Risk Management Process

Anti Money Laundering (AML)
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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…

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Asset Confiscation
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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…

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Beneficiary (beneficial owner)
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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…

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Blacklisted Addresses
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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…

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Clustering Algorithms
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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…

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Combatting the Financing of Terrorism (CFT)
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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…

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Counterparty Risk
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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….

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Customer Due Diligence (CDD)
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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,…

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Destination of Funds
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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…

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E-Discovery
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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…

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Enhanced Customer Due Diligence (EDD)
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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…

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False Negative
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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…

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False Positive
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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…

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Fingerprints of Activity
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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…

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First-In, First-Out (FIFO)
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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…

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Politically Exposed Person (PEP)
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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…

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Suspicious Activity Report (SAR)
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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…

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