Encyclopedia

4th Anti Money Laundering Directive (4AMLD)

What is the 4th Anti Money Laundering Directive? The 4th Anti Money Laundering Directive or ‘4AMLD’ is the EU response to the FATF 40 recommendations dated February 2012 and was required to be incorporated by EU member states by 26th June 2017. It follows the 3AMLD and is proceeded by the 5AMLD. Below is a…

5th Anti Money Laundering Directive (5AMLD)

What is the 5th Anti Money Laundering Directive? The 5th Anti-Money Laundering Directive or ‘5AMLD’ is a European Union directive notable for being the first to set out regulatory guidelines on anti-money laundering with the use of crypto assets. 5AMLD came into effect on January 10th, 2020. As well as the inclusion of crypto-businesses in…

Anti Money Laundering (AML)

What is money laundering (ML)? Money laundering is the process of ‘cleaning’ illicit financial gain from criminal activity to make the funds appear legal. Typically, this involves three parts; the placement, layering and integration of tainted funds. Placement of illicit funds entails criminals inserting funds into the financial system (i.e. opening a bank account). The…

Asset Confiscation

Confiscation or forfeiture takes place through a judicial or administrative procedure that transfers the ownership of specified funds or other assets to the state(s). Upon transfer, the person(s) or entity (ies) that held an interest in the specified funds or other assets at the time of the confiscation or forfeiture lose all rights priorly exercised…

Bank Secrecy Act

What is the Bank Secrecy Act? The Bank Secrecy Act or ‘BSA‘ is the primary U.S. anti-money laundering regulatory statute (Title 31, U.S. Code Sections 5311- 5355) enacted in 1970 and most notably amended by the USA PATRIOT Act in 2001 in response to the terrorism threat of 9/11. Money laundering (ML) is a big…

Beneficiary (beneficial owner)

The term beneficial owner has two different definitions depending on the context:· The natural person who ultimately owns or controls an account through which a transaction is being conducted.or· The natural persons who have significant ownership of, as well as those who exercise ultimate effective control over, a legal person or arrangement. By identifying the…

Blacklisted Addresses

An internal list of names (including places, persons, entities, and individuals) that are screened to identify any sanctions exposure, in addition to government and vendor-maintained sanctions lists. Other potential additions to a firm’s internal blacklist may come from OFAC advisories and other warnings that list entities that did not merit being placed on the SDN…

Blockchain

Blockchain is a public ledger that records transactions that are performed. This is achieved without any trusted central authority as the maintenance of the blockchain is performed by a network of communicating nodes running the software. Network nodes validate transactions, add them to their copy of the ledger, and then broadcast these ledger additions to…

Blockchain Address

A blockchain address is like a bank account for crypto assets. Bitcoin addresses for example start with either a ‘1’ or a ‘3’ or a ‘bc1’ and is 26-35 alphanumeric characters in length. The address is generated from the private key, which is required to send or receive assets assigned to this address to another…

Central Bank Digital Currency (CBDC)

A Central Bank Digital Currency is a blockchain-based fiat currency issued by a central bank. CBDCs seek to leverage blockchain’s immutability, transaction speeds and costs with a country’s fiat currency for a more accountable and efficient system.

Clustering Algorithms

Clustering algorithms are used to identify blockchain addresses belonging to the same owner by analytical means. Good clustering algorithms can identify hundreds of thousands of suspect’s blockchain addresses just based on one address confirmed as belonging to the suspect. This includes the determination of suspects’ addresses on different blockchain networks. In most cases clustering analysis gives the level…

Combatting the Financing of Terrorism (CFT)

Combatting the Financing of Terrorism or ‘CFT’ are a set of procedures deployed by obliged entities to ensure that the financial system and intermediaries are not used to facilitate the funding of terrorist acts and groups. Terrorist groups need funding to recruit and support members, plan operations and have a logistics hub. By having proper…

Counterparty Risk

Counterparty risk is the risk that an entity that is a party to a financial transaction is associated with illicit activity. Bitcoin and cryptocurrency money launderers for example would be benefactors or intermediaries with a high Counterparty Risk Score or ‘C-score’. The criteria that counterparty risk is measured against with proper due diligence is comprehensive….

