There are currently more than 5,500 different cryptocurrencies in circulation, but the biggest name in the business — and often a metonym for the industry itself — is bitcoin. The year 2020 saw 18.42 billion bitcoins in circulation, with a market capitalization of $117.81 billion and an individual coin valued at $19,463 as of December. These coins often change hands either through cryptocurrency exchanges or digital asset financial services providers like BitGo.
Many cryptocurrency companies have faced challenges for suspicious activity such as money laundering, but BitGo Trust, a division of BitGo Holdings, is regulated by the South Dakota Division of Banking and it leverages the same onboarding protocols as traditional financial institutions for AML/KYC practices.
“Crypto is still a very new industry,”said Anthony Botticella, CEO of BitGo Trust, in a recent interview with PYMNTS. “Some of the players that are coming up may not understand all the requirements. So we take a very educational approach when dealing with clients, and we have to explain what we’re asking for, why we’re doing it, and how we’re going to be compliant with U.S. regulations.”
BitGo’s AML procedures incorporate both a client authentication system at the point of sign-up and a back-end analysis system that identifies and flags suspicious transactions that could indicate potential irregularities.
Verification at the point of entry
The first stage to detect and prevent suspicious activity begins at the point of entry, when new customers sign up for accounts with BitGo. All new customers must undergo a rigorous KYC process to ensure that BitGo Trust knows their customers by cross-referencing several points of personal information.
“We run [new customers] through our screening tool to make sure that they are not found on the OFAC [Office of Foreign Assets Control] list or other sanctions lists, as well as complete background searches and verify their identity using a government-issued ID like a driver’s license, [along with] proof of residency,” Botticella said. “Then we also require our clients to complete an onboarding call, so there’s an actual personal verification element versus everything being completed anonymously online.”
BitGo requests that customers complete a pre-KYC onboarding call to ensure that they understand the requirements for opening up an account before this process even begins. The process is often more difficult for foreign customers, who may not understand U.S. compliance regulations or have the necessary equivalent documents for verification.
The KYC process at the point of account creation is only the first line of defense, however. Ongoing monitoring of existing accounts is also necessary to ensure that cryptocurrency companies like BitGo are continuously compliant with AML regulations.
Transaction Monitoring Behind The Scenes
The second step of BitGo’s AML procedure is a transaction monitoring algorithm that reviews the funds moving in and out of accounts to determine if they are received from or sent to any suspicious destinations, such as dark web marketplaces. This is supplemented by periodic reviews of all transactions to check for unusual behavior.
“We conduct annual reviews of our clients as required by regulators,” said Botticella. “If necessary, we’ll go back to the client, reverify who’s on the account, what they’re doing and if any of their business purposes have changed.”
Like all financial institutions, any large transaction that is not in client transaction history may warrant further exploration.
“Similarly, we may reach out to the client to determine the reason for the transaction for both the client’s and BitGo’s protection,” he added.
The double-layered AML/KYC system is crucial for ensuring that all BitGo customers remain aboveboard and that money launderers cannot go undetected on its service. Any single defensive layer is difficult to get around, but circumventing both is next to impossible.