Virtual Assets and Cryptocurrency AML Flashcards

Which international body is responsible for setting the global AML/CFT standards that now explicitly cover virtual assets and VASPs?

Answer: The Financial Action Task Force (FATF)

The Financial Action Task Force (FATF) sets the global AML/CFT standards, including the 2019 updates to its Recommendations and Guidance that brought virtual assets and VASPs under the same compliance framework as traditional financial institutions.

A VASP receives a large transfer of Bitcoin from a wallet address that blockchain analytics tools flag as associated with a darknet marketplace. What is the compliance officer's most appropriate immediate action?

Answer: Conduct enhanced due diligence, consider freezing the funds, and evaluate whether to file a SAR

When blockchain analytics flag a wallet as linked to illicit activity, the compliance officer must conduct enhanced due diligence, consider whether the funds should be frozen pending investigation, and determine if the suspicious activity warrants filing a SAR with FinCEN.

What is 'transaction monitoring' in the context of a VASP's AML program, and what makes it uniquely challenging compared to traditional banking?

Answer: It involves watching blockchain public ledgers; the challenge is that pseudonymous addresses obscure beneficial ownership

Transaction monitoring for VASPs uses blockchain analytics to detect suspicious patterns on public ledgers, but the pseudonymous nature of wallet addresses — where owners are not inherently identifiable — makes it significantly harder to link activity to real-world individuals than in traditional banking.

When must a U.S.-based cryptocurrency exchange file a Currency Transaction Report (CTR) under Bank Secrecy Act rules?

Answer: When a customer conducts a transaction or series of related transactions in cash or cash equivalents exceeding $10,000 in a single day

Under the BSA, MSBs including cryptocurrency exchanges must file a CTR when a customer conducts transactions in currency (or currency equivalents) exceeding $10,000 in a single day, whether or not the transactions involve cryptocurrency or fiat.

Which of the following best describes 'on-chain analytics' as a tool for AML compliance in the cryptocurrency space?

Answer: A method of analyzing publicly recorded blockchain transaction data to identify suspicious patterns and trace fund flows

On-chain analytics involves examining the publicly available transaction data recorded on blockchain ledgers to identify patterns consistent with money laundering, cluster wallet addresses, attribute addresses to known entities, and trace illicit fund flows.

A VASP's risk-based approach to customer due diligence should assign higher risk to which type of customer?

Answer: A business customer whose principal is a Politically Exposed Person operating from a high-risk jurisdiction

Customers who are Politically Exposed Persons (PEPs) or are based in high-risk jurisdictions require enhanced due diligence under a risk-based approach, as the combination of public influence and geographic risk significantly elevates the potential for corruption and money laundering.

What is the significance of the FATF 'grey list' (Jurisdictions Under Increased Monitoring) for a VASP conducting due diligence on counterparty VASPs?

Answer: VASPs from grey-listed jurisdictions face enhanced scrutiny because their home country has strategic AML/CFT deficiencies

FATF grey-listed jurisdictions have identified strategic AML/CFT deficiencies and are under increased monitoring; VASPs should apply enhanced due diligence to counterparty VASPs and customers from these countries, as the regulatory oversight in their home jurisdiction may be inadequate.