The global appetite for cryptocurrencies is being starved by the lax anti-money laundering (AML) compliance controls that surround the industry. However, ComplyAdvantage has come up with a new solution that might help crypto companies detect financial crime and prevent money laundering.
To assist firms in achieving this, the data technology and financial crime detection company has released its newly-developed AML guide for crypto firms.
The comprehensive guide delves into varying aspects of AML, including current regulatory landscapes around the world and the regulations they produce, how an AML programme can be developed from the ground up and applicable success stories related to the matter.
The guide also identifies the various threats and emerging use cases that today’s cryptocurrency firms must face, and also explores how these risks can be mitigated.
The cryptocurrency industry is undeniably one of the fastest-growing sectors within the financial services landscape. According to Vantage Market Research, the market produced revenue of roughly $1.5billion in 2021 and is expected to reach $2.3billion by 2028; with North America projected to dominate the market.
But as the demand for cryptocurrencies increases around the globe, and despite the current market uncertainty, policymakers foresee lax AML compliance controls as potentially one of the biggest vulnerabilities that crypto firms might face in the future.
Non-compliance with AML regulations presents significant challenges for crypto firms that are both established and emerging institutions. While the exact nature of these will depend on the violation in question and the firm’s business model, some of the risks include:
- Facilitating sanctions evasion: This is particularly a risk when dealing with decentralised exchanges (DEX) and decentralised finance (DeFi) platforms. For example, bitcoin was used to evade sanctions on Iran.
- Enabling terrorist financing: Governments operating in geopolitically sensitive climates have argued this is the biggest financial crime risk related to crypto. As a result, firms should expect additional, more stringent terrorist financing measures where necessary. India’s government, for example, recently investigated the use of crypto by the al-Al Qassam brigades, the military wing of Hamas.
- Layering: Criminals may seek to convert illicit fiat currency into crypto in order to disguise its origins. The Financial Action Task Force (FATF) highlighted a case in which criminals stole KRW 400 million from victims in South Korea through phishing, before carrying out multiple high-value transactions to transfer the funds to a foreign crypto wallet. The funds were passed through 48 accounts in an attempt to disguise their origin.
And the stakes for noncompliance are high. As Cornerstone Research noted, as of year-end 2021, the SEC had imposed approximately $2.35billion in total monetary penalties against digital asset market participants; bringing a total of 20 enforcement actions related to cryptocurrency.
Enforcement actions will continue to grow as will the size of fines for those firms with lax controls.
“We’ve seen a huge uptick in new crypto services across our industry and within our own customer network which is extremely exciting. However, this dynamic growth has triggered increased regulatory scrutiny which crypto companies need to stay ahead of,” said Charles Delingpole, founder and CEO of ComplyAdvantage.
“As such, our team will continue to develop helpful resources including this guide and others such as our State of Financial Crimes 2022 report or Evolving Use of Sanctions 2022 guide to help guide growing financial firms through the global complexities of AML regulations.”
ComplyAdvantage deploys machine learning (ML) and natural language processing (NLP) to help regulated organisations manage their risk obligations and prevent financial crime.