AML Solutions for Cryptocurrency – A Balance in Security and Customer Retention

AML Solutions for Cryptocurrency – A Balance in Security and Customer Retention

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Cryptocurrency holds decentralized and anonymous nature which makes them more vulnerable to fraudulent intentions. From money laundering and account takeover to payment fraud, criminals are using online cryptocurrency exchanges to perform various malicious activities. In return fraudsters not only bring financial and legal repercussions but also costs crypto-trading platforms their reputations. 


Due to their decentralized nature, crypto exchanges need to integrate efficient AML solutions for better combatting fraud attempts. With the increase in adoption of virtual currencies, it has become mandatory forms to bring in efficient preventive measures. Similarly, regulatory watchdogs have made it mandatory for online platforms to perform active customer identification prior to their digital onboarding. This blog sheds light on red flags and how AML compliance solutions help crypto exchanges combat them. 

AML Security Solutions – Identifying Red Flags for Detecting Crypto Trading Fraud
Criminals are making their way to cryptocurrencies for hiding their illicit funds and converting them into clean money. Due to lax anonymity and lax AML compliance checks, online crypto exchanges are facing high chances of criminal activities. Therefore, regulatory watchdogs including the Financial Action Task Force (FATF) and European Union (EU) are rushing to enact more strict AML verification regulations to prevent money laundering. 


Implementing stringent anti-money laundering and customer identification however can drive complexity in operations and user-based friction. Furthermore, crypto exchanges can face customer drop-off as well as hefty non-compliance fines. Hence, FATF highlights the following red flag for crypto trading platforms to secure their operations against money laundering;

Fraudulent Exchanges and Mixing Services
Criminals often use fraudulent exchanges, darknet marketplaces, questionable gambling websites, and other platforms with lax AML compliance checks. They buy or sell crypto tokens on these sites to escape identification checks and easily launder big sums of money. 

Unusual Transactions
Fraudsters use unusual transaction patterns to steer clear of AML screening. This helps them convert their money into crypto tokens more easily. Criminals either withdraw all their funds at once or make small transactions to escape suspiciousness detection. 

Unregistered Exchanges
By using unregistered crypto exchanges or one that is situated in some other jurisdiction, criminals easily move their illicit funds. This helps them dodge AML compliance checks as the respective regulations are not applicable to that trading platform. 

Transaction from High-Risk Regions
Money transfers from high-risk jurisdictions are another red flag for money laundering. Criminals belonging to sanctioned countries or those falling on grey or blacklists target regions with no such restrictions. This helps them escape anti-money laundering checks. Similarly, fraudsters choose regions with lax regulatory checks to easily launder their proceeds of crimes. 

Suspicious Trading Behavior
Fraudsters make constant changes to their personal information to hide AML monitoring checks. For this, they connect their IP addresses with VPNs for keeping their location hidden. Crypto exchanges with inadequate AML solutions are more prone to facing high chances of money laundering and crypto trading fraud. 

AML Verification Tools – Preventing Crypto Trading Fraud 
Trading fraud and money laundering are exposing the $952.95 billion cryptocurrency industry to various consequences. Due to inadequate AML compliance and customer verification checks, online exchanges are leaving enough room for criminals. From stealing funds from crypto wallets to making suspicious transactions, fraudsters are making it challenging for online trading platforms to keep their operations secure. 


AML security solutions on the other side provide authenticity and ensure safer crypto trading. With checks like real-time identification, transaction monitoring, Customer Due Diligence (CDD), risk assessment, and background cross-check, AI-powered anti-money laundering solutions are upholding the integrity of crypto exchanges. The next section provides insights into how these tools safeguard online trading platforms from fraud attempts and money laundering;

Customer Identification
As per legal obligations put forth by FATF, it is mandatory for online crypto exchanges to identify their customers prior to their onboarding. This process involves the following verification checks;


Verification of Personally Identifiable Information (PII)
Analyzing pictures through biometric checks
Data Validation
Liveness detection 
Cross-matching identities against global watchlists

AI-powered AML solutions streamline crypto trading by leveraging these checks and upgrading the customer onboarding process of online exchanges. 

Payment Validation and Transaction Monitoring
AML systems help crypto trading platforms to validate payments customers make while buying or selling tokens. By asking for a real-time selfie, online crypto exchanges can better assure that the credit/debit card belongs to the user making a transfer. AI-powered anti-money laundering checks also provide transaction monitoring to detect suspiciousness and report it to regulatory authorities in time. 

Key Takeaways
AI-powered AML compliance solutions provide crypto exchanges with robust measures such as CDD, active risk assessment, background identity checks, ongoing monitoring of transactions, and instant suspiciousness detection.  As criminals are deploying advanced techniques to either take over accounts or launder their illicit funds into online trading platforms. With top-notch AML verification in place, crypto exchanges not only can stay put with legal standards but also restrict criminal activities. 


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