Sanctions and AML Insights

Cryptocurrencies are no longer the domain of a few enthusiasts but are steadily becoming a part of the mainstream financial world. Exciting new financial possibilities, opportunities and innovative advances have attracted investors and entrepreneurs from around the globe. Unfortunately, this growth (along with the anonymous and decentralized nature of cryptocurrencies) also comes with new risks and challenges as criminals exploit the blockchain to obscure the source of illicit funds.

The European Union’s AML directives aim to protect financial systems from money laundering and terrorist financing. Although each member state can design a unique framework to support these directives, they serve as common goals for each of them. Failing to comply with these legal procedures can also lead to punitive actions like fines and penalties.

KYC or Know Your Customer procedures are required for financial institutions, by law, in order to establish the legitimacy of a customer's identity and the risk factors associated with that customer. These procedures are designed to help prevent identity theft, money laundering, financial fraud, terrorist financing, and other financial crimes. In many instances, KYC doesn't extend to shell corporations or similar entities, which is why there is increasing pressure from regulators to impose laws that fall under the heading Know Your Customer's Customer (KYCC).

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A politically exposed person (PEP) refers to someone with a prominent public function or high-profile political role. A PEP represents a higher risk for involvement in bribery, corruption and money laundering as the position they hold makes them a higher target for criminals. Screening against PEPs is particularly important for life insurance products and InsurTech, as life insurance is a popular money laundering methodology. AML/CFT compliance officers should take care to detect PEPs that attempt to purchase their products or use their products to launder funds by implementing screening and monitoring tools and processes in their organization.

The conflict in Ukraine saw a number of banking sanctions levied against Russia. Concerns were raised early on about the possibility of sanctioned Russian parties using the less regulated crypto industry to exploit loopholes that allow them to move money out of the country.

Sanctions are an important tool the international community can use to change or influence the behavior of a country or regime that is violating human rights or committing other offences. While sanctions compliance is critically important, over-compliance may have serious commercial impacts on law-abiding businesses and even ordinary citizens of a sanctioned country.