FATF Releases Red Flag indicators To Identify Money Laundering Using Crypto

  • The Financial Action Task Force (FATF) releases report on how to identify possible red flags in crypto money laundering rings across virtual asset service providers, or VASPs in short.
  • The regulator highlights a number of ways that crypto exchanges can stop and curb illegal and illicit activity.

The report titled, Virtual Assets – Red Flag Indicators of Money Laundering and Terrorist Financing, outlines several red flags including those arising from irregular transaction patterns, anonymous transactions, arising from senders and receivers and sources of wealth profiles of the crypto users.

One of the red flags arises from the size and frequency of transactions whereby a money launderer could make multiple high frequency transactions over a period of 24 hours or staggered and regular transactions which stop shortly after they are made. Moreover, transferring virtual assets to exchanges with low or non-existent AML/CFT rules is also considered a red flag.

User profiling is also an excellent way of noticing possible money laundering and terrorist financing. Here, exchanges are tasked with checking on the transactions made and comparing it with the user’s profile.

This arises when a user deposits an unusual amount to their wallet which does not match the traders profile or recent transactions. This could signal the deposit is subject to checks of money laundering, scamming or a money mule. The report reads on transaction patterns as a red flags stating,

“Conducting a large initial deposit to open a new relationship with a VASP and funding the entire deposit the first day it is opened, and that the customer starts to trade the total amount or a large portion of the amount on that same day or the day after, or if the customer withdraws the whole amount the day after.”

Also quick deposits and withdrawals of full balance of virtual assets in a short period of time raises eyebrows.

Virtual asset accounts with no logical business explanation making frequent deposits and transfers off the exchange to less KYC friendly exchanges poses a red flag. Accumulation of funds from several unrelated exchanges or wallets sending small amounts to one virtual asset account before fully withdrawing the funds may be a money laundering scheme.

Regulators should also follow users who use anonymity enabled public cryptocurrencies and privacy coins such as Monero, Zcash and Dash closely, the report states. Also the exchange of public and transparent crypto coins such as Bitcoin for the anonymity enhanced cryptocurrencies also raises questions on the actions of the trader.

FAFT has pushed through KYC/ AML regulations and compliance rules for VASPs across the globe in a bid to curb money laundering and terrorist financing using crypto. The “Travel Rule” recommends that the 200 countries that follow it, say to mandate VASPs such as custodians and crypto exchanges to retain and share any information on possible illicit and illegal trades happening on their platforms.

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Author: Lujan Odera

Australian Senate Sees Blockchain Technology As The Future Of FinTech And RegTech

Australian Senate releases a report on the impact of blockchain technology on the country’s economy, technology status, and regulation technology. Released earlier this month, the 281-page interim report, “Select Committee on Financial Technology (FinTech) and Regulatory Technology (RegTech)”, focused on innovative technologies, laying out the benefits of implementing blockchain technology across the economy.

The interim report further mentioned the myriad of initial coin offerings (ICOs) and the benefits it could bring despite the wave seeming to have already passed.

The potential of blockchain is immense

In a full section dedicated to blockchain technology and associated cryptocurrencies, the interim report mentioned the benefits of the innovative currencies in shaping the future of the Australian economy. The Senate highlighted the potential of the blockchain in growing economic value and benefited a range of industries – financial and insurance services, scientific and medical research, technical and service industries.

“Other areas include healthcare and social assistance, agriculture as well as real estate services.”

The benefits of blockchain technology are expected to translate into financial growth for these industries, the report stated. In the next five years, blockchain technology will help raise an estimated $175 billion annually with a $3 trillion target in the next decade.

Further supporting integration and building on blockchains is Michael Bacina, Partner at Piper Alderman, a fintech and blockchain firm, stated,

“Most fintech and regulation technology projects will either be built predominantly on distributed ledger technology or blockchain or heavily using that within the next 10 years”

A closer look on initial token offerings

The ICO wave seems to have passed with newer and more decentralized methods of raising capital using crypto emerging by the day (tsk, DeFi). However, the report mentioned the ICO ecosystem asking why Australians are not yielding from them anymore.

Highlighting the disparity between Australian and the global ICO ecosystem, Power Ledger’s co-founder and Executive Chairman, Dr. Jemma Green, stated the continental state only contributed to less than 1% of the $26 billion raised in public token offerings. Dr. Green said,

“And so I think there’s a bigger play around capturing the value for those markets in the Australian economy, as opposed to them being based outside Australia. It’s stimulating the fintech sector, providing employment opportunities, and delivering better quality services to the Australian people.”

