Why Corporates Must Be Weary Of Crypto’s Fraud Risks


In corporate payments, crypto was — and often still is — questionable. Though innovators and analysts often turned toward bitcoin’s underlying infrastructure, blockchain, as the real source of opportunity to address B2B payments friction, cryptocurrency itself was rarely discussed as a viable option to do the same.

But when JPMorgan Chase announced earlier this year that it is developing a proprietary cryptocurrency, the JPM Coin, the financial institution had corporate transactions squarely in its focus for the technology.

The JPM Coin has garnered significant criticism and pushback, with some questioning whether the technology can technically be called a cryptocurrency at all. But JPMorgan’s initiative suddenly surged the crypto conversation back into the world of B2B payments. Even Ripple CEO Brad Garlinghouse couldn’t deny the implications for JPMorgan’s endeavor.

In a tweet criticizing JPM Coin, he also acknowledged that, “As predicted, banks are changing their tune on crypto.”

Months later, Japan’s largest bank, Mitsubishi UFJ Financial Group (MUFG) announced its own plan to develop Coin, also with a focus on facilitating transactions between corporates.

The Compliance Concern

In this month’s AML/KYC Tracker, PYMNTS dives into the growing threat of fraud in the world of crypto, and how regulators are beginning to step up oversight of crypto.

The Financial Action Task Force recently issued its final cryptocurrency guidelines to ensure the technology is not used for financial crimes like money laundering and terrorist funding. With the Group of 20 (G20) backing the guidelines, the FATF has taken measures to treat crypto transfers like traditional bank transactions with requirements related to collecting information on payment and benefactors.

Despite its promises of security, cryptocurrency is not immune to fraud and theft. Indeed, analysts estimate more than $1.2 billion has been lost in cryptocurrency scams and fraud in the first quarter of 2019 alone.

The irreversible and anonymous nature of crypto — both of which are among its most attractive features for proponents of the technology — make them a prime target for criminals.

“A lot of criminal actors start to get it into their heads that because they’d be using the non-traditional medium of cryptocurrency, there’s no course for law enforcement, so trading platforms like ourselves along with regulators need to catch these actors,” explained Canadian crypto trading platform Bitbuy’s Founder and President Adam Goldman told PYMNTS for the Tracker.

“That’s not the case,” he said, for the businesses that remain vigilant. But as Goldman explained, cybercriminals are often able to use old tactics to infiltrate a new target.

“A lot of those actors are using their previous knowledge from the pre-cryptocurrency era to compromise certain pieces of traditional technology infrastructure in order to commit fraud of theft,” said Goldman.

Amid this threat, more cryptocurrency firms are investing in ways to mitigate the risk of fraud and promote compliance.

Ripple, for instance, recently announced a partnership with Confirm to boost its Anti-Money Laundering capabilities. Blockchain company Waves previously revealed a partnership with KYC company Blockpass.

With corporates and their financial services providers beginning to explore the opportunity cryptocurrency presents in faster, more seamless, more global B2B payments, their compliance and risk management focus cannot wane.

And while cryptocurrency may offer a new, elevated approach to security and compliance, there is no such thing as 100 percent protection.

“Security is an illusion,” Goldman said. “If malicious actors wish to complete their objectives — depending on how bad their objectives or end goals are — they’ll most likely do whatever it takes to achieve [them]. It’s a never-ending race between technology-reliant businesses and criminal actors.”