Having spent the better part of the last four decades on both sides of the problem, in my humble opinion the money launderers have consistently been winning the battle. They effortlessly adapt to defeat the continuing efforts of compliance to interdict their operations in real time, and have always been several chess moves ahead of AML/CFT technology.
Now, however, there are clear signs that, in both the customer identification procedure and transaction monitoring challenges, technological advances have appeared to provide effective and efficient solutions for frontline compliance officers.
CUSTOMER IDENTIFICATION PROCEDURE: Rampant official corruption and Citizenship by Investment (CBI) programmers have combined to give money launderers and transnational financial criminals willing to pay for them legal and clean identification documents, including under aliases, which will defeat all efforts to learn there actual identity of the holder. This has made the use of traditional CIP methods, such as databases of high-risk individuals, sanctions lists, and even enhanced due diligence investigations, doomed to failure. Now however, the advent of next-generation facial recognition software platforms, when paired with adequate image databases from official sources can identify your new customer, notwithstanding his or her absolutely clean passport and supporting identity documents (1).
TRANSACTION MONITORING: Traditional transaction monitoring software, which relies upon suspicious event, aberrant transactions, transactions inconsistent with a customer's trade or business, and a number of other Red Flags, fails to catch the clever and innovative money launderer who can fly below the rdar of such programmes, appearing to be low risk, and not worthy of being caught in the act, whilst actually moving funds between the lines of the platform, and therefore not identified. New Artificial Intelligence (AI) systems, which are able to literally and successfully separate the wheat from the chaff, when legacy programmes cannot, are a game changer. They will find dodgy transactions, and conduct, that your previous platform cannot identify, because of its limitations. AI is the answer to the strategies and tactics of the crafty money launderer (2).
These tools, and others are they emerge in the marketplace. will level the playing field, and supply compliance officers with the means of being an effective gatekeeper, as well as catching laundrymen in the act, through transaction monitoring that actually works.
(1) e.g. Facepoint https://www.facepoint.co
(2) e.g. SymphonyAI Sensa https://symphonysensa.com
The very nature of the cryptocurrency industry renders it a nightmare for compliance. Its very structure poses unsurmountable challenges on several fronts, leading me to ask, which compliance officers are brave (or foolhardy) enough to risk potential Federal Prison time to serve a client. I do not make that allegation lightly; the opaque nature of crypto, as demonstrated by secrets within secrets at FTX, even to the point where they were not known to insiders operating the company, dictates that creating an effective compliance program, at the banking best practices level, might be an impossibility.
Until and unless there are effective means of auditing, controlling and gatekeeping the cryptocurrency industry, I must at this time recommend to my fellow compliance officers that they avoid what I deem to be an extraordinary level of personal risk, should they take on the compliance functions for any crypto company. Federal Prison, even for those with a thick skin, is not fun; I've been there, and even with the Vietnam War in my resume, I found it painful.