According to Green, ICOs provides a potentially large industry that would help build job opportunities for thousands of Australians. However, regulations need to be set in place to promote the growth of decentralized capital raises, the report further explained.

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Author: Lujan Odera

Digital Dollar Foundation Releases Its First Whitepaper Urging The US Govt To Explore CBDC’s

  • Christopher Giancarlo’s Digital Dollar Foundation releases its first white paper on the digital dollar.
  • The projects aims at implementing a private-public partnership with the government and commercial banks in a “two-tiered” approach.
  • Can the U.S. challenge other global superpowers in developing their own CBDC?

The Digital Dollar Project alongside Accenture, an Irish-domiciled multinational professional services company, released its first whitepaper on Thursday, May 28, 2020. According to Giancarlo, the former chairman of the Commodity Futures Trading Commission (CFTC) called on the U.S. government to accelerate its efforts in developing its “digital dollar” or risk losing its control over values of the global financial system. Giancarlo said,

“What we’re hoping to be is a catalyst for a discussion here in the United States about what role the U.S. will play in this ongoing and accelerating global debate over the future of money in a new digital age.”

Digital Dollar Project Whitepaper Release

The 50-page reportThe Digital Dollar Project: Exploring a U.S CBDC” expounds on the project’s implementation arguing for a “two-tiered approach” in the system. The project will create a tokenized digital dollar with the same legal status as physical banknotes. The currency will then be distributed to commercial banks who then distribute it to the population similar to how cash is distributed through loans and on ATMs.

In a similar manner to the legacy financial systems, the foundation tier will be the Federal Reserve who through regulated intermediaries will distribute the digital dollar to users.

The key advantage of the two tired approaches rather than the current totally decentralized private cryptocurrencies is that it will be interoperable with current systems. Furthermore, the whitepaper aims at formulating a regulated wallet infrastructure to ensure the users’ transactions follow the KYC/AML compliance requirement.

Digital Dollar Should be Tokenized: Giancarlo

In an interview on the launch of the digital dollar white paper, Giancarlo said the current global view on money may have switched as more governments start exploring their own CBDC solutions. The current COVID-19 pandemic also has raised an alarm on the future of physical money and the question of what constitutes money given the widespread printing.

Earlier in March, the U.S House of Representatives brought forth possible plans in distributing a digital dollar token to efficiently disburse the COVID-19 CARE package Act funds to millions of Americans. The bill stated that users should be allowed to open retail accounts in the FED in order to receive the funds. However, opening an account with the Fed is the same as having a private institution such a corporate bank managing the account only that it will be a public institution doing it.

The white paper advises for a token approach instead of the account approach, whereby the dollar can be used across the globe not only within the U.S. Giancarlo said,

“We think a true U.S. CBDC addresses that problem but then so much more, including building a new architecture for money for generations to come that will serve not just under-banked populations here in the United States during a crisis … abroad and [spur] financial inclusion globally.”

After the completion of the platform (date remains unknown), Digital Dollar Foundation will launch test pilots. These pilots will test “proposed token’s impact on the money supply, technological choices, privacy concerns from users, government control and commercial exploitation, impact or use in sanctions and compliance with AML/KYC laws.”

Once the project is off the trial board, the Foundation and Accenture will present the findings to the relevant authorities according to Giancarlo. He said,

“We’re here to get the conversation going, to provide thinking, experience and expertise, and we will leave it to the policymakers to set the pace.”

Competition from the EU, Russia, and China

The U.S. is lagging behind in the race to a sovereign digital currency after accelerated efforts by top competitor, China. The People’s Bank of China (PBoC) earlier in the year released its

Earlier this year the European Central Bank (ECB) announced its plans to develop a retail central bank digital currency (CBDC) light of the COVID-19 pandemic. South Korea, Russia and Switzerland are some of the developed countries looking to launching their CBDC in the coming future.

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Author: Lujan Odera

bZx Changes Its Dev Framework After Hack; Integrates Chainlink Decentralized Oracles

bZx exchange releases changes to its platform in light of the recent double attacks on Valentine’s Day. In an announcement released on Tuesday, the co-founder and CEO of the exchange, Kyle Kistner, further apologized for the $2.5 million hack on 1inch.exchange caused by a bug on its Fulcrum platform.

