Scorechain is the first crypto AML provider to read through Decentralized Exchanges transactions to prevent money laundering and terrorism financing
The leading Risk-AML software for cryptocurrencies can now provide Scoring & Red flags for transactions processed through decentralized exchanges to prevent money laundering and reduce criminal activity through DeFi.
Scorechain is able to provide AML/CTF for any Dex trades
Decentralized Finance (aka. DeFi) is widely used today and is becoming more and more popular in the past few months. DeFi can be defined as all the financial applications which are using blockchains and cryptocurrencies with the same goal: to disrupt the financial intermediaries while making finance more accessible to everyone.
The most popular DeFi applications include Decentralized Exchanges (DEXs), yield farming, lending platforms, stablecoins, wrapped coins and prediction markets. Most of the use is based on the Ethereum Blockchain.
Dex (decentralized exchange) is a blockchain-based peer-to-peer (P2P) online service that allows users to make direct cryptocurrency transactions between each other.
Unlike a centralized exchange, a Dex doesn’t identify its users and it doesn’t store their funds. It does not act as an intermediary but rather as a protocol that enables transactions. All data are registered in the distributed ledger and the Dex provides the service to match the needs of buying and selling of the participants.
The Luxembourgish transaction surveillance company is able to deanonymize transactions that are led through DEX to identify source and destination of funds passing through the platforms.
Scorechain Ethereum Analytics Platform is able to follow the assets even if they are swapped through a decentralized exchange platform (DEX). Now users can carry out a Risk-AML analysis on the provenance and destination of one cryptocurrency converted to another through the DEXs.
Scorechain provides AML Risk-Scoring on swaps origin and destination of funds
Even the most complicated transaction made through decentralized exchanges can be analysed through Scorechain Blockchain Analytics.
Scorechain users can see the ‘Swap input’ as the initial cryptocurrencies used in the transaction and are able to identify the origin of the cryptocurrency used. The same Risk-AML analysis can be done for ‘Swap output’ as the converted cryptocurrencies received in return via the DEX. Multiple DEX platforms are also spotted and analysed.
On top of that, users receive a Risk-AML Scoring following their customized risk-assessment to apply the risk-based approach asked by the international compliance standards.
By tracking the swap through DEXs, this new functionality provides a powerful tool for the compliance team to analyse any suspicious DEX transactions and to reduce the criminal activities in DeFi. Now criminals know that their attempt to launder the dirty funds via DEXs is in vain under the crypto RegTech company’s radar.
“We have worked hard to read through the DEX. It also shows to regulators that some AML/CTF controls can be performed. Our goal is also to make sure DEXs are not always assimilated to the biggest money laundering machine. When suspicious transactions are identified, it is now flagged and immediately reported to the competent authorities by our users.” said Lisa Boussard our Head of Marketing.
Scorechain’s Dex trade reading feature has played an important role in the investigation of the recent Kucoin’s hack. Indeed by tracking DEX transactions Scorechain proved hackers used Dex to launder the funds and converted the jackpot.
The Defi frenzy under the radar of regulators
According to the statistics, since June 2020, the trade volume started to surge continuously to reach a peak in October with nearly $12.5 billion locked in the DeFi market1, an increase of 1200% in 5 months. Uniswap, the most popular DEX at the moment, had more volume during the month of August than Coinbase, the most valuable Centralized Exchange of the whole crypto-ecosystem2. All of this shows that this phenomenon cannot be ignored anymore by regulators and compliant officers.
This increasing use has led to putting DeFi under the radar of regulators and governments. They start to consider this new practice as ‘heaven’ for criminal activity since most of the platforms which allow this kind of practice lack Know-Your-Customer (KYC) or Anti-Money Laundering (AML) procedures.
In this regard, the FATF claims to the G20 that jurisdictions need to revise standards to implement AML/CFT mitigating measures3.
Besides, the recent draft of the European Commission MiCa could ban EU citizens access to DeFi projects. At least if they do not comply with the proposed and very strong legal requirements. This is the case for decentralized stablecoins (i.e. 20% of the DeFi market) since their decentralized nature will make it very difficult to comply with the obligations imposed on the issuance of crypto-assets.
Scorechain is a Risk-AML software provider for cryptocurrencies and digital assets. As a European leader in crypto compliance since 2015, the Luxembourgish company serves worldwide customers in 29 different countries with more than 150 licenses established, 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, Ethereum analytics with all ERC20 tokens and stablecoins, Litecoin, Bitcoin Cash, Dash, XRP Ledger and Tezos. The software is able to de-anonymize the Blockchain data and connect with sanction lists in order 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 in order 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.
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