Crypto Compliance: Monitoring and Mitigating Jurisdiction Related Risks




Date: July 8th 2021

Published on: Global News, Regulation


AML, AML/CFT, CFT, crypto AML, Crypto Compliance, Cryptocurrency, Cryptoregulation, Risk assessment, RiskAML, scorechain,

Key takeaways:

  • FATF updated its list of jurisdictions under increased monitoring with 4 additional jurisdictions that have deficiencies in their AML/CFT regimes.
  • Funds associated with these jurisdictions are thus riskier in terms of ML/TF.

The Financial Action Task Force (FATF) decided to place 4 additional jurisdictions on its “greylist on untrustworthy jurisdiction after its Plenary meeting from June 21-251. These countries will now face increased monitoring from the watchdog.

FATF’s greylist2 regroups jurisdictions under increased monitoring. Those countries are working with the international financial regulators to address specific “deficiencies” in the prevention of money laundering (ML), terrorism financing (TF), and proliferation financing (PF).

As of June 2021, Haiti, Malta, the Philippines, and South Sudan joined FATF’s greylist while Ghana exited it. The full list of jurisdictions under increased monitoring is available here.

ML/TF risks related to jurisdictions

Today, there are gaps in crypto AML/CFT regulations worldwide. Some jurisdictions have strict rules to regulate crypto transactions and tackle illicit activities relying on them such as South Korea (Read more: South Korea: Latest developments on crypto and regulation).

Meanwhile, in other jurisdictions, their use is not regulated at all. For example, for now, FATF reported that only 58 out of 128 reporting jurisdictions have implemented the revised standards3. Illicit crypto activities are thus more likely to originate from jurisdictions that haven’t implemented the standards.

Jurisdictions considered as high risk can differ according to the country’s own regulations and the company’s internal AML/CTF processes.

Mitigating jurisdiction-related risks with Scorechain

To mitigate the crypto risks related to jurisdictions, Scorechain assesses the risk level of countries and integrates it into its solution to help compliance officers enhance their AML/CFT processes.

  • Entity scoring

Scorechain Entity Directory which assesses 700+ virtual asset service providers (VASPs) features jurisdictions-related risk to compute the overall scoring of an entity.

If a VASP is registered in a low-risk country in Scorechain platform, its risk scoring will be impacted positively. Scores on Scorechain solution vary from 1, the riskiest, to 100, the safest. For example, below is an address scoring for an address belonging to a US-based entity that has a high score of 90.

Address scoring on Scorechain Bitcoin Analytics platform

  • Risk indicators

Scorechain Risk Indicators can easily be set up by users and customized according to their internal policies. Scorechain users can set up 3 types of risk indicators:

  • Entity type;
  • Behavioral Type; or
  • Country

For example, if the users’ internal AML/CFT policies consider Russia as a high-risk jurisdiction, or if the jurisdiction where the users are based considers this country as risky, users can set up a risk indicator “Russia” that will be displayed on an address or transaction page if triggered.

Risk indicator triggered on an address page on Scorcechain Bitcoin Analytics platform

In the screenshot above, we can see that the risk indicator “Russia” has been triggered as this address sent funds to a Russian-based entity. Compliance officers should be extra careful with such addresses if they consider the country as high risk.

Running a business dealing with cryptocurrencies and you need to comply with the evolving crypto regulations around the world? Scorechain Blockchain Analytics Suite provides a wide range of risk-AML scenarios to help you in your compliance journey. Contact us to schedule a free demo:

About Scorechain

Scorechain is a Risk-AML software provider for cryptocurrencies and digital assets. As a leader in crypto compliance since 2015, the Luxembourgish company serves more than 100 customers worldwide in 36 countries, ranging from cryptocurrency businesses to financial institutions with crypto trading, custody branch, digital assets customers onboarding, audit and law firms and some LEAs.

Scorechain solution supports Bitcoin analytics with Lightning Network detection, Ethereum analytics with all ERC20 tokens and stablecoins, Litecoin, Bitcoin Cash, Dash, XRP Ledger and Tezos. The software can de-anonymize the Blockchain data and connect with sanction lists to provide a risk scoring on digital assets transactions, addresses and entities. The risk assessment methodology applied by Scorechain has been verified and can be fully customizable to fit all jurisdictions. 300+ risk-AML scenarios are provided to its customers with a wide range of risk indicators so businesses under the scope of the crypto regulation can report suspicious activity to authorities with enhanced due diligence.