Crypto monitoring refers to the collection and analysis of a large amount of data using automated tools that would otherwise be impossible to process manually. Various automated anti-money laundering (AML) tools are used by companies to prevent any kind of fraud or suspicious activities. These tools provide real-time alerts. Cryptocurrencies are circulated without any governmental/regulatory authority or a central bank and hence are prone to more fraud.
Transaction monitoring refers to the use of technology for the early detection or prevention of any unusual transaction in the digital payment chain. It also notifies of any suspicious connection between the parties for money laundering in real time.
Transaction monitoring helps businesses verify the incoming source, legitimate existence of the ultimate beneficial owner, and destination of the outgoing digital money.
Crypto monitoring is more complex. It deals with a huge amount of data, and the volume of transactions is quite high. It involves all fiat transactions (including major currencies USD, EUR, and GBP) across jurisdictions to major cryptocurrencies (including Bitcoin, Dogecoin, Litecoin, and Ethereum).
However, certain international recommendations and guidelines in place can help companies dealing in crypto transactions keep a vigilant eye on all transactions. As the probability of fraud and theft is high in the case of crypto dealings, extra caution is to be practised by these institutions while dealing with any kind of crypto.
What is crypto monitoring?
Involvement in crypto and digital frauds/theft both have increased and are expected to further increase in coming years. Money laundering via crypto is a new arena for fraudsters, as the common public is unaware of the entire process. In 2022 alone, almost $2 billion have been stolen via crypto using hacks and tricks.
Regulating authorities across the globe have framed special crypto monitoring rules to safeguard the interests of companies dealing in crypto. Non-compliance with these regulatory norms leads to a huge amount of fines and penalties.
Regulations around crypto monitoring
The regulations and laws for cryptocurrency monitoring may differ from country to country. So far, there is a lack of international consensus on regulating and monitoring crypto. Virtual assets dealers and institutions need to have regular controls and report any suspicious activity report (SAR) in case any suspicion arises.
In September 2020, the International AML regulatory body, Financial Action Task Force (FATF), issued guidelines on money laundering schemes via virtual assets that include crypto monitoring.
FATF outlined the following red flags of crypto money laundering:
Anonymous money transactions:
o Trade via proxies
o Use of private coins
o Trade on unlicensed exchanges
o Use of the same IP address to operate numerous cryptocurrency wallets anonymously.
o Any suspicious cryptocurrency transaction pattern
o High transaction volume in a short period
o Quick withdrawals or deposits into any new account
o High-risk jurisdictions or nations
o Sending currency to exchanges outside of the customer’s country of origin
o Multi-cryptocurrency transactions deliberately structured in amounts that don’t comply with reporting thresholds
Inadequate customer due diligence:
o Any crypto transaction about such accounts that refuse or evade identity verification
o Innocent victims like elderlies or financially vulnerable people are hunted by these smurfers (also referred to as money mules) for their illegal laundering activities
Steps that crypto businesses need to take
FATF issued updated guidelines in October 2021 stating a risk-based procedure for crypto transactions. Institutions dealing in crypto have to imply these risk-based crypto monitoring measures to detect and prevent any laundering activity, such as:
As per FATF 2021 updated guidelines, any transaction exceeding $/€1000 must compulsorily come under the ambit of due diligence. Dealers in crypto must take preventive measures complying with CDD like obtaining valid digital credentials from their prospective clients via government-approved identity documents such as Aadhaar, passport, PAN, driving license, or any other biometric ID.
Screening, monitoring, and reporting
Cryptocurrency service providers should document all SARs for further audits while applying vigilant checks via screening and monitoring for high-risk data for
o Customer’s politically exposed person (PEP) status
o Involvement in adverse media
o Presence on international sanctions/watchlists
Use of smart technology
Crypto monitoring requires assimilation and survey of big data, which would be otherwise difficult/impossible to process manually. A variety of tech tools are required including automated AML tools to ensure that any signs of suspicious activities are detected and prevented in advance.
The best crypto monitoring software is that which monitors automatically without wasting time and sending alerts for prevention in real-time. HyperVerge is one of the best tech partners providing AML-based crypto monitoring that can help you upsurge compliance toward crypto monitoring via its latest technology. Do reach out to us at HyperVerge.
What is a crypto monitoring platform?
Crypto monitoring platform is a software which pre-detects high-risk suspicious transactions.
Can cryptocurrency transactions be monitored?
How does crypto monitoring avoid crypto fraud?
Crypro businesses can implement blockchain analysis software or give guidance to their employees to follow regulatory frameworks by regulators such as FATF or FinCEN.