How does compliance software detect cryptocurrency fraud and money laundering?

The cryptocurrency industry has exploded in the last 12 months. While 2019 started with a total market cap of $ 200 billion, the increase in Bitcoin’s value enabled that amount to increase fivefold when 2020 started. According to CoinMarketCap data, the total value of the digital asset ecosystem has exceeded $ 1 trillion.

However, as the cryptocurrency industry continues to grow and develop, crypto-related crimes are also on the rise. Virtual assets worth $ 3.8 billion were lost in 2019 due to fraud. This amount increased to approximately $ 4.9 billion in 2020.

Fraud, money laundering and terrorist financing are not unique to the cryptocurrency industry. Every financial system infrastructure in the world has had to take measures to prevent it from being used for illegal purposes. But now, regulators around the world are tightening their moves to reduce criminal activity. This has the potential to negatively impact the operations of crypto service providers, many of whom are still lagging behind in regulatory compliance.

Digital assets find more coverage in mainstream media. Thanks to the bull market in BTC price, the number of columns in newspaper clippings has increased significantly. This increase in prevalence causes crypto exchanges to face more detailed scrutiny when victims of attacks. Fortunately, there are ways for cryptocurrency transaction providers to take action, secure transactions, and work in the interests of their consumers.

Compatibility solution

There are critical regulations in the field of crypto money. One of the most important directives; It came from the Financial Action Task Force (FATF), which has 39 members, including the European Commission, Japan, the United Kingdom and the United States.

The FATF recently announced a series of guidelines indicating that potentially suspicious activities were taking place or that organizations are attempting to evade legal sanctions. For example, the size and frequency of transactions fall below the reporting threshold, and if such payments are made on a regular basis, it can ring alarm bells for regulators.

New unaccounted issues may also arise if deposits are made under a different name than the bank account registered on the cryptocurrency exchange, if a scrambler is used to hide the source of BTC payments, or if potentially suspicious IP addresses are used.

At first glance, it may seem like a nightmare for virtual asset service providers to develop security measures that quickly detect when these alarm indicators occur. In a competitive market, apart from the costs of stopping high-risk transactions by their own means, the issue of disruptions that may arise if legitimate transactions are mixed with illegal transactions may also be a concern.

However, there are platforms that can monitor new transactions in real time and assign risk points to each transaction. It should not be forgotten that this is never a simple process. Because of the high transaction volume passing through the blockchain on a daily basis, the analysis must be done continuously and without interruption.

The speed with which malicious actors execute transactions also places the imperative for compliance systems to act quickly. Suspicious activity centers need to be identified and meaningful links should be created with other wallets to which potentially illegally obtained funds are distributed. Historical data can also be used to predict future events. Thus, exchanges can receive a warning that potentially risky activities are about to occur, even if the transaction has not yet been confirmed.

Such software does not benefit from assumptions. There are also concrete events. In late September, KuCoin announced that as much as $ 280 million of virtual assets had been stolen from the exchange as a result of a security breach. Its analytics tools allowed the company to find and freeze these funds so there was no further damage. 84 percent of assets were recovered.

It’s time to act

The technical nature of blockchain networks has damaged Bitcoin’s image with the rise of crypto fraud. Still, despite the negative examples in the first decade of its existence, the transparency and security brought by blockchain design comes to the fore and can offer much more levels of protection than traditional financial systems. If a $ 500,000 banknote is stolen from a bank vault, it is much more difficult to track than if the same amount is taken from the security-enforced BTC exchange.

Crystal Blockchain; He says that the analytics platform he developed is compliant with the regulations, the anti-fraud department has managed to stop illegal activities, and since all settings can be configured by the user, transaction monitoring can be performed manually or automatically.

System; It avoids problems by understanding the source, connections, flow paths of funds sent over the blockchain and by alerting cryptocurrency service providers in case these assets are stolen or fraudulent. Information on address and bank cards; It can be matched with fraud, extortion, ransomware and darknet marketplaces. Businesses can also obtain information about accounts with low or no due diligence procedures, and may receive a warning message by the system during depositing or withdrawing money to the stock markets.

Institutional adoption of cryptocurrencies is increasing at a surprising rate. In 2021 and in the future, Wall Street strives to ensure that traders have the necessary infrastructure to access digital assets. However, for this to happen, the market must also mature. Cryptocurrency service providers should no longer do business in an environment like the Wild West, and they need to take the necessary measures in this area.

Crystal Blockchain CEO Marina Khaustova told Cointelegraph: “The cryptocurrency industry is relatively young, and as technology evolves, it poses its own unique compliance requirements. To combat money laundering and terrorist financing, it is best practice in mature finance industries to use cryptocurrency. “Crystal aims to increase security and trust in global financial markets by helping with fraud detection and suspicious activity tracking on the blockchain.”

Disclaimer. Cointelegraph does not endorse any content or product on this page. While we aim to provide you with all important information that we can obtain, readers should do their own research and take full responsibility for their decisions before taking any action with the company. This article cannot be considered as investment advice.

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