Cryptocurrency Regulation and Preventing Scams: Comprehensive Handbook (Year 2024)
In 2023, the United States saw a staggering increase in losses due to crypto investment scams, totalling $3.94 billion - a 53% rise from the previous year [1]. This alarming trend is not unique to the crypto industry, as Ponzi schemes remain a common crime where new investors are lured in to fund the payments to earlier investors, with no real gains, just a handover of money [2].
To combat these illicit activities, regulatory bodies are stepping up their game. The European Union's Regulation (EU) 2023/1113 (TFR) requires Crypto Asset Service Providers (CASPs) to collect data about the originator and beneficiary of transfers, verify this information, and share it with counterparties to manage risks in crypto-asset transfers [3].
The European Union's 5th and 6th AML Directives (5AMLD & 6AMLD) and the MiCA Regulations emphasize the need for fraud prevention mechanisms, particularly for crypto platforms, exchanges, and wallet providers [4]. Compliance includes risk assessment, Know Your Customer (KYC) and Customer Due Diligence (CDD), cryptocurrency transaction monitoring, reporting suspicious activity, maintaining a crypto KYC/AML policy, and employee training [5].
Crypto companies faced over $5.8 billion in fines in 2023 due to inadequate Anti-Money Laundering (AML) programs [1]. To mitigate the growing risk of crypto money laundering, businesses should implement multi-layered AML strategies.
These strategies include robust transaction monitoring employing artificial intelligence and machine learning to detect suspicious patterns and high-risk transactions in real time [4]. Customer due diligence (CDD) and Know Your Customer (KYC) procedures tailored to virtual asset service providers are essential, ensuring identification and screening of counterparties against sanctions and watchlists [4][2].
Cross-chain analytics and tracing tools enable firms to track illicit funds moving through multiple blockchains, reducing investigation time and increasing detection accuracy [3]. Information sharing and public-private partnerships facilitate collaboration between crypto businesses, financial institutions, and regulatory authorities to enhance threat intelligence and coordinate AML responses [4].
Key trends in crypto money laundering include the use of mixing services and tumblers, privacy coins, decentralized exchanges, peer-to-peer platforms, layered transactions, crypto ATMs, complex wallet structures, Non-Fungible Tokens (NFTs), ransomware, and anonymizing services [6]. Companies need to monitor for suspicious transactions involving these methods to protect their assets and comply with regulatory requirements.
In the fight against fraud, specialized tools and strategies are crucial. Companies like Sumsub can help crypto platforms detect fraudulent activities, verify identities, and meet regulatory requirements with their suite of KYC, KYB, and transaction monitoring solutions [7]. By staying vigilant and adapting to the evolving landscape, businesses can reduce exposure to illicit crypto activity, ensure regulatory compliance, and protect the integrity of the financial ecosystem.
References: 1. Source 1 2. Source 2 3. Source 3 4. Source 4 5. Source 5 6. Source 6 7. Source 7
- To prevent the escalation of illicit crypto activities, businesses should implement multi-layered Anti-Money Laundering (AML) strategies, such as transaction monitoring employing artificial intelligence and machine learning, customer due diligence (CDD) and Know Your Customer (KYC) procedures tailored for virtual asset service providers, cross-chain analytics and tracing tools for tracking illicit funds, and information sharing partnerships with financial institutions and regulatory authorities.
- In the realm of finance and business, the European Union's Regulation (EU) 2023/1113 (TFR), 5th and 6th AML Directives (5AMLD & 6AMLD), and MiCA Regulations require Crypto Asset Service Providers (CASPs) to implement fraud prevention mechanisms, including risk assessment, Know Your Customer (KYC), Customer Due Diligence (CDD), cryptocurrency transaction monitoring, reporting suspicious activity, maintaining a crypto KYC/AML policy, and employee training.
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