Cryptocurrency Exchange

Is a website service, or an entity, engaged as a business in the exchange of virtual currency for real currency, funds, or other forms of virtual currency and also precious metals, and vice versa, for a fee (commission). Exchangers generally accept a wide range of payments, including cash, wire payments, credit cards, and other virtual…

Cryptocurrency Forks

A ‘fork’ is a change to the software of a digital currency that creates two separate versions of the blockchain with a shared history. When this happens, a new digital currency – the forked version – is created. A fork can occur in any consensus crypto-technology platform, e.g. Ethereum, Litecoin or Monero. Related Article The…

Custodians

A custodian is a financial services provider, typically a large bank or financial institution, that holds or ‘has custody’ of assets. Custodians hold customers’ securities for safekeeping to prevent them from being stolen or lost. The custodian may hold stocks or other assets in electronic or physical form. Owing to the hundreds of millions, billions…

Customer Due Diligence (CDD)

Customer Due Diligence or ‘CDD’ is a process to assess all of the risks associated with a client or relationship, including KYC, and that requires that the overall client conduct, and transactions are assessed to determine if this is unusual and reportable. CDD requires that obliged entities assess the risks before entering into a relationship,…

Decentralized Exchange (DEX)

Decentralized exchanges or DEXes are a subset of decentralized finance protocols that enable users to trade in cryptocurrencies and tokens without a central organizing body. Whilst centralized exchanges rely on their compliance departments and Money Laundering Reporting Officer (MLRO) to counter fraud, deploy AML/KYC/CFT checks and maintain proper risk management procedures – DEXs rely on…

Decentralized Finance (DeFi)

Decentralized Finance or ‘DeFi’ is the “reinvention of the financial system” which does not use any financial intermediary. Typically running on the Ethereum network, DeFi protocols include decentralized exchanges (DEXs), lending and borrowing markets. In 2020, DeFi experienced rapid growth of 2000%+ Related Articles DeFi Webinar: The Fine Line Between ‘Software’ and ‘Service’ Provider DeFi…

Decentralized Virtual Currencies

Decentralized Virtual Currencies (cryptocurrencies) are distributed, open-source, mathematically-based peer-to-peer virtual currencies that have no central administering authority, and no central monitoring or oversight. Examples include: Bitcoin, Ethereum, Litecoin and Namecoin. Related Articles Are cryptocurrency reclaim cases defining that Bitcoins constitute property? DeFi Webinar: The Fine Line Between ‘Software’ and ‘Service’ Provider DeFi Webinar: Can Blockchain

Department of Justice (DOJ)

The Department of Justice or ‘DOJ’ is the federal department of the United States of America tasked with “enforcing the law and the administration of justice.” If the DOJ becomes involved in a case rather than for the SEC for instance is a sign that the case has moved further from financial crime such as…

Destination of Funds

Destination of Funds is part of the anti-money laundering process that aims to identify the final destination account of funds. In relation to cryptocurrency AML practices, such as those employed by Coinfirm, it is blockchain addresses that hold or received funds originating from misappropriated wallets, as well as evidencing transaction paths (chains of consecutive transactions) between them. To…

Digital Asset

Digital Assets are any assets that are stored digitally. This could mean photos, videos, files containing messages, spreadsheets, etc. However, the definition has been broadened to become a synonym of cryptocurrencies as more financial institutions have become involved in the market, under ‘financial digital assets’. Non-Fungible Tokens or ‘NFT’s, running on the ERC-721 token standard,…

Distributed Ledger (Shared Ledger)

