More than $300 billion in illicit funds are laundered each year in the United States, with criminals processing their profits to conceal their source and law enforcement cracking down on front businesses that enable them. Money laundering has become increasingly digital in recent years, and authorities are scrambling to catch up with the latest online schemes.
Cryptocurrency is a common avenue for money laundering, with cybercriminals exploiting their anonymous and decentralized nature to clean their dirty money. Many cryptocurrency exchanges have historically turned a blind eye to these cybercrimes with weak or nonexistent know your customer (KYC) protocols, but new federal regulations are forcing them to step up their game.
The February “AML/KYC Tracker®” explores the latest in AML/KYC developments, including the growing problem of money laundering at cryptocurrency exchanges, the new regulations being enacted to keep this practice at bay, and the methods and technologies exchanges are leveraging to stay compliant.
One success story in cryptocurrency AML/KYC compliance comes from exchange BitMEX, which recently announced in January that 100 percent of its users’ identities have been authenticated. This is the result of an initiative that began in August, when the U.S. Commodity Futures Trading Commission charged BitMEX for the illegal operation of a derivatives trading desk. BitMEX subsequently revamped its AML and trade surveillance systems in November and mandated user verification for deposits, withdrawals and trades in December.
Users would do well to take their personal security into their own hands to ensure secure cryptocurrency trading, but many customers’ best practices have been lacking. A survey found that while 96 percent of cryptocurrency users deploy multifactor authentication (MFA), one-quarter do not back up their MFA codes, which presents a potential security risk. Approximately 50 percent of surveyed users reported that they save their online login credentials, which is another security gap that could potentially be exploited by a fraudster if their web browsers were compromised.
Government regulators are cracking down on cryptocurrency exchanges that are negligent in their AML/KYC compliance. A U.S. court sentenced the owner of exchange RG Coins to 10 years in prison for money laundering, for example, after it found that the owner aided fraudsters in an auction scam selling goods that did not exist and used cryptocurrencies to hide the source of the stolen funds. RG Coins laundered nearly $5 million in cryptocurrency in this fashion, according to prosecutors, with RG Coins’ owner receiving a cut of more than $184,000 for his laundering services rendered.
For more on these and other AML/KYC news items, download this month’s Tracker.
The expanding threat of money laundering as well as new federal regulations have forced cryptocurrency exchanges to step up their AML/KYC game, but privacy concerns from longstanding legitimate cryptocurrency users have left the exchanges between a rock and a hard place.
In this month’s Feature Story, PYMNTS talked with Caitlin Barnett, U.S. chief compliance officer at Bitstamp, about why explaining the need for these regulations to these users is the key to striking a balance between security and privacy.
Cryptocurrencies are more popular than ever before, both as a means of low-visibility online transactions and a tantalizingly volatile investment. They have also been a hotbed for money laundering, though, forcing both oversight agencies and the cryptocurrency industry itself to develop ways to prevent illicit activity on platforms.
This month’s Deep Dive explores how money laundering regulations have evolved over the history of the cryptocurrency industry and the various defensive protocols exchanges have instituted to prevent cybercrime.
The “AML/KYC Tracker®,” a Trulioo collaboration, provides an in-depth examination of current efforts to stop money laundering, fight fraud and improve customer identity authentication in the financial services space.
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