5 Compliance Tools in the Cryptocurrency World Every Serious Player Should Be Using

May 11, 2018
Share the news!

As the cryptocurrency landscape evolves, the need to track and monitor transactions becomes increasingly important.

Cryptocurrency companies are expected to flag, track, and monitor transactions for suspicious or unusual activity. The Financial Crimes Enforcement Network (FinCEN) requires companies involved with cryptocurrencies to register as a money transmitter, which is a type of money services business (MSB). As MSBs, they’re expected to have a comprehensive written anti-money laundering (AML) program in place.  

Several tools exist to help organizations stay in compliance with these new regulatory standards. In addition to their inherent AML compliance benefits, such tools can be leveraged to improve customer service and ensure secure transactions. In the rest of this article, we’re going to discuss five cryptocurrency compliance tools that streamline the process of staying in compliance.

1. Blockchain Explorer Tool

Blockchain explorer tools enable users to monitor and track transactions within the cryptocurrency ecosystem. Their goal is to leverage the inherent benefits of the blockchain – transparency and immutability – for purposes of AML. More specifically, such tools empower institutions to identify the source of funds, destination, risk profile, and, as the adage in AML goes, follow the money.

When blockchain explorers were still in their infancy, they produced a long list of recent transactions. Nothing more, nothing less.

Today, blockchain explorers have evolved. Many present data in easy-to-read graphs and charts. Depending on which tool you use, block explorers can do much more than simply track transactions. Here’s a quick rundown of what block explorers have to offer:

  1. Explore recently-mined blocks and see live feeds of blocks being added to the blockchain.
  2. View and audit the transaction history of a given Bitcoin address.
  3. Track double spend incidents.
  4. View the genesis block.
  5. Explore any transaction that is already attached to the blockchain.
  6. View mempool status.
  7. Track orphaned blocks.

Block explorers are specific to certain types of cryptocurrency. For example, blockchain.info can only be used to access information about the block addresses and transactions made with Bitcoin. Other popular Bitcoin block explorers include blockonimics.co and blockexplorer.com.

2. Sanction Screening Tool

Sanction screening tools allow cryptocurrency companies to investigate their users for involvement in financing crime and terrorism.

However, not all sanction screening tools are created equal. As the saying goes, you get what you pay for, and there are major benefits to upgrading to a subscription-based service.

The Office of Foreign Assets Control (OFAC) offers a free sanction screening tool that you can find here.

Office of Foreign Asset Control

It does the best job it can to accurately screen customer data against compliance lists. The truth is, this free tool has a couple of major downfalls.

For one, a cryptocurrency company with even moderate client volume is going to spend a ton of money, manpower, and time manually searching through OFAC’s sanction screening tool.

Secondly, OFAC admits that false positives occur, which means even more of your company’s resources will be allocated to decisioning potential matches.

Subscription-based sanction screening tools reduce the risk of missing matches while minimizing the time and cost associated with researching false positives. The amount of personnel resources you save can deliver a substantial ROI.

3. SMS Phone Verification Service

An example of a compliance tool for crypto is SMS phone verification - BitAML BlogSMS phone verification for confirming a user’s identity leaves clients exposed to the risk of being hacked. Phone numbers can be easy for hackers to obtain. Once they have a phone number, hackers can access any affiliated account that utilizes standard SMS verification. This may include emails, cryptocurrency, or bank accounts.

SMS phone verification services create a more secure process by adding extra layers of protection against identity theft. Through the use of a verification service, the customer’s real phone number remains protected. Transactions are secured with SSL, and all data is encrypted.

In addition to increased security, SMS phone verification services reduce the amount of time it takes to verify. The customer no longer needs to wait for a code to be sent to their phone before finalization. By streamlining the verification process, SMS verification services can significantly reduce new client drop-off rates.

SMS verification services address a glaringly obvious security issue: standard SMS verification is not a valid proof of identity. With the extra padded security of a verification service, it can be.

4. PDF 417

For cryptocurrency ATMs, scanning the PDF 417 barcode on the back of the client’s license is another verification option. PDF 417 is a type of linear barcode that identifies unique users and products. It’s most commonly used for identification cards and inventory management.


Here’s how it works: Clients pre-register with a third-party cryptocurrency compliance firm like BitAML. When the user scans the PDF 417 barcode on the back of their license, the data is forwarded to the third party company.

The third party then sends a pass/fail message back to the machine. The entire communication can take less than a second, and the transaction amount can be limited to a certain daily amount.

5. Keep a Log of Consumer Complaints

In 2017, Coinbase received over 300 customer complaints to the Consumer Financial Protection Bureau (CFPB). In that same year, 1,289 complaints about Bitcoin scams were filed with the Australian Competition and Consumer Commission’s (ACCC) Scamwatch, totaling $1,218,206 in consumer losses.

As a result, government agencies are cracking down on the increasing number of consumer complaints. As a company in the cryptocurrency industry, it’s important to be proactive about cataloging consumer complaints. This can be as simple as recording them in an Excel spreadsheet.

The best part? Keeping a detailed log can offer value that extends well beyond preparation for government auditing. It can enhance the training of customer service representatives and lead to more productive and value-added interactions with concerned customers. Your company can also use your customer complaint log to implement auditing practices that track how effectively you handle customer concerns.

The Bottom Line?

Cryptocurrency is still in its infancy. Depending on what state you’re in, regulatory standards are constantly changing. Employing compliance tools like blockchain explorers can help you stay ahead of the curve.

Digital money laundering schemes are only becoming more advanced. It’s imperative that businesses in the cryptocurrency space keep close tabs on their networks. The investments of benevolent patrons and the viability of the cryptocurrency industry depends on it.

The services and techniques described in this article can be an effective starting point of a broad scope AML program. Compliance advisory firms like BitAML take the guesswork out of staying compliant. Their tools make it easier to implement and stay current with the most relevant AML practices. In the meantime, tools like open-source block explorers and tracking complaints can get you moving in the right direction.

Have anything you’d like to add? Feel free to share your thoughts on Twitter at https://twitter.com/BitAML.

Similiar Blog Post

I’m a Crypto Startup With a Newly Written AML Policy. Now What?

August 17, 2020
This old-fashioned scam is more prevalent than you think — and your customers could be at risk. If you run a cryptocurrency exchange, kiosk...

Crypto KYC: New School Meets Old School Compliance

August 17, 2020
This old-fashioned scam is more prevalent than you think — and your customers could be at risk. If you run a cryptocurrency exchange, kiosk...

Striding Towards Compliance: Understanding DeFi’s Need for AML Policies

August 17, 2020
This old-fashioned scam is more prevalent than you think — and your customers could be at risk. If you run a cryptocurrency exchange, kiosk...