‘Ledgers’, or put simply, records of activity, were historically maintained on paper, more recently these were transferred to bytes on computers, and are now supported by algorithms in blockchains. They are essentially an asset database that can be shared across a network of multiple sites, geographies or institutions. All participants within a network can have…

E-Discovery

E-Discovery is a set of analyses, typically in relation to litigation or criminal proceedings, that seek to collect, preserve, review, and exchange information in electronic formats for the purpose of using it as evidence. In cryptocurrency fraud cases conducted by investigative analytics by companies such as Coinfirm E-Discovery is aimed to extract blockchain addresses, transactions or private keys from the…

Electronic Money (e-money)

Is an electronic store of monetary value, based on a technological mechanism for holding and accessing fiat currency. The ease of use of e-money has led to the increasing prevalence of this form of fiat currency and the decreasing use of cash in everyday transactions. Whilst e-money is backed by fiat and thus backed by…

Enhanced Customer Due Diligence (EDD)

Enhanced Due Diligence or ‘EDD’ is a KYC process of carrying out further due diligence on customers that may be seen to be more high risk to mitigate regulatory issues. This may be with PEPs or ‘Politically Exposed Persons’, sanctioned entities or individuals or other profiles that fit a higher level of risk category. Additional…

ERC-20

ERC-20 is a token standard based on the Ethereum protocol. It is used for all smart contracts on the Ethereum blockchain for token implementation and provides a list of rules that all Ethereum-based tokens must follow. Due to the standards’s prevalence it has emerged as the most used token standard. There are 6 foremost functions…

Europol

Europol or the ‘European Police Office’ is the EU’s inter-governmental law enforcement agency that allows numerous nation-states to pool resources to combat cross-border crime. Its main goal is to help achieve a safer Europe for the benefit of all EU citizens. In the area of anti-money laundering, Europol provides member states’ law enforcement authorities with operational…

False Negative

False Negative in the matter of financial crime and money laundering is either (1) a ‘hit’ identified during the screening process as a potential alert, but is dismissed, when in fact there is a match to a target named on a sanctions list; or (2) screened activity that would have generated a hit if the…

False Positive

False positive in the financial crime and Anti-Money Laundering contexts is a ‘hit’ identified during the screening process as a possible red flag alert, but when reviewed by a Money Laundering Reporting Officer (MLRO) or compliance personnel of an obliged financial entity, is found not to be a match to a target named on a…

Federal Financial Supervisory Authority (BaFin)

Federal Financial Supervisory Authority or ‘BaFin‘ is Germany’s financial regulatory authority overseeing Germany’s financial markets and service providers. Formed in 2002 after the passing of the Financial Services and Integration Act, BaFin falls under the supervision of the Federal Ministry of Finance and is responsible for regulating 2,700 banks, 800 financial services institutions, and over…

Fiat Currency

Fiat currency is legal tender that is backed by the sole faith of the central government or bank that issued it, rather than a commodity such as gold. Examples are the US Dollar (USD), Japanese Yen (JPY) and UK Sterling (GBP). Whilst central, public bodies in charge of the issuance of money has been in…

Financial Action Task Force (FATF)

FATF or the ‘Financial Action Task Force’ was chartered by the Group of Seven industrial nations to foster the establishment of national and global measures to combat money laundering. It is an international policy-making body that sets anti-money laundering standards and counter-terrorist financing measures worldwide. Its recommendations, whilst widely implemented into nations’ legislation, do not…

Financial Conduct Authority (FCA)

The Financial Conduct Authority or ‘FCA’ – formed in 2013 – is the United Kingdom’s financial regulatory authority overseeing U.K. financial markets and “58,000 businesses which employ 2.2 million people and contribute around £65.6 billion in annual tax revenue to the economy in the United Kingdom”. An independent agency, the FCA has the power to…

Financial Crimes Enforcement Network (FinCEN)

The Financial Crimes Enforcement Network or ‘FinCEN’ is a U.S. agency – bureau of the Treasury Department – that fights financial crime. Its motto is “follow the money”. This Financial Intelligence Unit (FIU) supports local, state, federal and international law enforcement investigations to safeguard the financial system from illicit use and to fight against money…

Financial Institutions

A financial institution is a large, reputable and well established bank.  Related Articles How Can Blockchain Help Banks Counter Money Laundering?

