Rampant cyberattacks. Crypto in the service of dark money. The risks of bad actors using digital means to steal and to sow carnage across the globe. The threats of cryptocurrency – both real and perceived — are mounting.
To that end, as reported by CNBC, U.S. Treasury Secretary Janet Yellen said this week that there’s been an “explosion of risk” tied to digital markets. She also singled out cryptocurrencies, which can be misused. But she told a roundtable on the financial sector that innovative technologies can help combat those risks, which include money laundering.
Yellen’s remarks came against the backdrop where late last year, lawmakers passed the Anti-Money Laundering Act. That legislation modernizes and updates anti-money laundering (AML) and terrorism financing efforts. Among other things, the act mandates that companies report beneficial ownership information, and also mandates cooperation and information sharing between financial firms and regulators. Also, the recent congressional legislation bans shell companies, which are anonymous in nature. AML efforts were last comprehensively overhauled as part of the Bank Secrecy Act of 1970.
“The update couldn’t have come at a better time,” Yellen told the roundtable. “We’re living amidst an explosion of risk related to fraud, money laundering, terrorist financing and data privacy.” In the wake of the pandemic, cyberattacks have been growing in terms of scale and frequency, she said, according to CNBC.
The New Wave Of Crypto-Related Crimes
The urgency is there. As reported late last year in a PYMNTS AML/KYC Tracker, cryptocurrency-related crimes totaled $4.3 billion in 2019, a larger sum than in 2017 and 2018 combined. The hallmark of cryptos has been anonymity, and pseudonyms and other hard-to-verify factors are part of the landscape. There’s a lack of uniform and strong Know Your Customer standards at exchanges, noted the Tracker, with more than half of those crypto exchanges marked by weak KYC processes.
But tech innovation, Yellen said, could address the use of cryptos to launder money, while also fostering financial inclusion. As spotlighted by PYMNTS, the twin efforts of bringing more transparency to the digital efforts of companies as they conduct daily operations, as well as robust digital identification verification technologies, can help.
Zac Cohen, chief operating officer at Trulioo, recently told PYMNTS that the new rules “shift the burden of collecting a database of information on corporations — as well as shifting the ownership of such a robust database — to FinCen.” Identification is part of that data, and verifying beneficial ownership (especially in the crypto space) can go a long way toward protecting against bad actors.
With a specific callout to making the crypto sector more transparent, he said regulators “have to start somewhere.” Right now, he noted, “what we need to do is recognize the power of the technology on the blockchain and crypto side, the identity verification side, as well as the use case side, and bring them all together so that we can have better alignment to satisfy the ultimate goals.”
Elsewhere, and beyond the confines of cryptos, “we know that anytime a bad actor wants to engage in some type of illicit activity against a financial institution, they are going to look at ways to cover their digital footprint,” Elizabeth Cronan, vice president of government relations at GeoGuard, told PYMNTS recently. “They want to evade detection. They don’t want to have their true identity and/or location unmasked. They want to get away with this type of activity. And so, they will always rely on some type of tool to mask their identity and location.”
That means leveraging virtual private networks and devices in the bid to make off with the money. Geolocation technologies can help pinpoint where transactions are really flowing (and whether the activity is suspicious) and thus help reduce fraud.
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