A Guide to Anti-Money Laundering for Crypto Firms
BitMEX exchange has agreed to a $100 million settlement with the US Commodity Futures Trading Commission (CFTC) and the Financial Crimes Enforcement Network (FinCEN). The fine was imposed after the exchange failed to carry out sufficient checks on its customers. Many financial institutions will work with an AML compliance solution provider to ensure these are implemented effectively, tuning alert thresholds to the nuances of a firm’s risk profile. This latest action shows that the message from regulators is increasingly clear – crypto businesses need to play by the same rules as other firms or face substantial penalties.
According to FinCEN, the exchange ‘failed to implement and maintain a compliant anti-money laundering program and a customer identification program, and it failed to report certain suspicious activity.’ In practice, all users needed to get trading was an email address.
As a decentralized finance platform, cryptocurrencies have long been known to have money laundering risks, but in the words of CFTC Commissioner Dan Berkovitz, some cryptocurrency companies think “the rules don’t apply to them”. Regulators disagree.
In the past month alone, the Securities and Exchange Commission, the CFTC, and the Treasury Department announced more than $120 million in penalties for digital currency exchanges. Earlier this year, the price of Bitcoin plummeted after the Chinese government launched a new campaign to expand the regulation of cryptocurrencies, taking action against miners and imposing curbs on crypto banking services and trading.
The challenge for regulators is how to balance the huge potential cryptocurrencies offer with the need for oversight and stability. China’s actions reflect this conundrum. While it has announced new regulations on the crypto industry, it is also leading much of the world in its quest to introduce a central bank digital currency (CBDC), integrating digital currencies into its existing standards and practices.
The Monetary Authority of Singapore (MAS) is also advancing authorization applications from digital payment token service providers that meet its standards on money laundering, terrorist financing, and technology risk controls. Earlier this month, MAS granted preliminary approval to one of Singapore’s first cryptocurrency exchanges. The exchange can now operate as a regulated provider. With 170 other applications received by Singapore’s central bank, additional licenses for compliant firms are likely to be imminent.
As the BitMEX episode shows, firms should expect regulators to demand more transparency and more accountability. The pressure is on for cryptocurrency platforms to get compliant by effectively monitoring the information that matters – AML data, transaction monitoring, sanctions, PEPs, and adverse media – for all users that pass through their systems and platforms.
While every business should act to minimize risk and remain compliant, mistakes happen. To find out how to turn a problem into a teachable moment for your business, check out our in-depth guide on recovering from mistakes.
Originally published August 20, 2021, updated May 6, 2022
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