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Cryptocurrency and Financial Crime Typologies

Updated: Jun 24, 2022

On Tuesday, May 24, 2022, The New York ACAMS Chapter hosted a virtual event titled Cryptocurrency and Financial Crime Typologies. The event was moderated by Nishi Gupta (Head of Compliance, Eco, Inc., and ACAMS New York Chapter committee member) and the panel included: Brad Epstein (Head of Financial Crimes Compliance, Prime Trust); Sheryl McCabe, (Compliance Manager, Eco, Inc.); and Brian Walsh, Deputy BSA Officer and Head of Sanctions, Bitgo. A copy of the event materials can be found here.

The event kicked off with the panelists discussing the similarities and transferable skill sets between traditional financial institutions and crypto-related financial institutions. New technology and terminology means that those who make the transition to crypto companies need to be “comfortable with the uncomfortable,” including with addressing emerging risks that are posed by the newness of the space. Ultimately, many of the same regulatory frameworks likely apply and compliance officers at crypto-related financial institutions need to ensure that controls are strong to compensate for new risks and unknowns.

The discussion then moved onto crypto-related typologies, and overall, panelists agreed that a lot of fiat typology elements (e.g., use of money mules) are seen by crypto firms. The added element of cryptocurrency can be addressed by leveraging blockchain tracing tools (e.g., Chainalysis). It may also be difficult to see where certain wallets are located, which can add geographic risks to transactions. Ultimately, however, the core compliance questions of who customers are and why they are engaging in certain transactions remain relevant within the crypto space. Onboarding/KYC is critical because the space is attractive to both new investors as well as criminals that may want to take advantage of inexperienced investors.

The panelists walked through some of the large crypto-related enforcement actions and the fact that many of them were caused by the lack of compliance programs (low hanging fruit) rather than more technical compliance issues. It was also discussed that in terms of crypto theft cases, it’s clear that one cannot get away with a significant amount of proceeds, since the blockchain ledgers are public and allow for traceability.

Examples of recent enforcements can be found below (links are also embedded in the event materials).

To conclude the discussion, the panelists provided their key takeaways:

  • Don’t be intimidated by cryptocurrency, the technology, and the jargon. They all have rational meanings, you just need to familiarize yourselves with them.

  • Trust your investigative instincts/skills. They are just as valuable in crypto investigations as they are in traditional investigations.

  • It’s in some ways harder to facilitate these crimes since transactions are publicly visible. In some ways, it is much more difficult than cash.

  • Look at regulatory trends and enforcements: new regulations may force the industry to come in line with traditional finance, but there is going to be a gap for some time. Even if some actors in the space want to comply, some of the infrastructure isn’t there yet.

  • Have confidence that your FinCrime skill set is transferable and that you can adapt to a new knowledge base over time.

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