Posted on

Binance-Backed OTC Firm Releases Anti-Money Laundering Compliance-as-a-Service Product

Koi Trading in partnership with IdentityMind have developed an AML compliance-as-a-service product supporting cryptocurrencies.

Binance-backed over-the-counter (OTC) desk Koi Trading has partnered with IdentityMind, a platform for online risk management, to develop an Anti-Money Laundering (AML) compliance-as-a-service product. The development was announced in a press release published on March 12.

The parties have reportedly released an AML compliance-as-a-service product dubbed “Koi Compliance,” supporting digital currency and targeting money services businesses. The new platform will purportedly enable companies to focus on conducting their business, letting Koi Compliance to perform Know Your Customer (KYC) procedures, monitor transactions, conduct sanctions screening, and keep records.

Last November, Koi Trading received $3 million in investment from Binance Labs, an incubator arm of the world’s leading cryptocurrency exchange (as of press time) Binance. The move was purportedly taken to enable Binance Labs to utilize Koi’s quantitative research, data science, and compliance consulting services.

That same month, Binance confirmed to Cointelegraph that it would use an automated KYC application provided by financial software firm Refinitiv. That would allow Binance to integrate the World-Check Risk Intelligence database into their internal workflow and streamline the screening process for onboarding, KYC, and third-party risk due diligence.

In January, Cointelegraph reported that blockchain compliance startup TRM, which developed a so-called token relationship management platform to help crypto businesses streamline their AML compliance, closed a funding round totalling $1.7 million led by United States-based investment firm Blockchain Capital.

Posted on

Blockchain Analytics Firm Chainalysis Outlines User Data Policy Amid Coinbase Allegations

Blockchain analytics firm Chainalysis has published a statement clarifying that it does not collect or sell users’ personal data when it provides its services to cryptocurrency exchanges.

New York-based blockchain analytics firm Chainalysis has published an official statement clarifying that it does not collect or sell users’ personal data when it provides its services to cryptocurrency exchanges. The statement was published in a company blog post on March 5.

Chainalysis is one of the highest-profile firms in the blockchain intelligence industry, providing technology — such as its proprietary KYT (Know Your Transaction) tool — that enables firms, governments and law enforcement agencies to monitor blockchain transactions and track suspected illicit activities, such as money laundering or terrorist financing.

As reported, allegations that such firms may be circulating their clients’ user data surfaced last week in the midst of community backlash over Coinbase’s controversial acquisition of blockchain analytics firm Neutrino. To justify the acquisition, a senior Coinbase executive had claimed in an interview that their previous intelligence tool providers were purportedly selling Coinbase users’ data to third parties.

While the executive did not explicitly identify these intelligence firms by name, Chainalysis has evidently responded by clarifying that it does not require or store — let alone circulate — any personal data in order to conduct transaction analyses:

“Exchanges that use Chainalysis KYT […] submit their transaction data — not personally identifiable customer data — to Chainalysis to automate the process of transaction monitoring. […] Any link from a transaction back to the person or people involved […] must be made outside of Chainalysis because we do not collect any personally identifiable information from exchanges.”

The statement continues to outline that Chainalysis’ focus is on flagging transactions “based on indicators of risky behavior,” such as destination addresses known to be illicit entities (a darknet market or terrorist financing organization, for example). This contextualization, it continues, requires only the basic knowledge that a given wallet address belongs to a crypto exchange customer, not personally identifiable information.

As per the blog post, the firm’s blockchain analytics tools are thus aimed at monitoring service-level transaction data, not at labeling individual users’ wallets.

Chainalysis further states that based on its counterparty analyses and KYT screening “risk appetite and investigations are the exchange’s own responsibility.”

As reported yesterday, London-based blockchain analytics firm Elliptic — which provides technology to Coinbase — has refuted allegations that it collects and sells clients’ user data to third parties for financial gain. In an official statement, Elliptic’s CEO and co-founder James Smith stated that the firm has never “enabled the violation of individuals’ financial privacy,” and that such accusations represent a fundamental misunderstanding of Elliptic’s industry role.

Also yesterday, Coinbase CEO Brian Armstrong revealed that Neutrino staff with prior connections to the contentious software firm Hacking Team will transition out of their new roles at the exchange.

