Blockchain Monitoring in AML/CFT Compliance

Blockchain Monitoring - Key Takeaways

Blockchain monitoring is the analysis of blockchain transactions to track the flow of funds and detect illicit crypto activities.
Key red flags and typologies include mixers/tumblers, chain-hopping, ransomware flows, sanctions evasion, and terrorist financing.
RapidAML automation helps in crypto address screening and entity resolution and ensures effective AML/CFT monitoring.

What Is Blockchain Monitoring?

Blockchain monitoring in AML/CFT is used to continuously analyse blockchain transactions, provide transparency and enhance traceability, and help detect and assess the money laundering and terrorism financing risks.

The main purpose of blockchain monitoring is to provide transparency, traceability, and detection of illicit crypto activity. It gives full visibility of transactions, traces the assets from their origin to their final destination, and identifies suspicious patterns.

It also supports compliance for VASPs, fintechs, and banks to meet the AML/CFT rules and enables them to assess, monitor, and report the detected risks, and to avoid the misuse of crypto assets.

Key Risks, Red Flags, and Illicit Typologies in Blockchain Activity

Some of the key risks, red flags, and typologies in blockchain activity are as follows:

Common AML/CFT/CPF risks:

Red flags:

Typologies:

On-chain intelligence and clustering analytics play a crucial and important role in AML/CFT/CPF compliance, as they help in tracing fund flows and identifying hidden networks.

Regulatory Expectations for Crypto Blockchain Monitoring

Regulators expect the following things from financial institutions for crypto blockchain risk detection:

FATF expects the travel rule considerations from VASPs, which means to share certain customers’ information, such as the sender’s and receiver's names, account and transaction details.
Regulators such as the US/EU/UK expect crypto businesses to monitor the transactions and report any suspicious transactions or patterns detected.
Crypto businesses must follow a risk-based approach and focus more on high-risk, and maintain proper records for audit trails and regulatory investigations.
They are also required to perform real-time screening of transactions and should be monitored quickly to detect and stop illicit activities.

How RapidAML Software Helps Strengthen Blockchain Monitoring

RapidAML Software helps in strengthening blockchain monitoring with its automated Screening software, which helps in crypto address Screening and links various related addresses to identify real individuals or entities behind them. RapidAML integrates with an external blockchain analytics provider to monitor crypto transactions and easily detect suspicious patterns.

Its unified alerts help with quick detection, risk scoring enables prioritising high-risk, Case Management promotes effective organisation, and workflow automation saves time and reduces manual errors. RapidAML screens for on-chain activity against sanctions and adverse media lists for identifying high-risk customers and ensuring compliance.

These benefits result in faster decision making, lower the risk of false positives, and increase the scalability of compliance operations.

FAQs on Blockchain Monitoring

1. Why is blockchain monitoring necessary for AML/CFT?

Blockchain monitoring is essential for AML/CFT because it enhances transparency and traceability and reduces ML/TF risks.

2. Which industries and institutions must monitor blockchain transactions?

Industries and institutions that must monitor blockchain transactions are VASPs, fintechs, and banks, including any institutions that are handling crypto transactions.

3. How does blockchain monitoring differ from traditional transaction monitoring?

They both differ as traditional monitoring relies on banks or financial institutions to identify customer transactions, whereas blockchain monitoring is direct and tracks crypto transactions on the blockchain.