Banks failing to identify up to 90% of suspicious crypto transactions

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Financial institutions worldwide have reported 134,500 suspicious transactions concerning virtual currencies in the past two years — but that’s just the tip of the iceberg according to a report published by blockchain forensics firm CipherTrace.

The report says the Financial Crimes Enforcement Network (FinCEN) has seen a major increase in suspicious transaction reports from institutions since publishing its May 2019 Advisory on Illicit Activity Involving Convertible Virtual Currency (CVC).

Despite this, CipherTrace asserts that many financial institutions have developed inadequate “home-grown” systems for identifying cryptocurrency-related accounts and transactions, that simply use lists of the names of crypto exchanges and virtual asset service providers (VASPs) to flag transfers associations with cryptocurrency.

This strategy “results in many false positives and misses significant, large amounts of funds flows that cannot be discovered by home-grown name matching:”

A typical name-based system may entirely miss up to 70% or more of the crypto exchanges out there, and up to 90% of the actual transaction volume

The report asserts that few financial institutions screen for exchanges outside of the top 100. Many crypto exchanges also operate under a business name that differs from their branding, evidencing further shortcomings of using name-matching to flag crypto transactions.

CipherTrace advocates that banks use a monitoring system that seeks to track the accounts associated with peer-to-peer crypto exchanges and smaller virtual currency kiosks, and cross-references the contact information of small VASPs with customer records to flag suspicious activities.

CipherTrace’s report comes on the heels of the U.S. Internal Revenue Service (IRS) inking a $249,900 contract with the firm Blockchain Analytics and Tax Software to expand its cryptocurrency tracing capabilities.

At the end of August, CipherTrace claimed it had developed a tool for the US Department of Homeland Security that can trace transactions made in the privacy-coin Monero (XMR).

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