Money laundering is a pervasive phenomenon around the world, with the estimated amount of money laundered in a given year totaling 2.7 percent of the global gross domestic product (GDP).
Cybercriminals are constantly one step ahead of government regulators, developing new and inventive schemes faster than the authorities can quash them.
The latest arena for money laundering is through cryptocurrency, a burgeoning market expected to be valued at $1.4 billion by 2024. Experts estimate that cryptocurrency-related crimes totaled $4.3 billion in 2019, including $2.8 billion in laundered money, with this problem only expected to grow as cryptocurrencies grow more popular.
The December AML/KYC Tracker(R) explores the latest in AML/KYC developments, including the growing problem of money laundering at cryptocurrency exchanges, the transaction analysis and user verification procedures exchanges are deploying to stop launderers, and the still-extant problem of money laundering at traditional financial institutions.
The fact that many cryptocurrency exchanges lack the capability to verify their users’ identities is one of the primary factors making money laundering so widespread. A study found that more than 56 percent of cryptocurrency exchanges have weak or nonexistent KYC systems which are not effective at preventing money laundering. Some exchanges even deliberately avoid having KYC systems by obfuscating their country of origin to make it harder for regulators to impose national compliance guidelines.
Many banks and government regulators have a growing sense of distrust in cryptocurrency exchanges due to this widespread lack of compliance. A survey reported that 88 percent of financial experts said that cryptocurrencies aid in money laundering, and only 9 percent feel the sector is combating this to the best of its ability. The cryptocurrency industry itself disagrees, with 56 percent of exchanges stating that money laundering is an important issue, and 48 percent saying that it is being adequately dealt with.
The traditional financial industry is also struggling with money laundering and KYC compliance. A study from PwC found that 47 percent of American banks and 40 percent of European banks reported that regulatory compliance is their primary challenge this year. A large portion of this challenge stems from the fact that customer onboarding is done by a large number of smaller, fragmented teams rather than having a single dedicated workforce, resulting in communications issues slowing down the process.
For more on these and other AML/KYC news items, download this month’s Tracker.
BitGo On Strengthening Cryptocurrency Exchanges’ AML/KYC Procedures
Cryptocurrency exchanges often fall into compliance gray areas, making them potential hotbeds for money laundering. These exchanges are seizing the initiative by taking their AML/KYC prevention into their own hands, and a single layer of security is not nearly adequate.
In this month’s Feature Story, PYMNTS talked with Anthony Botticella, CEO of BitGo, about how the crypto exchange leverages mobile ID verification and behind-the-scenes transaction analysis to stop money launderers in their tracks.
Money laundering is a massive threat to cryptocurrency exchanges, with financial institutions (FIs), FinTechs and other traditional banking services often viewing them with suspicion. The federal government is also cracking down on noncompliant exchanges with massive fines if their AML/KYC procedures are not up to code.
This month’s Deep Dive explores the various methods by which money launderers exploit cryptocurrencies, and the actions that regulators are taking to reduce the spread of cybercrime on these platforms.
About The Playbook
The AML/KYC Tracker(R), a Trulioo collaboration, provides an in-depth examination of current efforts to stop money laundering, fight fraud and improve customer identity authentication in the financial services space.