Assessing AML/CFT Compliance Risks for Crypto Companies

July 26, 2022 by Verafin

Companies that operate cryptocurrency exchanges or crypto ATMs in the U.S. must be registered as MSBs with FinCEN, and meet all AML/CFT compliance requirements, including identifying and reporting potentially suspicious activity. Recently released guidelines from the MSBA, ETA, INFiN, and TMSRT outline best practices to assist MSBs with “developing a compliance program to meet applicable requirements established by FinCEN,” and “these best practices also take into account virtual currency and financial-technology ‘FinTech’ companies recognizing their integration into the financial services landscape and accompanying AML obligations.” 

While crypto companies face continuing challenges in their business line, including growing their customer base, enhancing products and services, and managing investor relations, they also need a solid strategy to successfully meet AML/CFT compliance requirements. For example, the current geopolitical environment has resulted in evolving global economic sanctions, placing increased pressure on sanctions and AML compliance teams.  

Cryptocurrency companies should consider compliance solutions that alert you to potentially suspicious activity both on and off the blockchain, detect and prevent crypto-related fraud, enable efficient investigations with integrated case management and regulatory reporting, and effectively manage risk – all in one place.   

Assessing Risk

Crypto companies and banks assess the crypto customers they do business with based on due diligence programs that include assessing a crypto company’s compliance programs, their KYC practices as well as searching for negative news.   

The FATF travel rule requires VASPs to conduct due diligence on beneficiary VASPs before allowing a transaction. The reputational risk of compliance failure could result in a loss of your customers, employees and partners. If your company is considered non-compliant with the latest regulations, you could also lose your partners or your business.  

Fines and consent orders for non-compliance can be costly, but also tend to disrupt operations because of the added demand on employees. In August 2021, a crypto company was fined $100 million due to their non-compliant AML program, with FinCEN affirming the fines were intended “to convey the message that the Bank Secrecy Act applies to institutions dealing in digital assets and cryptocurrency the same way it does to those dealing in fiat currency.” 

“we hope to convey the message that the Bank Secrecy Act applies to institutions dealing in digital assets and cryptocurrency the same way it does to those dealing in fiat currency.”

– Prepared Remarks, Him Das, Acting Director, Financial Crimes Enforcement Network

Having a best-in-class compliance program in place can help crypto companies avoid penalties from regulators as well as any associated reputational damage that comes with infractions. 

Increasing Efficiencies

Currently cryptocurrency companies use a variety of systems to monitor and manage their AML, sanctions, and regulatory reporting requirements. Some companies use manual systems to piece together evidence from multiple sources that may indicate potentially suspicious activity, expending considerable people-time in the process. As well as being time consuming, these manual systems tend to produce a high number of false positives and consequently, a high number of SAR filings. 

A compliance program that reduces false positives, identifies truly suspicious activity, and enables compliance personnel to easily file SARs will save crypto companies significant person-hours and quickly provide law enforcement with actionable intelligence. A sound AML/CFT program for crypto companies should include suspicious activity monitoring both on and off the blockchain, streamlined case management, and behavior-based risk management. 

Crypto companies should consider innovative anti-financial crime solutions that can rapidly adapt to evolving financial crime threats, keep pace with regulatory change and ensure operational efficiency and proven effectiveness. 

‍The World’s Only All-In-One Solution

Verafin’s Cryptocurrency Compliance platform is an all-in-one solution including transaction monitoring, case management and regulatory reporting. Our platform presents institutions with the full picture of crypto-related crime, along with the tools needed to expedite investigations, maintain compliance, and provide actionable intelligence to law enforcement. 

Verafin offers a complete solution encompassing blockchain and fiat transaction monitoring, as well as behaviour-based analytics, to protect your institution and your customers from potentially suspicious activity, as well as reputational and compliance risks.

With the world’s only all-in-one Anti-Financial Crime platform for Crypto Companies, Verafin provides a full fiat-to-blockchain view of cryptocurrency activity to monitor and investigate both on-chain and off-chain risk. Verafin's holistic solution offers the investigation tools, case management and regulatory reporting capabilities critical to increasing the efficiency and effectiveness of crypto compliance programs.

Verafin, a Nasdaq company, is the industry leader in Financial Crime Management providing a cloud-based platform for AML, Fraud Detection and investigative Case Management. An all-in-one crypto compliance offering, Verafin supports complex investigations, enables robust transaction monitoring and improves efficiency of compliance processes. Its multi-chain visual investigation tools help streamline case investigations and trace the flow of funds across both cryptocurrency and fiat networks.

Share This...