Guide for the Crypto Industry
Sanctions & PEP Data API for the Crypto Industry
The Importance of Sanctions & AML Screening for the Crypto Industry
AML Regulations in the Crypto Industry
Anti-money laundering regulations do not just apply to banks and other traditional financial institutions – these regulations must also be followed by firms involved with cryptocurrencies.
Legal Requirements
The crypto industry is required by law to carry out sanctions and AML screenings.
The Office of Foreign Asset Control (OFAC) has made it clear that the crypto industry must, as a top priority, ensure cryptocurrency is not used to evade sanctions.
OFAC is committed to using its authority to counter the use of digital assets for illegal activities. In line with this, the body has expressed that any US person, who engages in crypto transactions, is responsible for confirming that their exchanges do not violate sanctions.
The regulator has already taken steps to act against providers that fail to screen their customers against sanctions and watch lists – and it expects to have more involvement as the industry evolves.
For example, OFAC has:
- Cracked down on crypto transactions involving blocked persons and specially designated nationals (SDNs).
- Identified digital currency addresses known to be tied to these individuals and created a public list, so organisations can more easily screen for this activity.
- Restricted crypto transactions that involve exchanges that indirectly benefit SDNs. So, if an SDN or blocked entity is involved in or benefits from a cryptocurrency transaction taking place, the firm could face serious penalties.
- Criminalised transactions with entities that are 50% or more owned by an SDN.
The property of a blocked person, and any assets that they have an interest in, will continue to be sanctioned regardless of how many times it is transferred away from them. Crypto providers should be alerted to chain hopping, tumblers, and other methods used to obscure the true parties involved in the transaction.
Q: What happens if the crypto address is not linked to a blocked person when the exchange is facilitated?
A: The transaction could be considered a sanctions violation if that address becomes linked to an SDN later. OFAC sanctions are strict – and they expect firms to take steps to identify these individuals, regardless of how much they attempt to evade the system.
Q: What are the consequences of failing to comply with AML regulations?
A: Aside from fines and penalties, government agencies may block individuals from transacting on a platform, or with a particular digital asset, altogether.
Specific Challenges for the Crypto Industry
Fast Transaction Speeds
This presents criminals and money launderers with an opportunity to move significant volumes of illicit funds very quickly.
High Levels of Anonymity
Increased Potential for Structuring
Regulatory Unfamiliarity
Red Flags: How is Money Laundered Through Cryptocurrencies?
It is estimated that the amount of fraud, theft, and hacks that occurred in the crypto industry totalled more than $1.4B – in the first six months of 2020 alone.
Cryptocurrencies will pose a significant threat to the integrity of financial systems if these issues are not addressed.
To better understand and address the threats, the Financial Action Task Force (FATF) conducted an investigation and put together a report on red flags relating to cryptocurrency money laundering schemes.
Let’s review some of the most prevalent red flags in the crypto industry:
Minimal customer due diligence
Red Flag #1
Red Flag #2
Red Flag #3
Geographical Risk
Red Flag #4
Red Flag #5
Red Flag #6
High-Frequency Transactions
Red Flag #7
A user that engages in more transactions than the average person could also be involved with structuring. By deliberately breaking up larger
trades into smaller amounts, criminals can avoid triggering currency transaction reporting thresholds.
This red flag is the same as what would trigger a bank alert when done with cash – making multiple transactions under the $10 000 reporting minimum could indicate illegal activity
Q: What about making several high-value exchanges in a short timeframe?
A: Behaviour like this can also be a red flag, especially when it is done in a regular pattern and the user has long periods with no additional activity afterward. Ransomware cases may look just like this!
Spreading Assets Between Various Providers
Red Flag #8
Red Flag #9
Setting up an AML Process
Now that you understand the importance of sanctions screening and AML processes in the crypto industry, let’s get into the best way to set them up. The key is to develop policies and procedures to address red flags and prevent money laundering from occurring.
The first step is to understand the risks your business is exposed to and the applicable regulations that you must comply with. Cryptocurrency service providers are now under the scope of most of the existing AML and counter-terrorist financing regulations, so you must prepare appropriately.
As most of these laws require you to implement a risk-based customer due diligence program and transaction monitoring measures, you should start there. The goal is to develop a process that can identify the money laundering risk that each of your users presents.
To comply with regulations, you must use a risk-based approach. It is the only way to avoid expensive fines and penalties for non-compliance and ensure that you can detect and prevent money laundering risks.
Address red flags
Step 1
Step 2
Sanctions lists
PEP data
Our Politically Exposed Persons (PEP) database covers about 1million records from every country worldwide. Lists also include family members and close associates of PEPs.
Crime Watchlists
Adverse media
Key Industries Solutions
We provide vital support to compliance teams across a wide array of sectors, including FinTechs, enterprise SaaS providers, InsurTechs, cryptocurrency firms, and many more.
For a detailed guide on how AML Sanctions Screening applies to your industry, click the relevant icon below.
Global Sanctions Lists
The sanctions lists below are included in every sanctions data subscription. Additional sanctions lists can be included on request, please contact support for more information.
