In recent years, we have witnessed the fact that cryptocurrencies – rightly or not – are associated with money laundering and terrorist financing. The reason for this is the characteristics associated with digital currencies, such as cheap and fast international transactions. The AML (Anti-Money Laundering and Counter Financing of Terrorism Regulations) can help prevent this type of crime. What are these regulations and what is their significance in the activity of cryptocurrency exchange offices?
Regulations in the field of AML were included primarily in the Act of March 1, 2018 on counteracting money laundering and financing of terrorism (Journal of Laws of 2018, item 723, as amended). It is thanks to this law that regulatory authorities have the right to order financial institutions to mark and report suspicious clients and the transactions they execute. It also provides for sanctions for non-compliance with these provisions by institutions obliged to do so.
The emergence of cryptocurrencies has created a problem in the form of providing criminals with a new tool to commit crimes related to money laundering and terrorist financing, which occurs primarily by purchasing cryptocurrencies with the use of criminal money, selling them, and then introducing money theoretically from an illegal source to legal trade. In the crypto industry, fraudsters gain access to technology that not only introduces new opportunities for financial crimes, but also virtually obliterates traces. In order to prevent such actions, the institutions obliged to implement the security measures provided for in the AML Act are, among others, entities operating in the field of virtual currencies. Dedicated legal regulations are implemented to identify and then prevent such processes.
KYC (Know Your Customer) is the initial stage of the CDD (customer due diligence) procedure in AML processes. When a financial institution plans to start a business relationship with a new entity or conduct an occasional transaction with a client, KYC aims to identify and verify that the client is actually who it claims to be. This step enables financial institutions to assign a ML / TF risk value to that customer.
In relation to natural persons, KYC includes the collection of the client’s personal data: name and surname, citizenship, PESEL number (or date of birth), as well as the series and number of the document confirming the client’s identity. It is verified on the basis of the identity document. At the same time, it is necessary to: determine whether the client has the status of a politically exposed person (PEP) or is a family member of such person or a person known to be a close associate of the person holding a politically exposed person; as well as determining the beneficial owner of a given customer by exercising direct or indirect control over it.
The implementation of the AML procedure is valid both in the case of a stationary and online cryptocurrency exchange office. An employee or associate who serves the point’s customers at a given time is responsible for carrying out the activities related to the procedure. Their task is to identify, recognize and assess the money laundering and terrorist financing risks associated with a given client and the transaction that he or she wants to carry out. There are 4 customer qualification risk groups: low, normal, high and unacceptable, for which the transaction must be refused.
The employee assesses the risk using dedicated bureau de change software. Financial security measures are applied in the following cases:
– at the time of the transaction worth 15 thousand EURO (or more – whether combined or single),
– at the time of use in a transaction with the use of a cryptocurrency with a value of EUR 1,000 (or more),
– when there is a suspicion of money laundering or terrorist financing,
– when there are doubts as to the truthfulness or completeness of the customer’s data provided to an employee / associate of the exchange office.
The compliance of procedures with the AML Act becomes mandatory for cryptocurrency exchanges and fiduciary services, such as the Kanga Kantor cryptocurrency exchange network. This, along with the implementation of KYC verification, is an effective tool to fight money laundering and you should be aware of it.