18/12/2023 Gatenox

Compliance and Cryptocurrency: Navigating the New Terrain

In a recent insightful discussion, Georgijus Kocegarova and Pawel Kuskowski delved into the complex world of compliance within the cryptocurrency industry, with a particular focus on Transparency International’s report highlighting the issue of money mule accounts in the cryptosphere. This conversation is critical, especially as it sheds light on the intricate ways verified cryptocurrency accounts are being misused to evade sanctions, with Wirex serving as a poignant example.

The Menace of Money Mule Accounts and Sanctions Evasion

Georgijus brought to the forefront the alarming trend of black markets for verified accounts. These platforms enable the laundering of substantial sums or the evasion of sanctions. He pointed out that these accounts are often sold in bulk, sometimes through Telegram bots, thereby enabling users to circumvent daily transaction limits and engage in potentially illicit activities. This phenomenon poses a significant challenge to maintaining the integrity of financial systems and adhering to international sanctions.

Comparing Compliance: Traditional Finance vs. Crypto

The dialogue then shifted to compare the challenges faced in traditional finance and the crypto world in terms of the misuse of accounts. While similar markets exist in traditional finance, the problem is notably more severe in the cryptocurrency realm. This disparity is largely due to the inherently digital nature of crypto assets, which provides a fertile ground for such malpractices to thrive.

Enhancing Compliance: IP Monitoring and AI

A key area of discussion was the role of advanced technology in compliance programs. The duo examined how monitoring IP addresses and phone number changes, coupled with leveraging artificial intelligence, can effectively identify suspicious activities. This technological approach is crucial in flagging unusual patterns across multiple accounts, thereby enhancing the ability to detect and prevent fraudulent activities.

Blockchain Analytics: A Compliance Frontier

The conversation acknowledged the potential of blockchain analytics as a powerful tool in tracing transactions beyond the scope of traditional financial systems. However, they also recognized the challenges, as criminals may employ techniques like mixers to obscure their transaction trails, presenting a continuous cat-and-mouse game for compliance professionals.

Regulatory Landscape: UK’s Stance on Crypto Licensing and Financial Promotions

The discussion moved towards the regulatory challenges, particularly in the UK, where crypto businesses face a tough time obtaining licensing. The Financial Conduct Authority’s (FCA) stringent approach, focused on consumer protection and market stability, has led to few approvals. Additionally, new regulations limiting financial promotions pose significant hurdles for non-UK exchanges looking to market their services to UK consumers.

Guidance for New Compliance Officers

The conversation offered valuable tips for new compliance officers:

  • Contract Review: Understanding contractual responsibilities and authority levels is crucial.
  • Policies and Procedures: Familiarizing with existing policies and ensuring their alignment with system setups is key.
  • In-depth System Knowledge: A thorough understanding of the operational compliance systems within the organization is essential.

Choosing Service Providers and Setting Up Systems

The selection of service providers should be tailored to specific needs, such as identity verification or regional considerations. Preference should be given to established providers who have a comprehensive understanding of the regulatory landscape. Once chosen, policies and procedures should be adapted accordingly.

Watch the discussion recap

Bridging the Gap in Compliance and Regulation

Georgijus concluded the discussion by emphasizing the gap between possessing sophisticated compliance tools and effectively utilizing them within regulatory frameworks. He highlighted the dichotomy where some exchanges may flout regulations, posing consumer risks, while others adhere strictly, potentially limiting market access. Pawel expressed his gratitude to Georgijus for shedding light on these pivotal compliance challenges within the cryptocurrency sector, a conversation that underscores the ongoing evolution and complexity in this dynamic field.