Follow the money
Binance, a world-leading blockchain ecosystem, and cryptocurrency trading infrastructure, offers the capacity to process more than 700,000 transactions per second, a 24-hour trading volume worth $65 billion, with 350+ cryptocurrencies listed and 120 million registered users.
Binance has secured regulatory approvals and registrations across the globe, and is one of the few crypto companies to have done so with G7 countries.
But none of that would have been possible without a robust compliance and Know-Your-Customer (KYC) program that secures both data and assets.
Nils Andersen-Röed, deputy head of Financial Crime Compliance at Binance, is responsible for leading the company’s efforts to develop effective security measures for the platform.
He recently attended the Saudi Leap conference and followed that up with a trip to Dubai to reassure authorities and investors that not only are illicit activities in the crypto space rare but that they are also subject to very close monitoring.
“A crypto crime report by Chainalysis showed that 0.24 percent of all crypto transactions are currently related to illicit activities. In traditional finance, these activities are estimated at roughly 2 to 5 percent of the globe’s GDP. We’re talking about $800 billion to $2 trillion, at a time when the entire crypto market cap sits right now at around $1.2 trillion,” Andersen-Röed revealed.
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Dark Web and law enforcement expertise
Andersen-Röed, who has a strong background in law enforcement and dark web investigations, is now leading different teams at Binance.
“We’re leveraging the blockchain to make sure that our platform is not being used by criminals and to keep the platform safe for our users, using various internal controls starting with KYC (Know-Your-Customer) and KYB (Know-Your-Business),” Andersen-Röed said.
When Andersen-Röed joined Binance in 2021, he and other former law enforcement colleagues from IRS-CI put together a strong team of experts with a background in either cybercrime or money laundering-related investigations.
“I previously worked in dark net investigations, trying to locate where platforms were running, finding out who the administrators and vendors were for trades usually involving illicit drugs and other rogue activities,” Andersen-Röed described.
“Basically, you try to follow the money starting with a very tiny piece of information which might be linked to a dark marketplace. We would chase a connected transaction to a compliant exchange where information like a phone number, name, and IP address existed, and build the case from there.”
It’s only when such funds are transacted at an exchange, that a subpoena would need to be issued to track any further movement of the funds on blockchain platforms.
“So, you can see if a user wants to send money to a known illicit cluster, which is then detected and rejected. Other times, it’s a wallet address that’s indirectly connected to illicit activity,” Andersen-Röed explained.
Working with law enforcement
Andersen-Röed noted that Binance maps out criminal networks – similar to what law enforcement agencies try to do – and engages with these agencies who can, in turn, make a legal request to obtain user data, allowing Binance to share a full picture of the situation.
“We have delivered cryptocurrency-related training and workshops to over 70+ countries globally,” Andersen-Röed said.
In August 2021, Binance made it mandatory for all active users on the platform to be fully KYC verified.
“Historically, it was possible to register on almost any exchange by only using an email address. This has changed. On Binance, any account that is not KYC verified is restricted to withdrawing only 0.06 BTC per day,” Andersen-Röed clarified.
KYC involves receiving credentials like ID, proof of address, and emails that are checked for risk intelligence at services such as World-Check and Refinitiv, and users are also required to make a live face check to prevent the creation of mule accounts.
Stopping money laundering and other illicit attempts
Binance’s approach to spotting money laundering patterns is similar to that used by banks.
“We have transaction monitoring systems in place which look at the origin of the funds. Quite often, criminals attempt to exchange them for fiat using an exchange. What we do in these cases is block accounts that receive money from very high-risk clusters, preventing money from leaving the platform to those services,” Andersen-Röed explained.
“On the fiat side, we have similar rules, such as looking at dormant accounts which suddenly become active, or repetitive structuring patterns with very small transactions, and wallets that try to send to multiple accounts on the exchange.”
Andersen-Röed added that Binance gives feedback to the authorities about what it believes works to fight these crimes and provides training programs to help these institutions understand how to follow the money trail on the blockchain.
“This eventually also helps authorities build new regulations in this space,” Andersen-Röed said.
“We believe close collaboration with law enforcement is a win-win. If we detect any criminal activities linked to a specific country, we have reporting obligations – especially on very urgent cases – and it is extremely helpful for us to reach out directly and assist with their cases.”
Since November 2021, Binance has responded to over 47,000 law enforcement requests, with the response time taking only 3 days on average.
Cooperation with banks
Banks have an essential role to play in keeping client accounts safe from attacks, and monitoring and preventing money laundering activities.
Binance works closely with many central and private banks around the world, providing them with training sessions on multiple issues related to fraud and scam prevention.
“When talking about money scammed from bank accounts, that cash will be withdrawn, and it’ll go to a crypto exchange and then it’ll be transformed into cryptocurrency. You need to have proper controls in place. The best way to ensure this is for banks, crypto exchanges and law enforcement to collaborate in tracking and notifying customers of any irregular activities,” Andersen-Röed said.
“Of course, some banks are hesitant to work with crypto due to potential competition, but many others actively hire people with a similar background to myself and my colleagues, which really helps.”
Financial services, both traditional and those enabled by blockchain and Web3, add immense value to users’ lives. The priority remains for the financial sector to work closely and collaboratively to ensure customer safety and market security.
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