AML Bitcoin Wallet Check: What It Is and How to Verify BTC Purity

AML: How to Check Bitcoin and Cryptocurrency Purity Before a Transaction

With the rising popularity of cryptocurrencies and the growing number of digital asset users, the regulatory framework has become a vital component ensuring security and compliance in the crypto sphere. One of the most critical elements of this framework is the Anti-Money Laundering check, conducted to combat illicit financial flows. 

For any business or individual operating in the crypto space, understanding AML procedures is essential to prevent legal risks and ensure a secure trading environment. In this article, we will examine crypto AML in detail, explaining how it works and what both beginners and experienced traders need to know about AML screenings.

What is an AML Check and How Does It Work

An AML check is a set of measures aimed at preventing the laundering of funds obtained through illegal means. Transaction screening for AML compliance is performed by both traditional payment systems working with fiat and many cryptocurrency services. 

The core principle of AML is the collection and analysis of client information. Thus, one of the check's elements is KYC (Know Your Customer). For an in-depth analysis of activities, services also use transaction information (data on fund movements, registration of suspicious operations) and temporary restrictive measures (freezing of funds). 

Furthermore, AML wallet screening systems store information about clients and their transactions. This data can be used for additional analysis and by law enforcement agencies to investigate crimes. 

The specific set of measures applied during a check is formed depending on the jurisdiction to which the site belongs. AML implies internal analysis and cooperation with regulators in the country where the exchange or wallet is registered.  

Anti-money laundering screening usually involves several stages aimed at identifying and assessing risks associated with a user. These stages include:

1. KYC Process (Know Your Customer). KYC is the first and most crucial part of any AML check. It involves collecting basic user information such as full name, date of birth, and address. Additionally, users may be required to provide identification documents, such as a passport or driver's license, to verify their identity;

2. Source of Funds Verification. At this stage, the origin of funds is carefully checked. For crypto exchanges, this may include verifying the origin of digital assets being transferred or sold, especially for large amounts. Many platforms require users to provide proof of income or crypto ownership for their transactions;

3. Ongoing Monitoring. AML screening is not a one-time process. Exchanges and platforms constantly monitor user activities to identify suspicious transactions or behavior that may indicate money laundering. This includes identifying unusually large or frequent transactions that don't match typical user activity;

4. Risk Assessment. Platforms usually assign risk profiles to users based on factors like location, transaction history, and volume. Higher-risk users may face stricter AML checks or limitations on their transactions;

5. Suspicious Activity Reports (SAR). If a platform detects suspicious activity, it is legally required to file a SAR with the appropriate financial authority. This report helps law enforcement investigate and potentially prevent illegal financial activities.

Differences Between AML and KYC

Anti-Money Laundering (AML) is a broad term that encompasses a complex set of measures to prevent financial crimes. KYC is a specific measure used within the AML framework to prevent illegal financial activity by collecting client information and verifying their identity.

KYC falls under the AML umbrella and is one of many solutions that simplify compliance with the broader anti-money laundering system. KYC focuses on risk assessment and identity verification, while AML includes a wide range of measures to minimize risks during and after KYC checks.

Why Crypto Exchanges Need AML

There are several main reasons why crypto exchanges implement procedures to perform cryptocurrency AML compliance checks. 

• Regulatory Compliance. In many countries, KYC and AML checks are mandatory for any organization involved in financial operations. Platforms that do not comply may be fined or blocked in that jurisdiction; 

• Crime Investigation. Crypto services are required to check wallet transactions and provide data on fund movements and account owners at the request of law enforcement. This information is used to solve crimes involving digital assets and identify perpetrators. 

• User Protection. The goal of major exchanges is to create a safe environment, protecting users from scammers and "dirty" cryptocurrency.

• Building Trust. Measures that allow for the verification of crypto transactions are a key factor in building a site's reputation. This attracts an audience and prevents issues with regulators in the country where the service is registered. 

How Dirty Cryptocurrency is Laundered

Fraudsters use several methods to launder funds, including: 

1. Mixers – specialized programs providing maximum transaction anonymity. Their core principle is mixing incoming funds in a general pool, making it impossible to track the source of an outgoing transaction. In many countries, such services are banned;

2. Transit (Intermediate) Addresses. Funds pass through many transactions, complicating tracking. Usually, such chains involve exchange accounts registered to "mules" or dropships;

3. Withdrawals via No-KYC Exchanges. While most exchanges check crypto purity, some services still refrain from implementing such measures;

4. Collateral Transactions via Smart Contracts. A smart contract allows fraudsters to pledge dirty funds and receive clean currency as collateral against them;

5. NFT Issuance, where an attacker buys their own NFT using dirty crypto. This creates an artificial source of income that can be presented to law enforcement if needed.  