Posted on

Coinbase Technology Partner Refutes Alleged Collection, Sale of User Data to Third Parties

Elliptic has refuted allegations that it collects and sells clients’ user data to third parties for financial gain.

London-based blockchain analytics firm Elliptic — which provides technology to major United States crypto exchange Coinbase — has refuted allegations that it collects and sells clients’ user data to third parties for financial gain.

In an official statement published on March 4, Elliptic’s CEO and co-founder James Smith stated that the firm has never “enabled the violation of individuals’ financial privacy,” and that such accusations represent a fundamental misunderstanding of Elliptic’s industry role.

Elliptic is one of key players in the blockchain intelligence sector, providing analytics tools that allow companies, governments and law enforcement agencies to monitor blockchain transactions and track suspected illicit activities, such as money laundering.

As reported, accusations that such players may be circulating their clients’ user data surfaced when a senior Coinbase executive was prompted to justify the exchange’s now-controversial acquisition of blockchain analytics firm Neutrino.

The executive had claimed that the integration of Neutrino into the Coinbase outfit had been necessary, given that existing external technology providers were allegedly selling Coinbase users’ data to outside sources.

In his statement, Smith robustly denied these allegations, which did not explicitly isolate Elliptic or any other blockchain intelligence firm by name. Nonetheless, he wrote, such insinuations “fundamentally misunderstand the data we analyse, the insight we share with our clients, and the role we play in the industry.” Smith added:

“Our exchange clients, including Coinbase, do not provide us with any personally identifiable information about their users. Our clients use our solutions to screen specific transactions for risk […] We only allow our solutions to be used in order to combat financial crime, and do not allow it to be used for marketing, business intelligence, or any other purpose.”

In addition to Smith’s statement, Elliptic has published an extensive FAQ in which it outlines the exact mechanisms and nature of the data it uses for transaction screening and the analysis of potentially suspect actors and funds transfers.

The FAQ section again affirms that “Elliptic never, ever requests or requires any end-user data from its clients,” and neither holds nor distributes any KYC data whatsoever, which it states is not relevant for its activities.

As reported today, in response to the crypto community furore over the Neutrino acquisition, Coinbase CEO Brian Armstrong has revealed that Neutrino staff with prior connections to controversial software firm Hacking Team will transition out of their new roles at the exchange.

Posted on

Coinbase CEO: Ex-Hacking Team Neutrino Members Will Transition Out of Company Roles

Brian Armstrong says that Neutrino staff with prior connections to controversial software firm Hacking Team will transition out of their new roles at Coinbase.

Brian Armstrong, co-founder and CEO of major United States crypto exchange and wallet Coinbase, has said that Neutrino staff with prior connections to controversial software firm Hacking Team will transition out of their new roles at Coinbase. Armstrong made his announcement in an official blog post published on March 4.

Controversy has surrounded Coinbase’s recent acquisition of blockchain analytics firm Neutrino, due to the backgrounds of key Neutrino staff at the contentious software outfit Hacking Team. The latter firm is alleged to have provided its surveillance tools to global law enforcement agencies, corporations and governments — with authoritarian regimes allegedly among them.

Responding to the crypto community’s outcry at the Hacking Team connections, Armstrong has given his official statement, which concedes that “while we looked hard at the technology and security of the Neutrino product, we did not properly evaluate everything from the perspective of our mission and values as a crypto company.” He then stated:

“Together with the Neutrino team […] [we] have come to an agreement: those who previously worked at Hacking Team (despite the fact that they have no current affiliation with Hacking Team), will transition out of Coinbase.”

The CEO characterized the backstory of the acquisition as a “gap in [Coinbase’s] due diligence process.” He stated that bringing Neutrino’s Anti-Money Laundering and Know Your Customer technology and blockchain analytics tools in-house remains of critical importance to Coinbase, which aims to operate as a legally compliant, modernized and regulated platform.

Noting that “Bitcoin — and crypto more generally — is about the rights of the individual and about the technological protection of civil liberties,” the CEO conceded that Coinbase had not made “the right tradeoff in this specific case.”

Ahead of Armstrong’s statement, Christine Sandler — director of institutional sales at Coimbase — had defended the Neutrino acquisition, stating that it was necessary for the exchange to migrate away from its existing blockchain analytics tools providers because they had been selling Coinbase clients’ data to outside sources.

