Among the strategies adopted, the crypto industry must adopt a compliance-focused culture.
Many are the times when the crypto industry is considered the weakest link in fighting financial crime. Recently, it has been singled as one sector that poses risk to financial stability and compromises investors’ security.
Cryptos are Often Associated with Illicit Activities, But the Trend is Changing
Taking a closer look at the illicit activities associated with the crypto niche reveals some sharp contradictions. Sure, the crypto niche has attracted some dealers in illicit commodities on the darket, but such black markets are declining with the increased involvement of law enforcement.
Unregulated crypto exchanges continue serving as the primary means for state actors to evade barriers associated with traditional financial systems. The United States courts have unsealed a memorandum opinion with the alleged role of crypto asset exchanges in processing USD10 million in payments that are barred under international sanctions.
However, the rapid development in crypto-forensic technology is making it challenging to easily cash out crime-related funds. Let’s put it differently: USD10 million is only a small drop compared to the USD3.6 billion Bitfinex hack. Indeed, there are other known, less complex methods for laundering crime-linked funds on a large scale.
The crypto niche is enhancing its reputation by supporting efforts to raise funds for Ukraine and Afghanistan to buy non-lethal equipment and humanitarian aid. Here are other ways that the crypto industry can improve its reputation.
In many developing nations, cryptos help people to keep wealth safe from unlawful appropriation and restrictions. Using Web3 products, such as non-fungible tokens (NFTs), provides prospects for supporting marginalized groups by simply enabling ownership through consent.
A growing ethical and healthy crypto-asset industry can help to reduce illicit activities and, perhaps, change the public perceptions. Earlier in the year, Chainanalysis said that transactions with illicit wallets represented a small percentage of only 0.15%. However, the perception out there is that predictive analytics and machine learning are not part of illicit activity.
If intelligence agencies, law enforcement, the private sector, and policymakers, who are all part of the same ecosystem, work together, it is possible to make the crypto industry a better leader.
Adopt a Compliance-Based Culture
The fight against financial crime has to start with the adoption of a compliance-focused culture in the crypto industry. When you prioritize compliance, the perception by most organizations, including traditional finance, law enforcement, and regulators, will change.
The crypto sector has the opportunity to prove moral commitment to tackle societal and personal harms inflicted by finance-related crime when it is aided by crypto-asset technology. In its simplest form, this means cultural change.
A sandbox sort of environment for joint training with different law enforcement might come in handy to address internal anti-money-laundering controls, the emerging technological challenges, and good response to high-harm threats such as ransomware.
With goodwill, it is possible to build a compliance-based culture and help the crypto industry overcome the negative perception.