Money Laundering has been one of the biggest accusations levied on cryptocurrencies. The argument was further intensified when US President Donald Trump tweeted that crypto/BTC is used for several social evils, including money laundering. Therefore, to have a clear picture of the issue, CipherTrace, one of the leading crypto-blockchain research firm, conducted an anti-money laundering survey for Q3 2019, which has yielded mix results.
Key outcomes of the survey:
- Financial Action Task Force (FATF) has had serious implications on the industry, like banks, crypto exchanges, and other financial institutions have tightened the regulations of virtual assets, in the participation of FATF’s Funds Travel Rule.
- More than two-thirds of total crypto exchanges have weak, porous KYC systems. Moreover, though many of the crypto exchanges have gotten rid of privacy token, about 32% of them still have these tokens in trade.
- Crypto thefts and frauds have come down for the quarter, lowest in the last two years. Total thefts for the year are standing at $4.4 billion till the last quarter. However, terrorists are developing sophisticated systems to make tracking crypto funds used for attacks more and more difficult.
CipherTrace report primarily deals with several factors, which contribute towards preventing money laundering, like regulations, impending legislation, prevailing sentiments, nefarious elements within the ecosystem, etc. The report is first of its kind, for which a comprehensive survey was conducted on analyzing the KYC procedures of the top 120 crypto exchanges.
The Crypto AML Report for Q3 2019 showed that about two-thirds of the total scrutinized 120 crypto exchanges have a weak system for KYC. This creates room for anti-social elements to use the tokens for money laundering, which will come under heavy scanners once the new regulations by the FATF will come in force worldwide. The “Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers” released by the FATF will come in force by June-July 2020 and all the nations and private Financial Assets Service Providers (FASP) will have to put regulations in line with these guidelines.
As part of the research, CipherTrace found that classified the exchanges in three categories based on their KYC procedures. Out of these, 37% have good KYC, which means
“These exchanges require a very strenuous KYC process, which required completing several steps before the researchers were able to make a deposit or withdrawal. They not only require the ID process but also proof of address. Some require a phone call or video chat to complete the KYC process.”
42% of the exchanges have porous KYC, which required some ID Verification, though it isn’t formidable enough to prevent money laundering in most cases. On the other hand, as much as 21% of the exchanges have weak KYC, as they require almost no documentation to withdraw at least 0.25BTC daily, which is almost $2,000 per day.