On March 4, one of these providers — blockchain intelligence firm Elliptic — published a statement refuting Sandler’s claims it had been selling users’ data for financial gain, saying these accusations represent a fundamental misunderstanding of its industry role.

Posted on

Revolut CEO Refutes Claims of Negligence and Money Laundering Breach

The CEO of Revolut has denied recent allegations that the company breached money laundering laws.

The founder and CEO of United Kingdom-based digital banking app Revolut publicly denied allegations of a money laundering breach and negligence by the company in a blog post Mar. 1.

The latest in a series of publicity disasters to afflict Revolut, as U.K. newspaper the Telegraph last week alleged that executives had deliberately decommissioned Anti-Money Laundering (AML) software earlier last year.

Further reporting by the Telegraph has revealed that the company had attracted the attention of the U.K.’s finance regulator, the Financial Conduct Authority (FCA).

“This week, there’s been some misleading information in the media relating to our compliance function,” CEO Nik Storonsky stated without mentioning specific criticisms. According to Storonsky, Revolut had opted to revert to its previous AML systems after an upgrade failed to produce adequate security.

“At no point during this time did we fail to meet our legal or regulatory requirements. We conducted a thorough review of all transactions that were processed during this time, which confirmed that there were no breaches,” he continued. Storonsky added:

“Unfortunately, this fact was not included in the original news story. This roll-out did not result in a breach of any sanctions or money laundering laws and requirements — so we did not send a formal notification to the regulator.”

In late 2017, Revolut added support for Bitcoin (BTC), Ethereum (ETH) and Litecoin (LTC). The firm’s overall position expectedly contrasts with banking app Monzo, which some consider to be Revolut’s rival company. Monzo has deliberately avoided the cryptocurrency scene.

“My personal view is we design for user journeys and user needs that the majority of the population have and the majority at the moment are not into cryptocurrencies,” co-founder Jason Bates told tech magazine Decrypt about the decision on Feb. 28.

While some have urged Monzo not to pass up on cryptocurrencies, Bates said that, while crypto is important in countries and jurisdictions with highly corrupted financial systems, consumers living in countries with sound financial institutions will chose more safe and stable systems.

Conversely, a recent survey of British consumers suggested a high prevalence of both knowledge and ownership of cryptocurrencies. 36 percent of respondents from the ages 18–24 claimed to know someone who has purchased Bitcoin.

Posted on

Coinbase: Former Provider Sold User Data to Third Parties, Prompting Neutrino Acquisition

Christine Sandler, Coinbase’s director of institutional sales, has defended the crypto exchange’s controversial acquisition of Neutrino.

Christine Sandler, Coinbase’s director of institutional sales, has defended the crypto exchange’s controversial acquisition of blockchain intelligence firm Neutrino. In an interview with financial news channel Cheddar on March 1, Sandler said that previous client data providers were selling Coinbase user data to outside sources.

As reported, major United States crypto exchange and wallet Coinbase first announced the Neutrino acquisition on Feb. 19, saying it would make use of the startup’s advanced blockchain analytics tools, Anti-Money Laundering and Know Your Customer technology.

The move swiftly became controversial as details of the Neutrino’s co-founders’ backgrounds came to light: specifically, their prior involvement with commercial software firm Hacking Team, whose spyware has reportedly been used by a broad canopy of international governments and law enforcement agencies, with authoritarian regimes allegedly among them.

In response to the crypto community’s furore over these connections — which spawned the #DeleteCoinbase hashtag — Sandler defended the exchange’s decision, telling Cheddar that it was important to leave their current providers due to their data selling practices:

“We are aware of the backgrounds of some of the folks that were involved in Neutrino […] It was important for us to migrate away from our current providers. They were selling client data to outside sources and it was compelling for us to get control over that and have proprietary technology that we could leverage to keep the data safe and protect our clients.”

Characterizing Neutrino’s technology as “really industry leading and best-in-class,” Sandler said that the acquisition represented a decision to bring these tools in-house — downplaying the importance of the talent and senior employees’ histories.

Sandler also gave a mention to Coinbase Pro’s decision to list XRP, whose ambiguous status in the U.S. as a possible security token has hitherto complicated its listing on the California-headquartered exchange. Sandler clarified Cheddar that Coinbase’s acquisition of broker-dealer Keystone in June 2018 enables the platform to list securities, adding:

“There had been a groundswell of interest in adding the asset to the platform. There was some speculation about whether the asset would be classified as a security or not — we’re not securities lawyers. We felt there were compelling arguments on either side.”

