Having an anti-money laundering (AML) process in place is step one for any reputable crypto business. However, even those with the best intentions have holes in their programs.
Unfortunately, these gaps can cause you to face significant fines and may even result in your company becoming associated with criminal activity.
How can you be sure your crypto AML program is all it needs to be? We’ve worked with hundreds of businesses, and we’ve seen many of the same weaknesses pop up in cryptocurrency compliance.
While nothing replaces working directly with a cryptocurrency compliance professional, we can provide some essential tips.
Be sure you’re not making these common mistakes!
Mistake #1: Ignoring Historical Transaction Data
When you set up an AML compliance program, you want to make sure you can flag suspicious activity quickly and easily. As a company, you probably process dozens or even hundreds of transactions a day, which gives you a rich data pool.
However, if you fail to leverage this data to look for trends and strengthen your Know Your Customer (KYC) and Customer Due Diligence (CDD) processes, you’re missing out in a big way.
As a business on the front lines of a brand new industry, you’re part of the vanguard that will shape and define cryptocurrency compliance procedures for decades to come. By taking advantage of the historical transaction data you accumulate, you’ll begin to identify common transactional behavior, meaning you’ll find it easier to spot new forms of suspicious activity.
Remember that every employee is part of monitoring for suspicious activity and red flags. It’s not just your compliance officer who has this responsibility!
You never know when you’ll discover a new red flag that will help stop significant criminal activity. Analyze your historical data and use it to update your red flags and other processes.
You’ll be glad you did, and you may discover best practices that shape the industry going forward.
Mistake #2: Weak Testing And Monitoring
Are you collecting the KYC information your company needs? Are details missing that make it impossible for you to check the strength of your red flags?
The only way to answer these questions is to test and monitor your AML processes. You want to ensure your alert and reporting processes are relevant and continue to effectively screen user behavior over time. You also have to check that your AML program is fulfilling the federal and state compliance laws that apply to you.
For instance, you need steps in place that allow you to identify, review, and report suspicious activity. Without these steps, you’ll be overlooking significant events and will run afoul of regulators quickly.
If you notice that your compliance falls short or that you don’t have a process to handle specific day-to-day incidents, you’ll need to update your AML program. You also should document the reasons for the changes in case there are investigatory questions later.
As a new cryptocurrency business, you may not have testing and monitoring right away. You’ll need an AML program and policies and procedures in place before you can test them, after all. However, as you evolve out of the startup years, you should be double-checking your processes regularly.
The industry is changing quickly. You may find that new compliance laws or changing technology make specific alert methods obsolete or require you to implement new ones. By consistently testing what works and what doesn’t, you’ll never be behind the curve.
Mistake #3: Failure To Regularly Update Your AML Program
As a cryptocurrency business, it’s tempting to see your crypto AML program as an initial startup task that you can leave running in the background without much thought. We see many, many companies set up KYC and AML guidelines, only to throw them into a file cabinet where they collect dust (and fail to protect their businesses).
Cryptocurrency is a rapidly growing and changing industry. Regulators are also noticing issues and applying new cryptocurrency compliance rules all the time.
The BSA Compliance Officer at your company needs to be constantly aware of changes that impact your compliance program. That alone is not enough, however. It’s vital to have an annual AML program review as well.
At the review, you can ask the following questions:
- Are we appropriately reporting suspicious activity?
- How robust are our CDD and KYC policies? Are we confident in them?
- How has technology changed in the last year?
- What legal rules have changed in the previous year?
Technological advances can be both a blessing and a curse. On the one hand, hackers and criminals are constantly using new tech to disguise their identity and activities. On the other, new compliance software can make it much easier to register and report red flags.
Either way, a compliance review will make you more aware of the business environment and allow you to respond appropriately.
Key Takeaways For Crypto Businesses
Maintaining proper cryptocurrency compliance is essential.
Your AML program is a foundation of your business, and you have the privilege of being on the cutting edge of the processes and detection routines that will shape the industry. You should consistently be monitoring your program and ensure that it’s effective and built to protect your business from the problems the industry is facing today.
Not last year, not last month; today.
In addition, every cryptocurrency AML program needs to be reviewed at least once a year. You can’t “set it and forget it” unless you want to be caught off guard by new regulations and outfoxed by financial criminals.
Being a part of the cryptocurrency industry is an incredible opportunity but also comes with a lot of responsibilities. Fortunately, you don’t have to create your compliance program alone. New companies especially need help from professionals who understand the industry and AML best practices.
If you see yourself making any of the common mistakes above or want help creating an effective AML program in your company, we’re here to help. Contact us for a free consultation here.