In a bid to prevent future troubles on the platform, the bZx dev team is reworking its oracle design, development framework, and review processes for new code.

bZx exchange loses over $2.5 million in hacks

In a widely covered bZx exchange double hack on Feb. 14, a user exploited a bug on the system and made away with $365,000 USD in ETH leading to widespread panic. Less than 72 hours later the platform experienced yet another exploitation of over $645,000 USD in ETH too.

While the first hack was an exploitation of the smart contract code, the second hack originated from a bug in the oracle system. In order to prevent this in the future, the exchange is adopting new oracle designs by integrating decentralized oracle, Chainlink to its system. [Not the first time bZx has partnered with Chainlink]

The company is currently planning on integrating Band and Uniswap v2.0 oracles to its platform in the future.

“Chainlink’s Price Reference Data Contracts are decentralized oracle networks made up of multiple independent, security reviewed, and Sybil resistant node operators.”

Furthermore, the exchange released a newly refactored code that will be implemented once economically audited to prevent such cases of exploitation.

“We will transition to an EIP-like system for cataloging new features and improvements to the protocol. This will make the process of how new code gets added completely visible to the public. Features should not be added as a surprise or at the last moment.”

He further added,

“We will never again publish unaudited code, no matter how few lines or trivial.”

bZx to pay for the losses

All the losses during the hack will be absorbed by the bZx exchange and protocol stakeholders. Currently, the company is working towards directing the profits towards the insurance fund to be able to repay the debt owed on the platform. The post reads,

“Given the current value of the insurance fund and its annualized rate of growth, it should be more than able to cover the loss at the time it needs to be realized in the year 2285 AD.”

Kristner apologizes for 1inch.exchange bounty reward

About three weeks before the two successive exploitations, 1inch.exchange came forward complaining that they found over $2.5 million from a vulnerability on the Fulcrum exchange. However, bZx never paid the devs their bounty fee or communicated the issue to the users.

Kristner came forward on his blog post to apologize for the time wasted in paying the bounty. He remarked,

“Rather than simply pay the full bug bounty immediately, with extreme gratitude for finding such a serious exploit, we tried negotiating. This was a serious mistake that we need to take responsibility for. Under no circumstances should this have happened, and we sincerely apologize.”

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Author: Lujan Odera

CoinGecko 2019 Q2 Report; Bitcoin Price Dominates With 165% Gains Helping Total Market Cap Jump 125%

CoinGecko 2019 Q2 Report; Bitcoin Price Dominates With 165% Gains Helping Total Market Cap Jump 125%
  • CoinGecko releases a new market report for the second quarter of the current year
  • The market has been positively influenced by the announcement of the Libra cryptocurrency

CoinGecko, a recognized crypto aggregator of news and information, published its new Q2 report for 2019. In this new release, they provide information about many different topics, including the cryptocurrency market, the price increase experienced by virtual currencies and the performance of crypto exchanges.

CoinGecko Releases New Crypto Market Report

The cryptocurrency market has been expanding during the last six months and CoinGecko has analyzed the most important things that took place in the space. During the last quarter, the report shows that there has been a 125% increase in crypto market capitalization due to the price increase in many virtual currencies.

In addition to it, Bitcoin (BTC) has been one of the best performer currencies during that period of time with a gain of 165% increase in value during that time. The digital currency moved from $4,103 to $10,888. At the same time, the Bitcoin market capitalization expanded from 54.6% to 65%.

According to the report, 87% of 302 exchanges that CoinGecko is currently tracking were added in the last 18 months, which means that the space has been constantly growing. Due to a growing and expanding market, crypto hacks became much more sophisticated over time.

Initial Exchange Offerings (IEOs) have also been expanding during the last quarter as well. As per CoinGecko, this was by far the most popular period of IEOs with 66 out of 72 IEOs taking place during that time. These IEOs gathered $262 million during the first half of 2019. The co-founder of CoinGeck, Bobby Ong, commented:

“Crypto summer is undeniably upon us as we see the industry enter the mainstream consciousness again, in part due to Facebook’s recent announcement of Libra. The release of CoinGecko’s Trust Score during Consensus New York has been met with a positive response which emboldens our resolve to empower our users with richer data to make better-informed decisions.”

Thus, this shows that the team at CoinGecko is very excited about the future of the space. The consider that Facebook’s digital currency played an important role in the recent price increase of Bitcoin.

In addition to it, the Lightning Network has grown steadily and it increased its node capacity to 4576 at the end of the second quarter of 2019.

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Author: Carl T