up, especially after the second rise of cryptos and the resultant increase in criminal activity involving the ICO market. But with the introduction of stricter regional rules (such as the European Union’s 6th AMLD), fraudsters are merely migrating to countries in which the laws and regulations governing cryptocurrencies are weak. And, to compound the problem, cryptos – by their very nature – are a boon to criminal organisations bent on magnifying their operations to a global scale…

The Red Flags

Consider this: cryptocurrencies are a money transaction vehicle which allow for both customer anonymity and near-instant transaction speed. And this makes them a revolutionary tool for criminals who wish to effortlessly execute numerous crypto-asset transactions: initial transaction details may pass unnoticed through AML monitoring processes and reporting thresholds; money launderers can employ third-party individuals (known colloquially as money mules) to make transactions on their behalf; and suspicious individuals cannot always be tracked.

According to a 2020 Financial Action Task Force (FATF) report on virtual assets, the red flag indicators of cryptocurrency money laundering and terrorist financing include:

● Structured transactions: Transactions which are structured in such a way as to evade triggering reporting thresholds

● Transactional behaviour: An unusual transaction record, such as a large number of funds into a recently opened account or many transactions in a short period of time

● Anonymous transactions: The use of proxy trades, privacy coins, control of different crypto-wallets under one IP address, and trading on non-regulated exchange platforms

● Inadequate Customer Due Diligence: Transactions which involve accounts that have not passed identity verification or possess insufficient due-diligence

● Geographical risks: Transactions made from or to high-risk countries or jurisdictions, as well as transactions sent to an individual in another geolocation from that in which the sender resides

The Only Solution

In these rapidly-evolving times, organisations associated with crypto transactions must, of a necessity, enhance their transaction-monitoring capabilities. Because, while red flags abound and the cryptocurrency market may seem fraught with peril, enriching your firm’s KYC and AML procedures will provide a safe – and sure – path through the minefield…

The ideal transaction monitoring solution should be able to monitor transactions in real-time due to the quick nature of crypto transactions, and the software should include technology which can monitor the transaction behaviour of clients and pinpoint criminal activity. Advanced risk scoring is also essential, due to its ability to give indications for both customer accounts and transaction activity, and the solution must also incorporate enhanced analytics tools in order to trace any and all transactions and identify the actual alert cause.

iSPIRAL’s RegTek+ AML Transaction Monitoring Solution is the ideal tool for those who deal in cryptocurrency. Specifically designed by experts in the AML cryptos field, the innovative software includes crucial features such as real-time risk ranking and scoring, flexible rules and scenarios, dynamic risk scoring, case/alert management and machine learning analysis. Meaning that, no matter how criminal activity and cryptocurrency evolves, your firm will be protected, compliant, and entirely risk-free.

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