Why Banks Need to Prioritize Crypto Due Diligence and Monitoring

By: David Carlisle (Elliptic Connect)

On January 18th, the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) undertook a landmark action by identifying a cryptoasset exchange as a “Primary Money Laundering Concern”. 

Invoking a new authority for the first time under the Combatting Russian Money Laundering Act, FinCEN prohibited crypto exchanges and banks from dealing with Bitzlato, a Hong Kong-registered exchange the US government alleges laundered hundreds of millions of dollars for criminals, including dark web market vendors and ransomware attackers. 

The designation places Bitzlato among notorious company, earning it the title of primary Money Laundering Concern alongside the roughly two dozen financial institutions that FinCEN has applied the same label to under the separate but related USA PATRIOT Act. 

The agency’s action against Bitzlato should not be seen in isolation, and should be heeded as a warning sign by financial institutions everywhere, not only in the US. Increasingly, regulators around the world are focused on exposing and singling out high-risk crypto exchange platforms facilitating money laundering. Banks everywhere should have appropriate monitoring controls in place to identify and manage exposure to these high-risk entities. 

Beware of the Rogue Exchange

FinCEN’s order singling out Bitzlato and shutting it out of the US financial system details extensive allegations of money laundering. This view was echoed by Europol and European law enforcement agencies, which participated in the arrest of Bitzlato’s founder and stated that “​​about 46% of the assets exchanged through Bitzlato – worth roughly one billion euros ($1.09 billion) – had links to criminal activities.”

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