FAQ on AML checks for crypto addresses
This FAQ applies to the BestChange AML analyzer.
- What are AML&KYC procedures in relation to the crypto industry?
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AML&KYC procedures are key in ensuring the legality and transparency of financial operations involving cryptocurrencies. AML&KYC procedures include monitoring transactions and identifying suspicious activities. This helps prevent using cryptocurrencies for money laundering, terrorist financing, and other illegal activities.
Implementing AML procedures by crypto projects emphasizes the desire to create a secure and transparent environment for users, ensuring compliance with legal and regulatory requirements. These procedures may include various KYC verification steps depending on company policies and regulatory requirements, balancing security and user convenience.
- When did AML&KYC procedures begin to be applied for crypto assets?
- The practice of AML in relation to crypto assets began with the active development of the crypto industry. The procedures in various forms have been used since 2013-2014, when cryptocurrency exchanges and other services dealing with cryptocurrencies startedto implement these measures to comply with regulatory requirements and prevent using crypto assets for illegal purposes, such as money laundering and terrorist financing. The most significant changes occurred in mid-2019 with the advent of sanctions lists from existing regulators, which is affecting cryptocurrency activities at present.
- What do the Risk Score marks displayed in the result of AML check of a crypto address mean?
- Based on the result of the AML analysis of a crypto wallet address, the data are sorted according to various parameters, the unifying element of which is information marks about the presence of low, medium, and high risks associated with the crypto address. The marks indicate the presence of direct or indirect connections with various sources, depending on the legitimacy of which the crypto address is assigned the corresponding Risk Score marks.
- How are Risk Score marks assigned to a crypto address?
- A specific set of Risk Score marks is assigned to a crypto address due to interaction with a blockchain. The scoring result depends on the crypto address's direct or indirect connections (incoming and outgoing transactions) with various sources, platforms, resources, and segments.
- Why can Risk Score on the same address differ from one AML service to another?
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There is a number of AML services in the crypto industry. Indeed, in particular cases, the data can differ. At the same time, the databases are systematically updated according to a list of key criteria from regulators, ranging from those of the national level of jurisdictions to the FATF and OFAC international organizations.
Accordingly, if the used AML analyzer shows the presence of high-risk marks, while another service does not have such data, this may indicate that the information about the crypto address in this or that AML service has not yet been updated. Once the data are received and processed, the numeric values of various indicators (high-risk marks, overall Risk Score) malign, tending to the average values.
- Where can I see the list of Risk Score marks?
- The complete list of Risk Score marks is available in the Help Center on this page.
- Can the Risk Score marks assigned to a crypto address change?
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Yes, this is possible, this indicator is dynamic. An AML analyzer allows you to monitor any interaction with a crypto address. Depending on incoming and outgoing transactions, significant changes may occur, including due to the emergence of new indirect connections of the crypto address with various sources. However, it should be taken into account that if a crypto address received funds from a source already marked as high-risk, the likelihood that the Risk Score marks will no longer apply to the crypto address tends to zero.
You can re-check the address on the monitor's site every 60 minutes. This functionality is free of charge.
- How often is it needed to track changes in the Risk Score marks assigned to a crypto address?
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Risk Scores are dynamic. An AML analyzer allows you to monitor any interaction with a crypto address. Depending on incoming and outgoing transactions, significant changes may occur, including those due to the emergence of new indirect connections of the crypto address with various sources. In other words, even if the owner of a crypto wallet does not accept or send any new transactions for a long time, the Risk Score may change due to new transactions made by the owners of crypto wallets with which the crypto address was previously in contact.
In connection with the above, it is necessary to carry out an AML check of the crypto wallet every time cryptocurrency transactions are planned. On the page of the completed AML check on the monitor's site, the ability to re-check the crypto address every 60 minutes has been implemented, while the previous checks are saved. Thus, it is possible to track changes in the Risk Score of a crypto address over a long period of time. This functionality is free of charge.
- If a crypto address does not have any high-risk marks, will funds not be blocked?
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If a crypto address does not have high-risk marks, this means that there are no direct or indirect connections with the most suspicious and illegal sources from the point of view of transaction monitoring and analysis systems. In this case, the likelihood that exchange services or cryptocurrency platforms will block funds due to suspicions of money laundering or connection with other illegal transactions is significantly reduced
Nevertheless, it should be taken into account that crypto services use complex systems to detect and prevent money laundering, which may include not only checking addresses for the presence of AML marks but also analyzing transaction history, source of funds, and compliance with KYC procedures. This means that even in the absence of high-risk marks, transactions, and crypto wallet will still be analyzed for compliance with the policies and procedures of the relevant platform. In addition, it is essential to remember that policies and AML&KYC requirements may differ depending on the jurisdiction in which the crypto service is registered and on the internal rules of the service. Therefore, even if the crypto address does not have any high-risk marks, you should study the terms and requirements of the service you are using in advance to minimize the risks of blocking funds or freezing transactions.
If you have questions about the terms of use of the crypto service, it is recommended that you contact the support service directly before conducting cryptocurrency transactions to clarify the information of interest.
- The crypto address contains high-risk marks. Why were they assigned?
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If a crypto address contains high-risk marks, this may be due to several factors that indicate the crypto address is potentially associated with suspicious or illegal sources:
- The crypto wallet participated in transactions with other crypto addresses that are identified in AML analyzers' databases as being associated with illegal activities, in particular, with sources used for money laundering, fraud, and terrorist financing.