FinCEN Files

The FinCEN Files are a trove of information and analysis released in 2020 by the International Consortium of Investigative Journalists that sought to uncover vast gaps in money laundering actions by the traditional financial sector and institutions. Amongst some of the accusations leveled at the big banks was over-arching complacency in fighting back against malicious…

Fingerprints of Activity

Fingerprints of Activity is a financial investigatory method to identify accounts of known blockchain services and methods used by the perpetrators. By identifying the ‘modus operandi’ of a single suspect or of a group of threat actors, financial investigatory units (FIUs) can faster apprehend suspects and seize their assets. Related Articles Battles of Dirty Money and Blockchain: How…

FinTech

Refers to new applications, processes, products or business models that are being applied to improve the efficiency and security of financial services. Related Articles European FinTech Hackcelerator 2020 – 1st prize for Coinfirm!

First-In, First-Out (FIFO)

First In, First Out or ‘FIFO’, is an asset-management and valuation method in which assets produced or acquired first are sold, used, or disposed of first. The FIFO method is used for cost flow assumption purposes. Under FIFO, it is assumed that the cost of inventory purchased first will be recognized first. The dollar value…

Hash

A hash value (or simply hash), also called a message digest, is a string of characters generated from a string of digital data, e.g. a pdf file. The hash is substantially smaller than the text itself and is generated by a formula in such a way that it is extremely unlikely that some other text…

Hong Kong Monetary Authority (HKMA)

Hong Kong’s Monetary Authority or ‘HKMA’ is the Special Administrative Region of Hong Kong’s central banking institution. A governmental authority responsible for the issuance of money, HKD’s interest rate, the issuance of banking licenses, etc. Related Articles Authorities Overlook Millions of Dollars in Stolen Assets Battles of Dirty Money and Blockchain: How to Trace Stolen…

ISO 20022

ISO 20022 is the Society for Worldwide Interbank Financial Communication’s (SWIFT) updated network operating system. Organizations that have so far participated in the new standard include Ripple and Visa. Related Articles How Can Blockchain Help Banks Counter Money Laundering?

JVCEA Self Regulatory Rules

Business handling relationship Rules regarding crypto-assets handled related to derivatives Blockchain asset-related derivative transactions rules Rules for managing and explaining customers related to crypto asset-related derivative trading Rules for creating an order management systems for blockchain asset-related derivative trading Rules for preventing unfair trade related to crypto asset-related derivative trading operations Rules for establishing a…

Know Your Customer (KYC)

What does Know Your Customer (KYC) mean? Know Your Customer (KYC) is the process of the identification and verification of individuals/legal entities via identifying information, (i.e. legal name/address) & the verification of those details to identify fraudsters, money laundering, terrorist financing, etc. What are KYC requirements? Know Your Customer requirements differ between banks in different…

Markets in Cryptoassets (MiCA)

The Markets in Crypto-assets or ‘MiCA’ is a European Union proposed law for the comprehensive regulation of cryptocurrencies and blockchain-tokenized assets. Related Articles How can crypto companies be compliant and avoid regulatory penalties through AML frameworks?

Markets in Financial Instruments Directive (MiFID)

Markets in Financial Instruments Directive or ‘MiFID’ is a European Union directive focused on regulating financial markets in the EU with the goal of furthering transparency. MiFID focuses on equity markets but the scope has since increased under MiFID II. Related Articles How can crypto companies be compliant and avoid regulatory penalties through AML frameworks?

