Top banks process billions of dollars of cryptocurrency without knowing

According to a new report by cryptocurrency intelligence firm CipherTrace, every top-10 retail bank in the US has unknowingly processed cryptocurrency transactions.

Banks are infamously wary of working with cryptocurrency companies, so it’s somewhat ironic that most of them are unwittingly processing billions of dollars worth of cryptocurrency payments.

The analysis revealed that the average large bank is currently processing as much as $2bn a year in “undetected cryptocurrency-related transfers”. This poses a clear threat to their AML and CTF compliance obligations.

How cryptocurrency transactions get through

You may be wondering how a large financial institution could process crypto payments without realising. Well, according to the CipherTrace Crypto Risk Intelligence Report for banks and financial institutions, many banks are dealing with unregistered cryptocurrency money service businesses (MSBs).

All of the top-10 retail banks in the US have received transactions from MSBs from their payment networks, which include cryptocurrency exchanges. These MSBs have thus far flown under the radar.

The data is particularly relevant since it highlights the fact that banks are ill-equipped to identify cryptocurrency exchanges and other virtual asset service providers (VASPs) as MSBs.

This causes a problem since the upcoming Financial Action Task Force (FATF) regulations and the existing US Bank Secrecy Act (BSA) Travel Rules require banks and financial institutions to clearly identify the MSBs they facilitate.

“Financial institutions are exposed to cryptocurrency-related risks because they have no way to detect underlying threats,” commented Dave Jevans, CEO of CipherTrace.

FATF and FinCEN guidance for bank compliance

It’s no secret that banks must undergo hefty AML and CTF compliance burdens. In fact, the lack of robust KYC/AML procedures is the main reason that the majority of banks refuse to work with cryptocurrency exchanges.

In order to meet their obligations, banks have many advanced tools in place to mitigate risks when it comes to conventional payments.

However, as the CipherTrace report reveals, they are not completely covered when it comes to virtual currencies using traditional payment rails like SWIFT and ACH networks.

According to a press release, CipherTrace held a conference early last month regarding the Travel Rule and how well prepared banks were to comply with both BSA and the upcoming FATF regulation.

Representative of the US Treasury’s Financial Action Task Force (FinCEN) Carole House reflected:

“It would be interesting to know how many financial institutions operating in this space are able to identify a [crypto-business] recipient as a financial institution on the basis of its wallet reference number, or the other information that it currently has available to it.”

As it turns out, not very well.

CipherTrace Crypto Risk Intelligence provides a solution

As well as helping banks to identify unregistered MSBs and reveal unknown risks from VASPs using bank payment systems, CipherTrace can also help identify dark web threats and achieve compliance.

Jevans said: “CipherTrace has been working with the most advanced banking security teams throughout the year so they can mitigate their risks. CipherTrace Crypto Risk Intelligence now brings this capability to all banks and financial institutions.”

The clock is ticking for major banks looking to avoid the hefty penalties of slacking on their compliance duties. FATF recommendations come into effect from June 2020.