US-based blockchain and cryptocurrency security firm, CipherTrace, has released its Q3 2019 Cryptocurrency Anti-Money Laundering (AML) Report. Here are the salient points in the report.
The necessity of maintaining KYC data
Research carried out by CipherTrace found that 65% of the top 120 cryptocurrency exchanges fail to maintain adequate Know Your Customer (KYC) best practices. These results represent the first comprehensive data on KYC at exchanges globally. The Financial Action Force (FATF) is also issuing new guidelines requiring virtual asset service providers (VASPs) to share sender and receiver information whenever crypto assets move (Travel Rule). VASPs will have until June 2020 to become compliant.
CipherTrace tracks narcotics traffickers’ transactions
Drug cartels are using cryptocurrencies to launder money. CipherTrace analysts have been able to track the Bitcoin (BTC) addresses used by three Chinese nationals sanctioned by the US Treasury Department’s Office of Foreign Asset Control as narcotics traffickers.
While an analysis of the addresses of two of the suspects not only revealed an association with several dark marketplaces, such as Hydra and Dream Market, CipherTrace was also able to uncover how the organization used Bitcoin to launder their funds. This involves obfuscating and dispensing the funds by peeling them off to layer their trails. Going back several hops on a transaction reveals multiple trails with multiple peel-offs. Multiple Coinbase accounts were used to bring over 1500 BTC into this scheme, eventually culminating into 2500 BTC that is subsequently split into multiple 10 BTC transactions, which are slowly peeled until they either end up in an exchange or aggregated back together.
Non-compliant networks and fintech will not survive antiterrorism legislation
Terrorist networks are increasingly using cryptocurrencies to finance their operations. Several groups have used social media to publish videos explaining how to acquire and send bitcoin without tipping off authorities. To further obfuscate the flow of funds, every donor is given a unique bitcoin address. Jason Blazakis, former director of the Counterterrorism Terrorism Finance and Designations Office at the U.S. Department of State’s Counterterrorism Bureau, told CypherTrace that the “industry now needs to harness that technological expertise and apply it to the tough problems we need to solve in illicit finance—both because not doing so threatens national security, and because it is the only way for them to pass regulatory muster. The US will work with governments around the world to make sure that non-compliant networks and fintechs do not survive.”
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