In brief
- Silicon Valley-based blockchain analysis firm CipherTrace has a new tool designed to help banks trace illegal crypto funds.
- CipherTrace claims banks unknowingly process $2 billion in crypto-related transactions each year.
- Without stronger due diligence, banks open themselves up to possible fraud and other criminal activity, the firm claims.
Banks in the United States unknowingly process as much as $2 billion in cryptocurrency funds each year—and eight out of 10 banks do so for illegal money services businesses.
This according to the Silicon Valley-based blockchain intelligence firm CipherTrace, which today launched a new product designed to help banks confront this issue and remain in compliance with anti-money laundering laws.
Dubbed Armada, CipherTrace’s new software product is designed to uncover risks associated with virtual asset service providers (VASPs) and help banks avoid becoming unwitting participants in fraud and other criminal activity.
According to the firm, which was initially funded by DARPA and the US Department of Homeland Security, Armada uses machine-learning algorithms, combined with other forensic techniques, to monitor crypto activity, identify evidence of illicit funds, and map account numbers to the names of cryptocurrency MSBs. It then reveals payment flows to and from risky VASPs, which include crypto exchanges, Bitcoin ATMs and some crypto users, by linking routing and account numbers to VASPs.
“The information collected about users as part of KYC is meant to ensure the exchange is abiding by all AML and Combating the Financing of Terrorism (CFT) requirements in addition to international sanctions,” John Jefferies, chief financial analyst at CipherTrace, told Decrypt. “Without collecting some information on users, exchanges would have no ability to decipher whether a criminal is using their services to launder money.”
Armada will provide CipherTrace with data pertaining to financial activity on the dark web, including investment scams and ransomware attacks, according to CipherTrace VP of product management Catherine Woneis.
“This translates into a more accurate and comprehensive risk assessment of VASP anti-money laundering controls and is what enables Armada to catch MSBs that may be obscuring their true nature through different names or hidden accounts,” she said.
Jefferies added that, for the time being, banks will serve as Armada’s primary client base, since they tend to be risk-averse with digital assets and are offering more of their services to the crypto industry.
CipherTrace currently provides blockchain analysis tools to more than 130 clients, including Binance Chain, Galaxy Digital and Rakuten.