Consequences for Businesses Not Complying with AML

The consequences of non-compliance with AML laws can be severe and far-reaching. For a business, it can lead to disaster, resulting in significant financial sanctions, loss of trust from clients and partners, and even criminal charges. The minimum fine for non-compliance with 6AMLD requirements, for instance, is $4.8 million, and the responsible individual could face up to four years in prison.

Repeated or particularly grave violations can lead to even harsher penalties. These may include the denial of government benefits like grants, temporary or permanent suspension of all commercial activities, judicial supervision, and court-ordered closure of physical premises. Such measures can inflict serious damage on a business, making AML compliance not just a legal duty but a vital aspect of risk management.

Faced with such potential consequences, companies must prioritize AML compliance. This includes implementing robust monitoring systems, maintaining up-to-date business relationships, and verifying the birth date and address of every individual or entity they collaborate with. By doing so, they can protect themselves from financial fraud and contribute to the global fight against money laundering.

Cryptocurrency Verification Services

Checking crypto purity is a crucial step before conducting transactions, especially for traders, investors, and companies working with digital assets. Using dirty coins involved in illegal operations can lead to exchange account freezes or legal consequences. Specialized analytical services exist to assess fund transparency. Let's look at the most popular ones.

Chainalysis

Chainalysis is one of the leading blockchain analytics services, collaborating with government agencies, financial institutions, and crypto companies. The system tracks coin movements, analyzes their origin, and assigns a risk rating.

Main functions:

• Transaction history tracking;

• Analysis of links to illegal activity;

• Risk level assignment to specific assets;

• Reporting for financial organizations.

Elliptic

Elliptic specializes in monitoring crypto flows and identifying suspicious transactions. It is used by banks, exchanges, and law enforcement to detect financial crimes.

Advantages:

• Deep transaction chain analysis;

• Support for a large number of cryptocurrencies;

• Tools for AML compliance.

Crystal Blockchain

Crystal Blockchain, developed by Bitfury, provides analytical tools for blockchain analysis and tracking suspicious assets.

Key features:

• Automated wallet and transaction purity checks;

• Visualization of cryptocurrency flows;

• Detailed risk reports.

Coinfirm

Coinfirm offers regulatory compliance solutions (KYC and AML) in the crypto sphere. It is actively used by exchanges, wallets, and other financial platforms.

Functions:

• Risk level assessment for crypto addresses;

• Source of funds verification;

• Tools for preventing money laundering.

Scorechain

This service helps companies comply with regulations and check crypto transactions for risks. Scorechain analyzes blockchains, identifies suspicious asset movements, and provides data for reporting.

Capabilities:

• Automated transaction monitoring;

• Identifying links to criminal organizations;

• Support for popular blockchains (Bitcoin, Ethereum, etc.).

How to Avoid AML Blocking

There are several ways to reduce the risk of encountering illegally obtained funds and thus avoid an AML block: 

1. Use exchanges and platforms with a good reputation that conduct necessary user checks and request identity verification;

2. Verify the counterparty's crypto address when sending or receiving payments. You can check an address yourself using AML screening services;

3. Regularly change your cryptocurrency address. This helps protect you if your wallet's past counterparties end up on a suspicious list or are deemed high-risk;

4. When working with new counterparties whose address is unknown, do not use your main wallet. Register a new address for the transaction to safely verify the legality of the funds;

5. If you have doubts about the legality of received funds, save all data confirming the transaction's origin. This provides evidence if the transaction is flagged as suspicious by law enforcement. 

What to Do if an AML Block Occurs

An AML block is a temporary or permanent freezing of funds on an exchange or in a wallet due to suspicions of illegal activity. If your account or funds are blocked, it is important to act quickly and wisely:

1. The first step is to contact the support service of the exchange or platform that blocked your account. Describe the situation, clarify the reasons, and ask what documents are needed to lift the block.

2. Analyze your transaction history and determine if funds could have come from suspicious sources. If the crypto was received from third parties, try to verify their reputation using analytical tools.

3. To unblock the account or transaction, the exchange may request specific documents (passport, bank statements, exchange receipts);

4. If the block persists, consider consulting lawyers specializing in cryptocurrency regulation. Professionals can help prepare documents and negotiate with the exchange or regulators.

Conclusion

AML screening is a vital process for preventing financial crimes and ensuring the integrity of the financial system.

By understanding the AML compliance processes, the importance of adherence, and the potential challenges, financial institutions can better protect themselves and their clients.

As technology evolves, the future of AML screening looks promising: new tools and methods will make this process more efficient and effective.