As recently reported, Ripple’s head of markets has taken to social media to emphasize that the Coinbase decision to list XRP was an independent one — countering rumors that Ripple had either paid or offered the exchange an incentive to do so.

Posted on

IMF Recommends Immediate Action on Malta’s AML and CFT Supervision

The IMF has said that Malta does not have the proper supervision for AML and CFT and is calling for “urgent action.”

The International Monetary Fund (IMF) has said that the Malta Financial Services Authority (MFSA) has critical gaps in its supervision for anti-money laundering (AML) and combating the financing of terrorism (CFT), and is recommending “urgent action.” The news was reported by local news outlet the Times of Malta on Feb. 28.

A Financial System Stability Assessment Report was purportedly issued by the IMF on Thursday, Feb. 28, and represents an assessment of Malta’s financial system, the quality of the regulatory and supervisory framework, as well as the country’s ability to cope with financial crises.

Per the report, the IMF stated that “containing financial integrity risks is critical to financial stability. A multi-prong approach is needed to address AML/CFT deficiencies. Enhancing the AML/CFT system is required to protect the financial sector and the broader economy from the ML/TF [money laundering/terrorism financing] threats.”

According to the Times of Malta, the report noted the need for enhanced screening processes for beneficiary owner information and monitoring of risk-sensitive accounts, specifically for non-resident clients, including opaque firms, new technologies like digital assets and e-gaming, and IIP-related funds.

In regard to blockchain technology and cryptocurrencies, the report purportedly recommended to employ more resources to supervise service providers. In addition, the report highlighted “the challenges facing the MFSA [Malta Financial Services Authority] from the increased demands of supervising the growing number of licensed financial institutions in an evolving and more complex regulatory environment, as well as the need to upgrade the MFSA’s operational capacity to enable it to operate more effectively.”

Malta is renowned for its cryptocurrency and blockchain-friendly regulations and political stance. However in January, the IMF highlighted blockchain — alongside remote gaming sectors and the government’s citizenship-by-investment scheme — as being high on their list of concerns regarding possible AML compliance violations. The agency then said:

“The increasing number of financial entities under supervision, the rapid development of new products, the evolving regulatory environment and the tightening of the labor market have put the Malta Financial Services Authority under considerable strain.”

Posted on

FATF Issues Preliminary Guidelines on Digital Assets to Combat Money Laundering

The Financial Action Task Force has updates its guidelines on digital assets to combat money laundering and terrorism financing.

The Financial Action Task Force (FATF), an intergovernmental organization that develops policies against money laundering, has published preliminary guidelines for cryptocurrencies on its website on Thursday, Feb. 28.

The FATF held a meeting on preliminary crypto requirements on Feb. 22. According to the organization, the new text of the Interpretive Note to Recommendation 15 — which contains  requirements for regulating and supervising digital asset services providers — has been finalized.

However, the FATF expects to benefit from private sector consultations that are scheduled for May, asking entrepreneurs to send their comments to the organization by Apr. 8. Once the recommendation is finalized, it can be formally adopted by the FATF. The final meeting is scheduled for June 2019.

Firstly, the task force urges countries to follow guidelines to prevent money laundering and terrorism financing with cryptocurrencies — an amendment from a previous edition signed in 2018.

Moreover, digital asset providers are obliged to be licensed or registered in the jurisdictions they were created, and their owners have to provide identity information to relevant authorities. The FATF also adds that crypto products must sometimes be certified, should the host country requires it.

The guidelines also compel governments to form adequate regulation and supervision over digital assets. The FATF emphasizes that monitoring must be conducted by a competent authority instead of a self-regulatory body in order to successfully prevent money laundering and terrorism financing. The country that applies the guidelines must also establish criminal, civil or administrative sanctions for violating the rules.

Finally, the FATF obliges digital asset providers to obtain and keep records of senders and beneficiaries of crypto transfers, and to provide the data to appropriate state or international authorities should they require it. If a transaction is suspected to be illicit, the country has to take measures to freeze the action or prohibit the transfer.

