C-AML: Explore the Next Frontier of Crypto-AML
Panelists (from left to right):
Michael Sachs, Executive Assistant District Attorney and Chief of the Investigation Division, Manhattan District Attorney's Office
Nishi Gupta, Vice President - GFCC Data Capabilities & Intelligence, American Express
Pratap Ranade, Vice President of Envoy Engineering at Enigma.
Meryl Lutsky, Co-Chair, ACAMS New York Chapter
The Panel discussed a variety of issues, including the definition of “digital currency,” the lure to both investors and criminal elements, and the future applications of crypto currency in the financial sector.
What is Digital Currency?
Digital, or virtual, currency is a type of currency available only in digital, and not physical, form. While it exhibits properties similar to physical currencies, it allows for nearly instantaneous transactions and borderless transfer-of-ownership. The website CoinMarketCap.com recently reported that there are approximately 1,600 forms of virtual currency on the market, about 1,000 of which are trading.
Digital currency, however, is not backed by any centralized government. Thus, none of the consumer protections or financial institution regulations regarding anti-money laundering apply to digital currency. As a result, many instances of money laundering and consumer fraud have been identified in this space.
On a more practical level, for those investing in digital currency, this means that the value of digital currency can fluctuate greatly from day to day.
Criminal Uses of Digital Currency
Just as with physical currency, digital currency can be used as a means of exchange for contraband. Recent cases against Silk Road, Liberty Reserve, and Alpha Bay underscore the role that digital currency marketplaces play in the propagation of many crimes, including narcotics, child pornography and fraud, providing a certain degree of anonymity for criminals in the transfer of funds.
Digital currency has also been used by computer criminals through ransomware, the locking of computer data until a ransom is paid. The WannaCry virus, for example, locked out computers at hospitals and other sensitive locations and required the individuals to pay a certain amount in BitCoin to unlock the data.
Cryptocurrency and Transaction Monitoring: What's the foundational requirement for our data?
To be effective, financial institution data has to be bridged with real-world information. Building relationships with Law Enforcement and getting Intelligence from them, allows financial institutions to build typologies and make transaction monitoring more specific.
The first step is to understand that you have to have a system in place that normalizes your data and captures as much information as you can into your central data warehouse. Only then can you apply the appropriate transaction monitoring. The transaction monitoring has to be driven by what's happening in the real world. For example, a credit card issuer will more likely see things that look akin to credit card transactions on a merchant account. If you have access to that merchant account, you can at least do some pattern analysis in their data. The second step is to understand your KYC requirements and those of your third-party providers to identify customers who may pose a risk.
Suspicious Activity Reporting
The higher level of anonymity in digital currency makes it more difficult for law enforcement to identify bad actors. SAR filers can help by providing information, such as email addresses, phone numbers, and IP information, in the body of the filings.
The Future of Digital Currency
The Governments of Japan and Australia have recognized BitCoin as legal tender, paving the way for some financial institutions to think about ways to incorporate digital currency into their payment systems.