Monetary Authority of Singapore (MAS)

MAS or the ‘Monetary Authority of Singapore’ is Singapore’s central bank and financial regulatory authority. It administers the various statues pertaining to money, banking, insurance, securities and the financial sector in general, as well as currency issuance. Singapore is known as a global financial and technology hub. Related Articles Authorities Overlook Millions of Dollars in…

Money Laundering (ML)

A process to disguise the illicit source of value, either by self-laundering or through the placement, layering or integration process, conducted by criminals who ultimately wish to use this value for self-gratification, or to continue to finance their illicit activities. Related Articles 5 Steps Into the 5th Anti-Money Laundering Directive 6AMLD Arrives on Thursday. Is…

Money Laundering Reporting Officer (MLRO)

The Chief Compliance Officer responsible for all AML/CFT activities and responsible for ensuring that an obliged entity is not used by criminals or the financiers of terrorism. Related Articles How can crypto companies be compliant and avoid regulatory penalties through AML frameworks? Coinfirm releases new Standard AML Risk Reports for Cryptocurrencies

Nemty

Nemty is a ransomware that is notable in that it operates as Ransomware as a Service (RaaS). Related Articles The Evolution of Cryptocurrency Crime in the Darknet Battles of Dirty Money and Blockchain: How to Trace Stolen Crypto

Nephilim

Ransomware known to be similar in design and code to Nemty. Targets have typically been large corporations. Both Nemty and Nepilim threaten to disclose encrypted data on darknet markets (DNMs) – a practice becoming more popular. Related Articles The Evolution of Cryptocurrency Crime in the Darknet Battles of Dirty Money and Blockchain: How to Trace…

Nodes

Nodes are computers in the blockchain network that receive new transactions and blocks, validate these transactions and blocks and spread valid transactions and blocks to connected nodes and ignore invalid transactions and blocks. It is generally considered that the more nodes exist in the network, the more secure is the system. Related Articles How Can…

Non-Cooperative Countries and Territories (NCCT)

Non-cooperative countries and territories or ‘NCCT’ are jurisdictions that are identified as being high risk for money laundering and terrorist financing by FATF. Related Articles How can crypto companies be compliant and avoid regulatory penalties through AML frameworks?

Office of Foreign Assets Control (OFAC)

The Office of Foreign Assets Control (“OFAC”) of the US Department of the Treasury administers and enforces economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other…

Ownership Analysis

Ownership analysis is aimed to provide as many possible ‘quality’ pieces of evidence and strong indications as to who is an owner and who is a beneficiary of each blockchain address deemed to be relevant for the investigation. Related Articles Authorities Overlook Millions of Dollars in Stolen Assets Battles of Dirty Money and Blockchain: How to Trace Stolen…

Politically Exposed Person (PEP)

What are Politically Exposed Persons (PEP)? A Politically Exposed Person or ‘PEP’ is an individual of high public office that may wield significant influence, have access to inside knowledge of government, be in a position to siphon public funds or the awarding of public contracts. PEPs abusing their position of power (i.e. corruption) comprise a…

Private Key

Private keys are a cryptographic code that functions as a secret password that allows the user to sign a cryptocurrency transaction and transfer funds to another cryptocurrency address. Using the private key proves ownership of cryptocurrency. Related Articles The ultimate guide to Bitcoin Forks Are cryptocurrency reclaim cases defining that Bitcoins constitute property?

Pro-Rata Distribution (Proportional Distribution)

Pro-rata is a Latin term used to describe a proportionate allocation. It essentially translates to “in proportion,” which means a process where whatever is being allocated will be distributed in equal portions. This could be for use in many business finance cases such as partnership liability, bankruptcy law, insurance, etc.