The FATF currently has over 30 member countries. European countries make up a large percentage of the member states, including the United Kingdom, Switzerland, Germany, France and others. While the organization first issued a “risk-based-approach” guideline for cryptocurrencies in 2015, the organization amended and updated it in late 2018 following the pop of the initial coin offerings (ICO) bubble that began in 2017.

Posted on

Japan: Reported Cases of Crypto-Related Money Laundering Increase 10-Fold in 2018

7,096 cases of suspected money laundering tied to crypto were reported to Japanese police in 2018.

More than 7,000 cases of suspected money laundering tied to crypto were reported to Japanese police in 2018, a more than tenfold increase from the 669 cases over a nine month period during the previous year. The news was reported on Feb. 28 by local English-language daily The Japan Times.

In 2017, just 669 cases were reported over a nine month period through December 2017, after new rules taking effect in April 2017 made it mandatory for crypto exchange operators to report transactions suspected to be tied to the movement of illicit funds. The twelve months and 7,096 cases in 2018 thus represent a 960 percent increase over the data for the nine month period in 2017.

According to the Japan Times, the more than 7,000 suspect transactions betrayed various red flags — such as being linked to user accounts held under different names and birth dates, but with an identical ID photo. In other sign, logins from accounts registered in Japan were identified as coming from overseas.

The rise in crypto-specific cases comes against a backdrop of a 2,296 percent increase in all cases of suspected money laundering. In 2018, there were 417,465 reported cases — up from just 17,422 in 2017. The lion’s share of cases reported in 2018 involved banks, which reported 346,014 cases, followed by credit card firms, with 15,114 cases.

In light of the rising statistics, the NPA reportedly plans to train experts in data analysis and pilot artificial intelligence technology that would expedite the detection of patterns related to suspected money laundering and other illicit transactions.

As Cointelegraph has reported, two high-profile scandals involving Japanese crypto exchanges — January 2018’s unprecedented $532 mln Coincheck hack and the infamous collapse of Tokyo-based Mt. Gox — have led to intensified interventions from the country’s financial watchdog, the Financial Services Agency (FSA).

Since April 2017, Japan’s Payment Services Act has required all crypto exchanges to be registered under an FSA license, with the first licenses being approved in September of that year. The watchog further tightened stipulations in 2018, continuing to focus on demanding robust Anti-Money Laundering and Know Your Customer compliance.

Posted on

European Regulatory Chair Supports New Digital Asset Regulations

The chairman of the European Securities and Markets Authority, Steven Maijoor, has supported new regulations for digital assets to help investors.

The chairman of the European Securities and Markets Authority (ESMA) — the European Union-level financial markets supervisor — has said that he supports further regulations on digital assets, political news outlet Roll Call reported on Feb. 27.

Delivering his speech at the FinTech Conference 2019 earlier this week in Brussels, Belgium, ESMA Chairman Steven Maijoor reportedly outlined the need to apply regulations to digital assets in order to help investors. He also expressed his support for expanding Europe’s Anti-Money Laundering (AML) requirements to include those involved in the exchange of one crypto asset to another, and not just the exchange between crypto and fiat currency.

Maijoor reportedly explained his stance, saying that “without new rules, digital assets will likely fall outside of the regulation of Europe’s securities laws.” Maijoor continued:

“Where crypto assets do not qualify as financial instruments, we are concerned that the absence of applicable financial rules leaves consumers exposed to substantial risks. […] This makes it plain to see that we cannot legally qualify crypto assets via a ‘one size fits all’ approach.”

In addition to digital assets, Maijoor proposed to extend new regulations to initial coin offerings (ICOs). Maijoor reportedly stated that most European jurisdictions support the idea that cryptocurrencies need proper regulation if they received profit or dividend rights, which makes them similar to traditional financial assets.

In October 2018, the ESMA announced that it was examining ICOs to see how they should be regulated. The ESMA reportedly assessed ICOs to see how they comply with the existing securities regulations on a “case-by-case” basis, in addition to investigating their impact on competition in the fundraising sector.

That same month, the Financial Action Task Force (FATF) adopted changes to its standards regarding digital currencies and firms involved in cryptocurrency-related activities. Per the changes, jurisdictions should ensure that virtual asset service providers — exchanges, wallet providers, and providers of financial services for ICOs — are subject to AML and counter-terrorism financing (CFT) regulations.