After mentioning cryptocurrencies* and related technologies* in our previous posts, in this article, we discuss the relationship between cryptocurrencies and financial crimes, and the precautions to be taken for prevention.
Before reading this article, we recommend you check the previous article of this series.
Cryptocurrencies are tax-free in most countries and it is hard to be controlled by governments or banks. Moreover, as we mentioned in our previous articles, many of them are too difficult or almost impossible to follow. These features make cryptocurrencies attractive for financing crimes. Cryptocurrencies may be preferred by those who try to hide their transactions, want to be free of taxes, or fund illicit activities.
In May 2021, MASAK published the Fundamental Guidelines for Cryptocurrency Service Providers on Obligations to Prevent Money Laundering and Financing of Terrorism*. Hence, the responsibilities of cryptocurrency services and exchanges increased. Service providers are obliged to identify and declare the transaction network to the MASAK. if the total amount is more than 75 thousand TL or more, or if a transaction is suspicious.
Which Types of Transactions Are Suspicious?
Some clues indicate suspicious transactions. Analysts or compliance specialists can detect inconsistencies in customer behavior based on their experiences. In general terms,
Incompatibility of the transaction amount with the customer profile,
If an individual or an organization repeats a transaction suspiciously while operating commercial activities, or does not have any activity that normally should be operated by commercial operations,
High frequency of repetition of transactions,
Suspicious division of the amount,
Withdrawal money from the accounts with a low transaction volume.
These activities may indicate suspicious transactions.
Common Methods
Transferring illegal money through front companies or foundations with cryptocurrencies. This money is usually aimed to be laundered, and it is easy to hide by using cryptocurrency.
Drug sales and financing of terrorism can be funded by cryptocurrencies and they are exchanged with fiat money. Although it is obliged to submit an identity while exchanging and withdrawing the amount, there are some methods to trick. These methods are the same as the traditional money laundering methods such as smurfing, online betting, etc. Some institutions and individuals accept payments with cryptocurrencies. Purchasing expensive goods such as houses, vehicles, or yachts with cryptocurrencies is possible through some websites. In this way, money can be laundered by exchanging it with these assets.
Peer-to-peer (P2P) exchange websites are another method of money laundering. The suspect sells his illegal crypto money on these exchange sites and receives payment in cash or bank transfer in return.
Another method is online gambling sites that accept cryptocurrency payments. Dirty crypto money is uploaded on these sites as a balance and during the withdrawal process, it is converted into cash and transferred back to the personal account.
Prevention and Detection of AML
Service providers are obliged to take their precautions within the scope of combating financial crimes. In this sense, the main points to be considered are;
Transaction Models
Multiple transactions without a commercial explanation,
Cryptocurrency accounts that do not match the customer profile,
Frequent transfers of large-value cryptocurrencies to one account from too many different accounts within a certain period,
The high frequency of transactions of small amounts between unrelated accounts can be triggering points for investigation.
Client Profiles
It is critical to pay attention to accounts such as:
Accounts that make very high and frequent transactions,
Different accounts from the same IP address,
Frequent changes of IP, e-mail, and customer information.
In addition, if the same user makes transactions with different IP on the same day, these transactions are also suspicious. Moreover, if a user constantly exchanges crypto money to fiat cash instantly, this may also be a warning.
Obligations of cryptocurrency exchanges are as follows:
• Comparing the customer information obtained within the scope of know your customer (KYC),
• National/international sanction lists control,
• Determining whether customers are associated with countries defined as a high level of risk,
• Detection of whether someone has acted on behalf of someone else,
• Monitoring customer transactions to detect unusual transactions,
• Identification and confirmation of the source of income,
• Risk ratings,
• Monitoring and control of complex, unusual, or related transactions exceeding the specified amount,
For these controls, exchanges must have a strong system. Various software products are launched for this purpose. Most of them require contact information or wallet number to start an investigation. However, to detect such crimes, suspicious patterns must be detected rather than investigating individuals.
Datactive allows users to define suspicious patterns, visualize results as a graph network, and monitor transactions and reports instantly. Thanks to Datactive, all needs of crypto exchanges are in one system.
Check the all capabilities of Datactive and contact us for more information!