We’re close to the 10-year anniversary of the creation of Bitcoin and few would argue that cryptocurrencies and distributed ledger technology haven’t played a big role in challenging the status quo of the financial marketplace. However, although the technology behind this has been used for good, sadly cryptocurrencies do get a bad name as criminals use them to avoid paying tax and commit money laundering offences.
A recent Fraud Women’s Network event on cryptocurrencies talked through how law enforcement has significant challenges worldwide and not just in the UK in keeping up with organised crime which has taken crypto and run with it. The Cyber Crime Unit however has gained some successes. In particular, a certain Grant West who didn’t lead an ostentatious life but regularly launched attacks against hundreds of company sites using compromised customer details and selling that compromised information on a number of Darkmarket places such as Alpha Bay which is like the eBay of the dark market. West sold over 36,000 items within his Darkmarket places and all moneys were gathered in predominantly Bitcoin. The police undertook a nine-month covert operation and were finally able to catch West whilst he was active on his laptop while travelling on a train from Ryhl to London. Eventually approx. £500k was seized by the Cyber Crime Unit in bitcoin and the message was passed on that you’re not untouchable on the dark market and your Bitcoin is not safe from enforcement. Grant West received 10.5 years imprisonment on 25th May 2018.
Before May 2018, there were no laws at EU level which dealt with the risks that virtual currencies could pose. Welcome then to the 5th Money Laundering Directive which brings virtual currency platforms and wallet providers under the EU Money Laundering Directive. Adopted on the 14th May this year, firms will have 18 months to amend their systems and processes to ensure they are adhering to the regulations.
Like other financial institutions, cryptocurrencies will be required to implement customer due diligence controls as well as monitoring and reporting any suspicious activity. Many will be worrying about the additional time and cost associated with customer due diligence. A report undertaken last year by Thomson Reuters interviewed 900 compliance professionals and found that over half expect their total compliance budget to increase and a third of firms are expecting more compliance involvement in fintech and regtech solutions in the coming year.
Virtual currency exchanges will no doubt be starting to think about ensuring processes are in place to ensure they don’t fall foul of the regulations. Those that are able to bring in customer due diligence checks earlier will look good in a global marketplace and set the tone for compliance. Customer due diligence doesn’t need to be an onerous process either. The rise in the use of advanced identity verification techniques and the use of biometrics allows an individual to be accurately and reliably tied to their identity document within seconds.
CEO of the Asia Securities Industry and Financial Markets Association, Mark Austen recently said; “Fintech solutions, facial recognition for example, hold out great hope for the industry, but haven’t been embraced as quickly as some might like by regulators around the world”. This holds true on a global standpoint and virtual currency exchanges can help to lead the charge to ensure that their customers are verified using the most effective solutions available, and make it harder for terrorist financing and anti-money laundering to flourish in this marketplace.
Thomas Winter is Co-Founder of jenID Solutions who offer flexible software solutions that are tailored to the customer’s needs and that allow customers to perform secure identity checks anywhere in the world in real-time. As such, the company knows who is accessing, using or borrowing its products. jenID thus contributes to the protection of end users’ identities and prevents fraud.