EXCLUSIVE: Towards $1B Through AI – The Future Of Crypto Compliance With AMLBot Co-Founder

Compliance has become a major point of discussion in the cryptocurrency industry since the spectacular collapse of former crypto giant FTX. Security issues that led to scams, frauds, and exploits in the industry have also raised concerns about compliance in the burgeoning sector. The conversation brought forth compliance-centric tools and solutions that an industry expert believes has the potential to become a $1 billion market by next year.

A dip in laundered money, but concerns remain

The amount of funds laundered across the crypto space dipped in 2023 compared to the previous year, Chainalysis said in its latest Crypto Money Laundering report. While last year’s laundered funds hit $22.2 billion compared to $31.5 billion in 2022, concerns remain as threat actors targeting the sector have been evolving their methods and ways of obfuscating their illicit activities.

In an exclusive interview with International Business Times, Slava Demchuk, the co-founder of full-fledged crypto compliance solution AMLBot, discussed use cases of AML (anti-money laundering) tools in crypto and the rise of artificial intelligence (AI).

The state of global crypto compliance

“The overall situation with AML compliance in the crypto industry is improving each year,” Demchuk said, noting how a growing number of countries worldwide are adopting stricter regulations and oversight agencies are actively enforcing penalties and fines on crypto firms that “fall short” of compliance standards.

An example is the European Union’s Markets in Crypto-Assets Regulation (MiCA), which is the world’s first major comprehensive regulation for crypto oversight in the block.

While regulations are improving in some regions, some jurisdictions still lack comprehensive regulations or laws are minimal. “Businesses operating in these areas risk not fully complying with international AML standards, which could make their services vulnerable to being used for money laundering,” Demchuk said.

He noted that whether a crypto company is within a regulated or non-regulated jurisdiction, the company should always take basic measures to ensure AML compliance.

What are the basics?

According to Demchuk, the following are some of the basic measures to ensure that companies are compliant with AML standards:

• Identifying and verifying clients (know your customer)
• Screening customers against PEP (politically exposed persons) sanctions and negative news databases
• Assessing client risks
• Monitoring customer transactions
• Maintaining accurate records
• Reporting suspicious activities
• Implementing internal control functions
• Ongoing training for employees on detection

Going the extra mile

Outside the basics, companies in the crypto space should still strive to “exceed the standards typically applied in traditional financial institutions.”

Demchuk said crypto firms can deploy blockchain analytics to monitor transactions and wallets for illegal activities. Blockchain analytics provide crucial information, including the source of a customer’s digital assets, which can then help a crypto company’s compliance team to better investigate potentially suspicious transactions and protect the overall business from being utilized for money laundering and terrorist financial activities.

Enter AI-powered tools

In the crypto setting, AI-powered tools are designed to automate AML processes, making them more efficient and reducing false positives. The tools allow compliance professionals prepare more accurate reports for law enforcement authorities, Demchuk said.

“When deployed correctly, AI-powered tools can learn specific suspicious behaviors common among certain customers or within a particular niche. These tools can then automatically detect such behaviors, thereby strengthening AML compliance in financial institutions,” he added.

There are certain limitations to traditional methods in detecting AML activities. The application of AI and machine learning in AML and investigations can be beneficial in categorizing and analyzing addresses and groups of addresses that may be linked to illicit activities.

A specific use case of AI in AML screening and monitoring in crypto is the identification of groups of addresses that operate like OTC (over-the-counter) desks or typical storage addresses for drainers, a matter that AI-powered AMLBot addresses, Demchuk said. The said process can help “even when direct evidence of their operations is lacking,” he noted.

AMLBot’s role in the money laundering crackdown

In a crypto realm where bad actors continuously evolve their illicit ways, AMLBot is a one-stop solution for compliance that provides crypto businesses with most of the measures needed to kickoff their business on a compliant path.

The screening software provides KYC/KYB services to verify and identify users and tracks the source of assets. AMLBot’s investigation specializes in tracing stolen digital assets or assets lost to scams – common predicate offenses in money laundering cases in the industry.

It also helps clients understand the current location of pilfered assets, which then gives affected clients better chances toward recovering the funds.

AI-powered tools like AMLBot can also be used to aggregate data from multiple AML sources. Such sources may vary in their assessments or attributions for a given address or address group. With AMLBot’s AI engine, conflicting information can be merged and reconciled to provide a unified and accurate assessment for crypto companies.

AMLBot is looking to roll out a functionality by the end of the year that can recognize patterns and similar behaviors in digital addresses that traditional specialists may not be aware of, which then allows companies to tag and classify such behaviors into respective business domains, Demchuk revealed.

Earlier this month, Thai police partnered with AMLBot to clamp down on pig butchering scams, a type of investment fraud wherein victims are gradually lured into making investments and ultimately ends with the victims being “butchered” when they’ve lost their live savings or assets (usually in crypto).

On track toward becoming a billion-dollar market

Demchuk believes the AML solutions in crypto sector can become a $1 billion market by 2025. With the capabilities of AI and machine learning technology integrated into AML tools, the gap in traditional compliance methods can finally be bridged, benefiting the broader crypto space.

There is still work to be done in protecting the rising crypto industry from threat actors, but the rise of AI and AML tools just could be the vulnerable sector’s answer to evolving scammers and fraudsters.