Major Banks Unknowingly Process Billions in Crypto Business, Says CipherTrace

Blockchain intelligence firm CipherTrace has claimed that large banks may be processing up to $2 billion in undetected cryptocurrency-related transfers each year.

In a press release shared with Cointelegraph on Dec. 16, CipherTrace claims that its research unit has found that every one of the United States’ top 10 commercial banks have unregistered cryptocurrency businesses using their payments networks to process funds.

These unregistered cryptocurrency money service businesses (MSBs) include entities such as crypto exchanges, according to the research. 

Known unknowns

While both the U.S. Bank Secrecy Act and Financial Action Task Force (FATF) funds Travel Rules require banks to identify the MSBs using their networks by law, CipherTrace claims that many are ill-equipped to adequately identify crypto exchanges and other virtual asset service providers (VASPs) as MSBs.

Revised BSA and FATF guidance — soon to come into effect for G20 nations — will make identification and compliance all the more critical, CipherTrace notes.

During the CipherTrace Cryptocurrency Travel Rule Information Sharing Architecture Conference in San Francisco this November, Carole House of the U.S. Treasury’s Financial Action Task Force (FinCEN) raised concerns as to whether banks are indeed ready for the forthcoming statutory revisions. She reportedly stated:

“It would be interesting to know how many financial institutions operating in this space are able to identify a [crypto-business] recipient as a financial institution on the basis of its wallet reference number, or other information that it currently has available to it.”

Pointing to the Anti-Money Laundering (AML) compliance challenge this poses for financial institutions, CipherTrace has launched a new Crypto Risk Intelligence product, designed to help banks to reduce crypto-related risks on their payment rails.

The company already works to monitor over 500 cryptocurrency businesses, compiling risk and compliance scores and generating AML filtering data that can be used by banks and other entities. The new intelligence tool reportedly helps banks meet this challenge with a focus on four areas:

  1. Detecting unknown risks between VASPs and bank payments networks such as SWIFT and ACH
  2. Providing access to CipherTrace’s risk scores for crypto-related businesses
  3. Identifying unregistered MSBS and peer-to-peer systems that rely on bank services
  4. Countering dark web risks and detecting illicit financial products or laundered funds enabled by cryptocurrency transactions

Regulations set to reshape the industry

As reported, FinCEN took its first enforcement action against an unregistered peer-to-peer cryptocurrency exchanger for willfully violating money transmission laws in April of this year.

As businesses adjust, FinCEN’s director observed this month that the cryptocurrency industry has begun to fall in line with the agency’s regulations on money transmission services, claiming that FinCEN’s own May 2019 guidance is now having a discernible and positive impact.

CipherTrace has recently argued that the new FATF regulations will rehaul how crypto businesses are required to operate by demanding that they track not only their own customers’ transactions but also where their customers are sending their funds.