- In some cases, suspicions in the AML analyzer's monitoring system may be raised due to frequent transactions to questionable crypto addresses, significant transfers of funds, or unusual frequency of transactions, especially if they are sent to crypto addresses not associated with any known commercial services.
- The crypto address was used to conduct transactions on platforms associated with illegal activities, such as trading in illicit substances, weapons, or other illegal goods and services on the shadow market.
- A transaction sent from the crypto wallet was frozen, although there were no high-risk marks. What should be done?
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If a transaction sent from a crypto wallet was frozen, but there were no high-risk marks on the sender's crypto address, this could be due to several reasons not necessarily related to AML risks.
Potential reasons for blocking a transaction:
- internal control rules: cryptocurrency services have their own fraud monitoring systems to detect suspicious activity, which are based on algorithms that can be triggered by transactions that are unusual according to the set criteria;
- regulatory requirements:sometimes transactions are blocked due to changes in regulatory requirements or to comply with international sanctions and restrictions that may be unrelated to the assessment of cryptocurrency transactions;
- problems with verification: if the terms of use of a crypto service imply a KYC procedure, and it has not been fully completed, or the service administration has doubts about the data provided, this can also cause the funds to be frozen;
- transferring funds to clustered addresses: many exchange services interact not only with AML tools but also have their own database, which helps to avoid involvement in illegal activities when transferring funds to dubious, illegal resources.
If a transaction has been blocked, it is recommended that you take the following steps:
- contact customer support: get in touch with the exchange service or the monitor to obtain detailed information about the reasons for blocking the transaction;
- provide requested data: f the blocking is related to verification or regulatory compliance, it is important to ensure that all the necessary documents are provided with appropriate quality.
It is important to note that understanding requirements of cryptocurrency services and complying with them will help minimize transaction-blocking risks.
- How to minimize the risks of interaction with high-risk crypto assets and sources?
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Minimizing risks when interacting with high-risk crypto assets and sources is an important task that every owner of a crypto wallet faces.
Recommendations to help reduce potential risks:
- preliminary analysis: before accepting or sending funds, check the senders' and receivers' crypto addresses through available blockchain analysis tools and AML analyzer databases. This will help identify possible risks associated with specific crypto addresses or sources;
- use reliable exchange platforms and crypto wallets: interact only with vetted and reliable cryptocurrency services that have a positive reputation and comply with AML&KYC procedures. This reduces the likelihood that crypto assets will be associated with high-risk marks;
- limit the number of transactions with unverified counterparties: be especially cautious when making transactions with unknown or unverified parties, especially if a cryptocurrency transaction seems too profitable or if the counterparty insists on the urgency of the transaction;
- AML&KYC compliance: adhere to AML&KYC standards even if you are acting as an individual user. This approach may include confirming your identity when working with crypto services, as well as maintaining transparency of the origin of crypto assets.
- Based on the results of the AML check of the crypto address, the Risk Score marks are not displayed in the detailed analysis. Why is that?
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Risk Score marks may not be detected at the time of check
It is likely that this crypto address has not interacted with a blockchain before and is new. It is also possible that the crypto address has been engaged relatively recently, and AML analyzers have not yet established the list of marks.
Try using the results update function after a while. On the page of the completed AML check on the monitor's site, the ability to re-check the crypto address every 60 minutes has been implemented, while the previous checks performed are saved. Thus, it is possible to track changes in the Risk Score of a crypto address over a long period of time. This functionality is free of charge.
- Based on the results of the AML check of the crypto address carried out on the monitor's page, the received Risk Score data does not match the information from the exchange service. Why is that?
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In particular cases, data from different crypto services may vary depending on certain factors, the main of which is the presence or absence of the necessary information about a crypto address or transaction, as well as the actuality of AML databases, which are updated according to a list of key criteria from regulators, starting from the national level of jurisdictions and ending with the international organizations FATF and OFAC.
Accordingly, if the used AML analyzer shows the presence of high-risk marks, while another service does not have such data, this may indicate that the information about the crypto address in this or that AML service has not yet been updated. Once the data are received and processed, the numeric values of various indicators (high-risk marks, overall Risk Score) malign, tending to the average values.
- Can I conduct an AML check of a dynamic address?
- Yes, it is possible to check a dynamic crypto address for Risk Score marks. The only condition is the presence of at least one on-chain transaction. In other words, the dynamic crypto address being checked must have at least one incoming transaction. Results may vary and either reflect the total Risk Score of a crypto wallet, which includes data from all dynamic crypto addresses associated with it, or solely the data for the dynamic crypto address being checked. In each individual case, the evaluation algorithm will depend on heuristics, which are the relationships between cryptocurrency addresses and their transactions, subject to the principles of functioning of the blockchain network, allowing AML analyzers to make an educated guess about their belonging to the same crypto wallet.
- How to check the crypto address that will be used to transfer funds from a crypto exchange?
- When withdrawing funds from a custodial service (exchange), it is not possible to know in advance the crypto address that will be used to form the transaction. In this case, the Risk Score tags assigned to the crypto exchange, as well as the internal rules of the platform to which the funds are planned to be transferred, are of key importance. We recommend checking with the support of the crypto service to which the transaction will be sent if it is possible for them to receive crypto assets from the exchange used to send them.
- What are the plans for developing services for conducting AML checks?
- The administration of the monitor is interested in expanding the functionality for performing AML checks. In particular, in the near future, it is planned to introduce the possibility of AML-checking transactions and additional ways to pay for services in the most convenient way. Also, the BestChange platform, to expand the databases AML service, is considering the possible implementation of databases of alternative AML analyzers.