United States
Office of Foreign Asset Control (OFAC)
Specially Designated Nationals (SDN), Consolidated Sanctions List (Non-SDN) and various additional sanctions lists (MBS, CCMC, CMIC, CAPTA, FSE, PLC, SSI).
Canada
Global Affairs Canada
Consolidated Canadian Autonomous Sanctions List incl. Special Economic Measures Act (SEMA) and the Justice for Victims of Corrupt Foreign Officials Act.
United States
Department of State (DoS)
ITAR Debarred (ITAR), Nonproliferation Sanctions (ISN), Cuba Restricted List.
United States
Bureau of Industry and Security (BIS)
Entity List (EL), Denied Persons List (DPL), Military End User List (MEU), Unverified List (UVL).
United States
Financial Crimes Enforcement Network (FinCEN)
311 Special Measures.
United States
Department of Homeland Security (DHS)
Uyghur Forced Labor Prevention Act Entity List (UFLPA).
United States
U.S. Customs and Border Protection
Withhold Release Orders.
Argentina
Ministry of Justice
Public Registry of Persons and Entities Linked to Acts of Terrorism and Financing (RePET).
Brazil
Brazil Central Bank
Register of persons disqualified from senior roles, and Entities Prohibited from Offering Auditing Services.
Brazil
Brazil Federal Government
Empresas Inidôneas e Suspensas (Disreputable and Suspended Companies).
Brazil
Brazil Tribunal de Contas da União (TCU)
List of individuals disqualified from public service and debarred bidders.
* Additional sanctions lists can be added on demand. Just reach out to our Customer Success Team.
Politically Exposed Persons
What are Politically Exposed Persons (PEPs)?
Domestic Politically Exposed Person (DPEP)
These are individuals who hold prominent public positions within their own country.
This includes:
- Heads of state or government
- Senior politicians, government ministers, and judiciary officials
- Senior executives of state-owned corporations
- High-ranking military officials.They are classified as DPEPs due to their potential access to public resources, which could make them vulnerable to corruption or abuse of power.
Foreign Politically Exposed Person (FPEP)
These are individuals who hold, or have held, similar high-level roles in foreign countries. FPEPs are foreign officials or their associates who might also be in a position to abuse their influence for personal or financial gain.
Examples include:
- Foreign heads of state or government officials
- Senior politicians or diplomats from foreign governments
- Foreign judges or military leaders
Domestic Politically Influenceable Person (DPIP) - Family Members
These are close relatives of Domestic PEPs (DPEPs).
Family members can include:
- Spouses or partners
- Children and their spouses or partners
- Parents, siblings, or other close relatives. Due to their relationship with a politically exposed person, they may have access to privileged information or influence, which makes them susceptible to exploitation or corruption.
- Close associates are individuals who are closely connected to a PEP, either socially or professionally.
Foreign Politically Influenceable Person (FPIP) - Close Associates
These are individuals who maintain close business or personal relationships with Foreign PEPs (FPEPs).
A close associate could be:
- Business partners
- Close friends or advisers
- Legal representatives or those with significant control over a PEP’s assets FPIPs are often involved in business dealings or transactions that may raise concerns about conflicts of interest or the misuse of political connections.
- Close associates are individuals who are closely connected to a PEP, either socially or professionally.
Each of these classifications is used in anti-money laundering (AML) and know-your-customer (KYC) processes to identify and mitigate risks associated with potential corruption or financial crimes. Identifying these individuals helps institutions flag potentially suspicious activities that may be linked to political influence.
Smart screening technology for effective AML compliance
Less False Positives and False Negatives
Name matching is the real challenge in Sanctions & AML compliance. Transliteration issues, nicknames, honorifics, and spelling errors are some of the factors that make name screening a challenge. This cannot be solved with simple fuzzy algorithms.
Our industry-leading screening technology is based on the latest research and achievements in Natural Language Processing (NLP) and Artificial Intelligence (AI) used by organisations such as Amazon, LinkedIn, and U.S. Homeland Security.
Easily integrated into your own system environment
Sanctions & AML API
Batch AML
Integrations
Crime Watchlists
Complement your AML Screening with Criminal Watchlists Data
FBI and Interpol Data
Updated Every 60 Minutes
Smart Matching Technology
FBI and Interpol Watchlists
FBI's Most Wanted & Fugitives
*Only available on our Standard Plan
Why AML compliance is important
For businesses to actively prevent financial loss and reputational damage, it's crucial that comprehensive due diligence processes are carried out.
Datanamix’s due diligence product suite includes AML (anti-money laundering) sanctions screening, PEP (PIP) data, Adverse Media and Crime data – all customisable depending on your specific industry, and unique business needs.
Datanamix offers a suite of AML Sanction Screening products to enable the right level of risk mitigation for every class of business – from accountable institutions bound by the FIC Act, to SMEs simply looking to protect their interests.
Adverse Media
Adverse Media Screening is the process of monitoring public sources, like news and social media, to detect negative information about individuals or organisations. It helps businesses identify risks such as criminal activity, fraud, or regulatory violations, which could harm their reputation or legal standing. Used for risk assessment and compliance (e.g., anti-money laundering or Know Your Customer regulations), adverse media screening is often automated to handle large volumes of data and provide real-time alerts. It's a key part of due diligence and risk management strategies.