For Crypto License Holders – How to Track Illegal Cryptocurrencies?

For Crypto License Holders – How to Track Illegal Cryptocurrencies?

Crypto License (VASP)
16 October 2022

AML screening for cryptocurrency service providers is an important task for every cryptocurrency service provider.

This is a mitigating measure for the risk that their customers’ cryptocurrencies are not coming from illegal sources such as the darknet, fraud, unlicensed gambling, terrorist financing, etc.

To fight against the illegal flow of cryptos to their platform, many crypto exchanges, OTC traders and brokers have deployed services that analyze cryptocurrency addresses and reveal the history behind them.

New Risks

Cryptocurrency service providers are bringing new risks to the financial industry.

Consequently, countries that are following AML international best standards, besides the obligation for cryptocurrency service providers to be licensed and to have a standard procedure for customer identification, require to have in place a system to identify and manage the risks relating to new and emerging technologies.

Cryptocurrency is a relatively new technology that favours anonymity, thus it must be sufficiently mitigated.

The first step for every financial institution is to identify and verify the customer’s identity, check against the sanctions and Politically Exposed Persons lists and negative information etc.

However, this might not be sufficient for a company operating in the cryptocurrency industry.

Therefore, a cryptocurrency company should go the extra mile such as checking a customer not only in a “real” physical world but also in the virtual one, such as inside the blockchain.

AML Screening Solutions

Blockchain is a public ledger where all transactions are recorded and the history can be tracked down. AML screening solutions are able to identify the level of a cryptocurrency’s “pollution”, its affiliation to criminal activity, the country of origin of the transfer and even IP address of the sender.

This gives valuable information to compliance officers. The compliance officer has proof that the customer’s cryptocurrencies were not involved in any illegal activities in the past.

This is an additional measure for the company to address the risk of cryptocurrency and to be compliant with the anti-money laundering regulations.

AMLBot Screening Service

One of the companies Comistar has experience with is AMLBot (do your own research). AMLBot is an AML screening service for cryptocurrency service providers.

It checks for illegal activities affiliated with blockchain addresses or wallets. AMLBot gives extra safety measures for your business to be confident that your customers are not using your services for money laundering, terrorist financing or other illegal activities.

Crypto Licensing

If you are interested in crypto licensing, then please read our in-depth Estonian cryptocurrency licensing tutorial here.

If you already have a sufficient amount of information, please contact us.