But as the demand for cryptocurrencies increases around the globe, policymakers foresee lax anti-money laundering compliance controls as one of the biggest potential vulnerabilities that crypto firms will face in the coming years.
Non-compliance with anti-money laundering regulations presents a number of significant challenges for established and emerging crypto firms. 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 decentralized exchanges (DEX) and decentralized finance (DeFi) platforms. Analysts have shown, for example, that bitcoin has been used to evade sanctions on Iran.
- Enabling terrorist financing: Governments operating in geopolitically sensitive climates —- including in India —- 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 in a recent report, as of year-end 2021 the SEC had imposed approximately $2.35 billion 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 lack 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 anti-money laundering regulations.”
Already the preferred choice of some of the world’s largest banks, enterprises and high-growth fintechs, ComplyAdvantage uses machine learning and natural language processing to help regulated organisations manage their risk obligations and prevent financial crime.
ComplyAdvantage is the financial industry’s leading source of AI-driven financial crime risk data and detection technology. ComplyAdvantage’s mission is to neutralize the risk of money laundering, terrorist financing, corruption, and other financial crime. More than 500 enterprises in 75 countries rely on ComplyAdvantage to understand the risk of who they’re doing business with through the world’s only global, real-time database of people and companies. The company actively identifies tens of thousands of risk events from millions of structured and unstructured data points every single day.
ComplyAdvantage has four global hubs located in New York, London, Singapore and Cluj-Napoca and is backed by Goldman Sachs, Ontario Teachers’, Index Ventures and Balderton Capital. Learn more at complyadvantage.com.