Suspicious Transactions on the Rise
Financial institutions around the globe have flagged an astonishing 134,500 suspicious transactions linked to virtual currencies in the last two years. This figure, presented by blockchain forensics specialists CipherTrace, merely scratches the surface of the underlying issues.
Understanding the Growth
Since the release of the May 2019 Advisory on Illicit Activity Involving Convertible Virtual Currency by the Financial Crimes Enforcement Network (FinCEN), there has been a notable spike in awareness and reporting of such activities. But what does this mean for the financial sector?
Home-Grown Confusion
While some institutions have made strides in monitoring, many have opted for what CipherTrace calls inadequate “home-grown” systems. These systems typically rely on simple name matching that can result in:
- False positives: Incorrectly flagging legitimate transactions as suspicious.
- Missed transactions: Over 70% of crypto exchanges might fly under the radar.
- Overshadowed volumes: Up to 90% of actual transaction volumes could be overlooked.
The Name Game Is Risky Business
Many exchanges operate using names that differ from their branding, complicating the situation. The reliance on a set list of names isn’t just inefficient; it’s downright dangerous.
Expanding Horizons
To improve identification, CipherTrace recommends that banks and institutions adopt a more comprehensive monitoring system. This should include:
- Tracking accounts tied to peer-to-peer exchanges.
- Cross-referencing small virtual asset service providers with existing customer files.
- Utilizing advanced tools that can check not just names, but transaction patterns and anomalies.
IRS and Homeland Security Moves
Following CipherTrace’s findings, the U.S. Internal Revenue Service (IRS) has taken a notable step by contracting with Blockchain Analytics and Tax Software for $249,900 to enhance its cryptocurrency tracing capabilities. In addition, CipherTrace has also developed a tool specifically for the Department of Homeland Security that allows the tracking of transactions made with the privacy-coin Monero (XMR).
Final Thoughts
The financial sector is at a pivotal point in recognizing and addressing suspicious transactions within the realm of virtual currencies. With a more sophisticated understanding and the right systems in place, we may yet turn this iceberg into a clear lake—albeit one filled with cautious investigation and awareness.
