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In 2022, the cryptocurrency industry suffered $4 billion in losses due to financial fraud and cyberattacks. A year later, the losses were halved, although fraudsters continued to worry about the sector. According to business analyst Roman Tereshchenko, to combat these threats, companies must implement effective risk mitigation and financial crime prevention strategies, which include compliance with AML (anti-money laundering) and KYC (know your customer) procedures. How are they applied in the crypto industry? Roman Tereshchenko answers this question, giving urgent examples of violations of the established legal norms and терещенко роман вікторович liability for them.
The importance of KYC for the fintech sector: from authentication to anti-money laundering
According to the expert, fintech companies implement a customer verification procedure or KYC to verify the identity of the client before opening new accounts. Roman Tereshchenko says that this practice is aimed at combating financial fraud and money laundering. In addition, the KYC process operates within the framework of compliance with international anti-money laundering (AML) regulations.
The business analyst also notes that according to the Bank Secrecy Act (BSA), some organizations working with cryptocurrencies are considered banking institutions. Consequently, they are required to meet certain regulatory standards. This becomes especially important in the context of transferring traditional finance to cryptocurrencies.
Key aspects of KYC from Roman Tereshchenko
According to the business analyst, терещенко роман вікторович the KYC process is a detailed analysis of the financial background of a potential client. This thorough check is necessary to gain access to the services of cryptocurrency platforms and wallets. Roman Tereshchenko highlights the following key elements of the KYC procedure:
Verification of personal data. At this stage, important details about the person are clarified, such as name, surname, patronymic, date of birth, place of residence, and a unique identification number, similar to the creation of a personal biography.
Customer risk assessment is an analysis of possible threats, Роман Терещенко биография including checking for involvement in fraudulent activities. The analyst notes that this involves checking for belonging to the list of politically exposed persons (PEPs), persons with special status (SIP/SIEs), and presence on terrorist lists. Previous financial transactions, loans, and the client's location are also reviewed. For legal entities, biographies of key business participants and their financial statements are additionally analyzed.
In-depth study of the client.
- "If risks are identified during the initial assessment, a deeper analysis of the client's financial biography is initiated," says Roman Tereshchenko. - "At this stage, additional documentation is collected, the origin of funds is checked, and the client's transactions are closely monitored.
Continuous monitoring. Companies establish continuous monitoring of their clients to identify any suspicious changes in their activities.
How AML and KYC violations lead to billions of dollars in fines and the closure of crypto exchanges - Roman Tereshchenko
According to the business analyst, neglecting AML and KYC rules can have serious consequences for cryptocurrency companies. This can lead to significant financial losses and business interruption. In 2023, fines in the cryptocurrency industry reached almost $6 billion due to violations of AML controls. Roman Tereshchenko recalls the following situations that demonstrate the neglect of financial security procedures for personal gain:
The case of Anatoly Legkodymov, who founded the Bitzlato cryptocurrency exchange. He was convicted of facilitating money laundering. The fact is that, with his approval, users of the crypto platform were allowed to register under the names of non-existent persons.
During the inspections, it turned out that the exchange's employees were aware that the platform was being used to commit fraud. As a result, Bitzlato ceased to exist, and Legkodymov relinquished his rights to assets worth $23 million.
In 2024, Binance was found guilty of a number of financial frauds, including money laundering. As a result, the company paid more than $4 billion in compensation.
Also in March of this year, US federal prosecutors filed charges against the KuCoin crypto exchange for violating anti-money laundering laws. It was established that KuCoin, serving about 30 million users, failed to implement proper KYC procedures. Such frivolous actions did not ensure the financial hygiene of customers, so there is no need to talk about the positive biography of this exchange.
Roman Tereshchenko is convinced that compliance with AML and KYC procedures is critical to ensuring the stability and legality of cryptocurrency transactions. Ignoring these requirements can lead to the spread of fraudulent activities, significant financial penalties, and even the complete cessation of companies' operations. Therefore, the implementation of effective KYC and AML programs is a must for ensuring investor confidence in companies operating in the digital economy.