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Concerns About AML Violations Afflict Two-Thirds of Crypto Companies, Study Finds

3 mins
Updated by Michael Washburn
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In Brief

  • A new study reveals that 69 percent of firms in the crypto sector are concerned about violating anti-money laundering regulations.
  • Many respondents express serious worries about the robustness of their compliance procedures and their ability to avoid trouble.
  • Policymakers globally have been strengthening AML rules, including the recent EU measures to mandate data collection for all crypto transactions.
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Firms in the crypto sector are feeling the burden of compliance. A new SmartSearch study shows 69 percent expressing concern about the possibility of violating anti-money laundering (AML) regulations. And of bringing even more financial and reputational harm on a beleaguered industry.

The concerns are pervasive. Furthermore, almost one in five respondents (17 percent) say they are “very worried” about the robustness of their compliance procedures.

AML Compliance Causing Anxiety in Crypto

The new survey of 500 compliance decision-makers in banks, challenger banks, crypto platforms, property developers, and gaming outlets reveals serious anxiety about staying in line with AML procedures.

In most jurisdictions, governments require firms dealing in crypto to verify the identities of individuals they transact with. It also includes due diligence checks on customers using their services.

These regulations have been standard practice for decades across the globe. However, their implementation in crypto conflicts with its reputed origins as a privacy-based financial system.

Many crypto firms also admit to relying on flawed manual processes for customer verification. The survey found that 25% of crypto exchanges and 42% of OTC traders wrongly believe that unverified official document uploads like passports or driving licenses provide sufficient evidence of customer authenticity.

In reality, these documents can be easily forged, exposing firms to the very breaches they fear.

Learn how to trade crypto without KYC procedures: 13 Best No KYC Crypto Exchanges in 2023

Policymakers have made AML rules progressively tougher across the globe in recent years. Last month, the EU beefed up its anti-money laundering measures to include crypto asset transfers.

The new rules require crypto asset service providers to collect and share sender and beneficiary information. The rules apply to all transactions, regardless of the amount. Elisabeth Svantesson, Sweden’s finance minister, has called the move bad news for crypto criminals.

Caria Wei, CEO and co-founder of NUVO, acknowledges that AML requirements can pose a challenge to company growth, but thinks the process need not be burdensome.

“New technological advances, such as zero-knowledge proofs (ZKPs), are beginning to ease this burden by enabling validation of information without revealing it,” Wei told BeInCrypto. “Thereby meeting KYC requirements without compromising user privacy.”

Use Zero-Knowledge Proofs for Privacy

Wei believes that the expectation for AML/KYC standards to align with those in TradFi is not unreasonable.

“But it must take into account the unique nature of the crypto space – its decentralization, pseudonymity, and cross-border operations. In response, some solutions are using the concept of ‘self-sovereign identity’ to help users control their digital identities while sharing necessary data with authorities, maintaining the balance between privacy and compliance,” she added.

Christopher Grilhault des Fontaines, co-founder and COO of Dfns, told BeInCrypto that compliance professionals should take advantage of the unique suite of technology available to them. And get input from blockchain-analysis firms.

“By utilizing experts who examine on-chain interactions, companies can get a better sense – a diagnostic, in real-time, if you will – of all the transactions affiliated with whatever digital asset project they are working with,” he said.

“After all, inherent to blockchains is utmost transparency. So overcoming issues related to AML could actually be easier in the digital world. What’s mostly needed is a broader regulatory regime that fosters innovation while promoting tools and activities that prevent illicit activity,” des Fontaines added.

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Josh Adams
Josh is a reporter at BeInCrypto. He first worked as a journalist over a decade ago, initially covering music before moving into politics and current affairs. Josh first owned Bitcoin in 2014 and has followed the space ever since. He is particularly interested in Web3 adoption, policy and regulation, CBDCs, privacy, and the future of the metaverse.