Cryptocurrency AML: How to Detect Money Laundering in Crypto?

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Money laundering has long been a concern in traditional finance, but with the emergence of crypto markets, it has become a significant issue in the digital asset world as well. The anonymous nature of cryptocurrencies makes them attractive to criminals seeking to hide the origin of illegal money. To tackle illegal transactions such as gambling, darknet services, fraud, etc., crypto exchanges integrate anti-money laundering (AML) checks. This article explores what is AML check and how it helps detect unlawful actions.

What is AML Check?

Crypto exchanges serve as the main gateways for crypto transactions, ensuring adherence to regulatory laws and preventing money laundering. Reputable platforms (such as a regulated crypto exchange WhiteBIT) employ stringent AML checks to uphold these standards. Some typical crypto AML checks include:

  1. Know-your-customer (KYC) check. To participate in exchanges, users must complete KYC, which entails submitting ID and personal data to check and approve their identity. This process facilitates the connection between clients and their transactions while also minimizing the risk of anonymous criminal activities.
  2. Enhanced Due Diligence (EDD). Exchanges may perform EDD for high-risk operations or clients, aiming to collect extra information and evaluate risks linked to the account.
  3. Transaction tracking tools are utilized by exchanges to detect irregular patterns or abnormally large transfers, which could potentially signify attempts at unlawful activities.
  4. Compliance with AML regulations. Respected exchanges comply with AML requirements established by relevant authorities, guaranteeing the implementation of appropriate reporting and record-keeping protocols.

Cryptocurrency AML Red Flags

Constant vigilance and a sharp eye for questionable activities are crucial in revealing fraudulent activities. Crypto exchanges should be cautious of certain AML red flags to watch out for, such as:

  1. Large volume transactions. Suspiciously large transactions, particularly when occurring rapidly, could suggest efforts to transfer and hide substantial sums of money.
  2. Rapid movement between wallets. If there are frequent and quick transfers between various wallets, particularly involving different cryptos, it could indicate an attempt to disguise the flow of funds.
  3. Mixing services. The utilization of mixing or tumbling services, which anonymize transfers, may raise suspicions of possible money laundering.
  4. Unexplained sources of funds. Individuals who cannot provide a valid source of funds may cause questions.
  5. Geographical anomalies. Additional scrutiny may be necessary for transfers involving regions with higher risks of fraud with funds.
  6. Layering and smurfing. Layer entails the movement of money through various transactions and accounts, making the money trail as confusing as possible. Smurfing, on the other hand, means cutting significant sums into smaller transactions to evade detection.
  7. One-way transactions. Transactions involving funds flowing in one direction, without any subsequent withdrawals or additional activity, could potentially raise questions.

Revealing and preventing fraud in the crypto space is an ongoing challenge that requires constant adaptation and vigilance. Crypto exchanges play a crucial role in the fight against crypto fraud by applying AML for crypto transactions and closely monitoring red flags.

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Cryptocurrency AML: How to Detect Money Laundering in Crypto?
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