On April 25, the FBI issued a public service announcement (Alert Number I-042524-PSA) regarding the use of unregistered cryptocurrency money transmitting services that do not comply with Know Your Customer (KYC) standards. The agency stresses the importance of only conducting transactions with registered Money Services Businesses (MSBs) that adhere to anti-money laundering (AML) regulations. This serves as a reminder of the FBI’s commitment to protecting financial transactions in the digital currency space.
Under US federal law, cryptocurrency money transmitting services are required to register as MSBs and comply with AML standards. The FBI warns that failure to comply can result in significant financial disruptions, especially when funds are tied to illegal activities. This advisory comes after recent legal actions taken by the US Department of Justice (DOJ), including the arrest of the founders and CEO of Samourai Wallet for allegedly laundering over $100 million from criminal activities.
The FBI also highlights the importance of avoiding crypto money transmitting services that do not collect mandatory KYC information. It recommends verifying the registration of a business as an MSB using the tool provided by the US Financial Crimes Enforcement Network (FinCEN). This tool confirms that reputable crypto firms like Coinbase and Kraken are registered as MSBs, demonstrating their compliance with regulatory expectations.
However, criminals often exploit loopholes in KYC processes, particularly in sectors such as fintech, cryptocurrency, and payments. These industries are vulnerable due to their quick digital onboarding processes, which attract both legitimate customers and criminals using forged or stolen identities. Shared KYC utilities, which have high customer pass rates, are also targets for exploitation. Criminals take advantage of these systems to create accounts at multiple financial institutions, using synthetic identities or manipulated biometrics to bypass checks.
Dormant accounts that have passed initial KYC checks also pose a vulnerability as criminals can acquire them and reactivate them to launder illicit funds. This is made easier by the ability to update account information and evade stricter scrutiny applied to new accounts. These methods make it challenging to trace the origins of illicit funds and prosecute those responsible.
In the digital age, criminals have also turned to cyber laundering, utilizing online tools like cryptocurrency tumblers and virtual asset trades to anonymously move illicit proceeds. Despite the prevalence of these methods, regulatory frameworks are often outdated, giving criminals a technological advantage. For example, the Banxso platform was recently involved in a scam where the criminals used advanced technologies like deepfakes to evade detection and inflict reputational damage.
In conclusion, the FBI’s warning serves as a reminder of the ongoing challenges in combating money laundering in the digital age. The agency urges individuals and businesses to adhere to KYC and AML regulations and collaborate with law enforcement to safeguard financial transactions.