The Cryptocurrency AML Challenge - What You Need to Know

Bitcoin and other cryptocurrencies are joining mainstream banking—what are the risks from an AML perspective?

With an estimated 18.7 million coins in circulation, the overall market value of Bitcoin is about $1.1 trillion—too big for banks to ignore. In March of this year, Citigroup said, in a 108-page report on the topic, that bitcoin “may be optimally positioned to become the preferred currency for global trade.” Last month, too, JPMorgan Chase launched a structure note offering to give clients a way to gain exposure to Bitcoin and other cryptocurrencies. The offering tied to a basket of stocks related to the assets. In an interesting choice of words, Forbes refers to the offering as a potential “gateway drug,” presumably to direct cryptocurrency investing.

Ride the Rails, Pay the Price (of Identification)

These developments and many more point to cryptocurrencies’ storm-like advance on the shores of traditional banking. And with that comes regulation. In the US,

The Financial Crimes Enforcement Network (FinCEN) has proposed rulemaking “regarding certain transactions involving convertible virtual currency (CVC) or digital assets with legal tender status (LTDA).” In other words, it is proposing requirements for banks to submit reports, keep records, and verify the identity of customers who use the “rails” of the banking system to move cryptocurrencies.

While the exact status of regulations is still emerging from the Biden/Harris Administration, one thing is for sure: identification of all parties involved in transactions will reduce the risk of money laundering and other illicit activities. What you might find surprising is that virtual assets like cryptocurrencies can, through their transparency, offer a highly traceable economic structure for financial institutions to work in.

Join Us for the Webinar ‘Off to a New AML World – the Crypto Challenge’

To share what we’ve learned about the financial crimes compliance risks associated with crypto, I am delighted to announce an exciting session at FICO’s upcoming Virtual Event, “Success Realized: Digital Transformation Delivered,” which runs April 26-30. Entitled, “Off to a New AML World – The Crypto Challenge,” the panel discussion featuring Marina Khaustova, CEO of Bitfury Crystal, Aaron Lasher, Co-Founder of BRD, and Sebastian Hetzler, VP Product Management at FICO, will explore key issues related to anti-money laundering (AML) including:

  • The affirmation of digital currency technology into an emerging and mainstream economic field
  • The opportunity landscape for traditional banks and financial institutions to offer new and enhanced services 
  • Risk management for cryptocurrencies, including addressing indirect risk faced by clients’ crypto activities and evolving global regulatory considerations

The timing to discuss cryptocurrency AML considerations is spot on; with some high-profile corporations now holding significant percentages of their Treasury reserves in Bitcoin and estimates that most global banks have customers transacting in cryptocurrency, financial institutions are already inherently involved in cryptocurrencies. Registration for the FICO Virtual Event is free. Sign up today!

Want to Dive Deeper? Read FICO’s Crypto AML White Paper

If you feel like you need a detailed course is how cryptocurrencies work, and how money-laundering programs need to adapt, FICO has put together a great resource for you: a cryptocurrency AML white paper, “Cryptocurrency: Safeguarding your Financial Crime Risk”. In this comprehensive resource you’ll find:

  1. An introduction on how cryptocurrencies work, including blockchain and mining
  2. The evolution of cryptocurrencies from the shadows of the Dark Web to fiat currencies
  3. The current global regulatory landscape
  4. Considerations for financial crimes compliance programs, in terms of both direct and indirect risks.

I’m excited to join FICO’s panel of experts and attendees from around the world at our upcoming Virtual Event. Until then, follow me on Twitter @dougoclare to keep up with my latest thoughts on fighting fraud and financial crimes.

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