Ransomware as a Service (RaaS)

Ransomware as a Service or ‘RaaS’ is the deployment of ransomware sold or rented on the internet. Related Articles The Evolution of Cryptocurrency Crime in the Darknet Battles of Dirty Money and Blockchain: How to Trace Stolen Crypto

RegTech (regulation technology)

RegTech or ‘regulation technology’ is the recent innovation provided by companies that use technology to help businesses comply with regulations more efficiently and inexpensively. Coinfirm is a leading RegTech company. Related Articles Coinfirm and PKO BP win The Heart Tech Collaboration of the Year Award for the blockchain European FinTech Hackcelerator 2020 – 1st prize…

Rug Pulls

Rug Pulls are a type of attack unique to decentralized finance exchanges (DEXs) where a vulnerability to the smart contract is abused and the token value drops to $0. The vulnerability means that the contract can only be bought but never sold. Related Articles Know more about crypto exchange risk​ DeFi Webinar: The Fine Line…

Sanctions

Sanctions, when applied to financial services, represent a prohibition on providing regulated services to the subject of the sanction, and the requirement to freeze and report any assets that are held to the local jurisdiction sanctions administrator, such as OFAC (Office of Foreign Assets Control) or HMT (Her Majesty’s Treasury) sanctions list. Related Articles The…

Sanctions Evasion

The act of avoiding or circumventing sanctions to engage in prohibited activity without being caught. Related Articles The Key To Compliance with Travel Rule Regulations How can crypto companies be compliant and avoid regulatory penalties through AML frameworks? 5 steps into the 5 Anti-Money Laundering Directive Risk-Based Approach to Virtual Currencies: 5th AML Directive How…

Silk Road

The Silk Road was the foremost darknet market (DNM) in the world. The Silk Road arguably made bitcoin and cryptocurrencies synonymous with money laundering and drug smuggling at that time as blockchain was a relatively unknown technology with a very small payment ecosystem. Launched in 2011, the Silk Road was shut down by the Federal…

Simplified Due Diligence (SDD)

Simplified Due Diligence or ‘SDD’ is a lower level of customer due diligence verification that can be performed where there is no, or a lesser, risk of money laundering. Related Articles Introduction to Risk-Based Approach to Virtual Currencies Risk-Based Approach to Virtual Currencies: 5th AML Directive

Sodinokibi (Sodin)

Sodinokibi, also known as ‘Sodin’, ransomware is a type of REvil ransomware. It spread in September 2019 by using a zero-day vulnerability in the servers of Oracle Weblogic. Later, when the vulnerability was fixed, it continued to spread through software installers that have remote desktop servers and other backdoor vulnerabilities; and also by the tools…

Source of Funds

The source of funds is designed to identify addresses that send funds to blockchain addresses related to criminal activity. Related Articles Authorities Overlook Millions of Dollars in Stolen Assets Battles of Dirty Money and Blockchain: How to Trace Stolen Crypto

Suspicious Activity Report (SAR)

In financial regulation, a Suspicious Activity Report (SAR) is a report made by a bank or financial institution about suspicious or potentially suspicious activity. The criteria to decide when a report must be made varies from country to country, but generally is any financial transaction that does not make sense to the financial institution; is…

Swiss Financial Market Supervisory Authority (FINMA)

The Swiss Financial Market Supervisory Authority or ‘FINMA’ is Switzerland’s financial regulatory authority overseeing Switzerland’s financial markets and service providers. It is an independent institution – based in Bern – with power over banks, insurance companies, stock exchanges, securities dealers and collective investment schemes. It is responsible for combating money laundering and, where necessary, conducts…

Trading Platforms

Trading platforms function as marketplaces, bringing together buyers and sellers of virtual currencies by providing them with a platform on which they can offer and bid among themselves. In contrast to exchanges, the trading platforms do not engage in buying and selling themselves. Some trading platforms give their customers the option of locating potential customers…

Transaction Fee

Transaction Fees are earned by miners when a transaction is completed. The minimum transaction fee required is determined by the “size” (kilobytes) of the transaction data. Most small transactions require a fee of about 0.0001 BTC and transactions with larger fees are given priority to be added to the block, so they are usually confirmed…

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