AML red flags indicators – how to detect it?

The development of new technologies and the significant adaptation of the digital world encourage the emergence of previously unknown forms of crime – including in the cryptocurrency market. In addition, the tightening of AML regulations is causing criminals to explore new areas that are not yet adequately regulated and secured to achieve their goals. If you are an active participant in the cryptocurrency market, then be sure to read this article. From it, you will learn what cryptocurrency AML red flags are, AML red flags indicators, and how to avoid fraud. 

What is AML?

AML, or Anti-Money Laundering, is a procedure to prevent money laundering. Under the AML procedure, financial institutions or other entities in contact with settlements must detect and prevent illegal payment transactions. These measures may include verifying the identity of customers, monitoring transactions, and reporting suspicious activity to the relevant law enforcement authorities. In addition, financial institutions are required to apply internal procedures and employee training on anti-money laundering.

What are AML’s red flags?

AML (Anti-Money Laundering) red flags are indicators or warning signs suggesting potential money laundering or terrorist financing activities. They are used by financial institutions, such as banks and other money markets or insurance-related entities, to identify suspicious transactions or actions that may violate laws and regulations against illegal financial transactions. 

AML red flags – examples

Common examples of AML red flags include:

  1. Unusual transactions

These primarily refer to transactions that deviate from the previous activity in the account of the client in question, as well as those that are inconsistent with the client’s financial activity.

  1. Large or frequent financial transactions

Deposits or withdrawals of large cash or multiple cash transactions just below the reporting threshold are also good examples of AML red flags.

  1. The suspicious sender or recipient profiles

Some of the transactions performed by senders and recipients on cryptocurrency exchanges may indicate attempted money laundering. Such red flags include users who often try to open an account using the same IP address or attempt to change personal IPs and other contact details such as email or private information. 

  1. High-risk countries or jurisdictions

Transactions entered into countries commonly known for high financial crime, money laundering, corruption, or terrorist financing are also on the red flags in transaction monitoring list.

  1. Unexplained or unexpected sources of funds

Another example of AML red flags is transactions involving funds from unknown or unexplained sources or funds inconsistent with the client’s known financial profile.

It should be noted that one or more red flags in transaction monitoring do not necessarily mean that money laundering or terrorist financing is taking place. These situations can also be linked to cyber-attacks or some other form of phishing attempt. Whatever their nature, however, they may warrant further investigation and report to the relevant authorities as part of the financial institution’s AML compliance obligations.

Cryptocurrency AML red flags – what information do they provide and what do they mean? 

Cryptocurrency AML red flags are also indicators that provide information about potentially suspicious cryptocurrency activities. In addition, these cryptocurrency red flags serve as warning signs indicating criminal activity, including money laundering or other illegal activities. 

Digital currency exchanges and other virtual asset service providers (VASPs) can gather crucial data and gain insight into potential risks and vulnerabilities in their systems by discovering and analysing cryptocurrency AML red flags. This way, cryptocurrency red flags can provide valuable information and help to detect potentially suspicious activity and indicate where action needs to be taken, such as conducting further investigation, reporting to the relevant authorities, or implementing enhanced due diligence measures. 

By understanding the importance of transaction monitoring red flags and AML red flags indicators and how they may be linked to money laundering or other illegal activities, the cryptocurrency market can dramatically strengthen its AML compliance efforts and reduce the risk of being used as a conduit for illegal activities involving cryptocurrencies.

How to improve the security of cryptocurrency market transactions?

Although the cryptocurrency market shows a high level of transaction security thanks to blockchain technology, with the growing popularity of this sector, more and more cases of illegal activities are emerging. To avoid these, it is worth opting for crypto AML software, which ensures compliance with regulations and, at the same time, counteracts money laundering. With its help, you can gain an in-depth understanding of the market situation in just a few seconds with risk checks and data points, ranging from financial crime to counterparty identity. In addition, transactions and addresses recorded on a blockchain with multiple inputs and outputs can be easily monitored, significantly increasing security. Just as importantly, this type of software sends alerts on high-risk crypto wallets and provides the ability to monitor transactions in real-time to perform efficient due diligence checks for compliance.