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Impact of Bitcoin Addresses’ Sanctions on IDV Providers

  • Richard Marley
  • December 14, 2018
  • 5 minutes read
  • 3623
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The technology enhancement is being done at an exponential rate around the world. As the tech keeps getting better, and cybersecurity protocols keep advancing, hackers and scammers up their game in order to meet the technology upgrades head-on. If this keeps happening identity verification solution needs to be engaged within payment systems for fiat as well as digital currency exchanges. In the case in question, had a financial fraud detection software been in place, then the said Bitcoin Address scam would not have occurred; it would have been detected before any harm was inflicted on the 200+ victims and their families in the SamSam Ransomware Scheme of 2015. These numbers were quoted by the Bitcoin Magazine in their article published on November 28, 2018.

Why did the U.S. include Bitcoin Address in OFAC Sanctions?

The recent developments in the SamSam Ransomware Scheme exhibit the gravity of the situation as far as extorting money in the form of cryptocurrency is concerned. According to the OFAC agency of the U.S. Department of Treasury, “Over 7,000 transactions in bitcoin, worth millions of U.S. dollars, have processed through these two addresses – some of which involved SamSam ransomware derived bitcoin.” Recently, the U.S. placed sanctions over the Bitcoin addresses used by two Iranian men, for moving illegal ransom money in the form of BTC using Bitcoin Address(es) to Irani Riyals.

This is the first time OFAC sanctions have been placed on digital currencies (i.e. the Bitcoin Address). This means these addresses cannot be engaged in any business dealings across the globe, provided those businesses have taken adequate digital identity verification measures. Financial fraud detection softwares have this feature of KYC and AML incorporated within. Using these, every person, who carries out any kind of transaction with a business entity, ranging from a simple digital transaction through Bitcoin Address to getting onboard with a certain company, can be screened against global government watchlists, sanctions lists, and databases. In addition to this, had there been a process to validate the identity before exchanging money every time, there is a high chance that SamSam Ransomware Scheme would have failed.

Value of Compliance in Fraud Detection

Prevent illegal use of digital currencies by foreign governments

In the case under discussion, the money was transferred across borders using Bitcoin Address(es), especially the money gained through illegal means or via illicit activities, in order to support the interests of the foreign government. In case any of your potential clients or users are associated with terrorist or criminal activities, your company needs to detect and immediately rectify that issue. Identity verification solutions can help you achieve that in record time.

Protect the interests and reputation of your organisation

The type of activities your organization is involved in or associated with determines your company’s reputation. When your client base is free of fraudulent consumers, the danger or risk to a company’s assets is minimized. Companies can then focus on growing their business instead of worrying about potential scammers. An effective KYC software can be used to verify an individual’s identity, including details like one’s Bitcoin Address. This includes using a facial recognition system and a hybrid approach of artificial and human intelligence to verify ID documents in real-time.

Secure high-risk transactions

By placing certain conditions on the number and amount of transactions, the high-risk ones can be sorted and those users can be screened against criminal and terrorist lists, sanctions and watchlists. These conditions may include thresholds for the transaction size; time of the day it is being conducted at, the sending and receiving locations, etc. If the transaction goes beyond the set thresholds for conditions, then the sender’s identity must be verified, using automated online identity verification solutions.

Streamline the onboarding process

In addition to enhanced cyber security and reduced cybercrime, fraud protection softwares can help streamline your user’s onboarding process, making the journey frictionless for your customers. With the least resistance in the sign-up process, the customer drop-off rates reduce substantially. Fraud prevention and identity verification softwares can ensure that legitimate customers are performing safe and authentic transactions using their Bitcoin Address or Fiat Currency Bank Accounts.

AML Screening for PEPs, Sanctions, and Blacklists

The best way to make sure that your customers or users are not attached to any illegitimate activity or organization is to scan their details against sanctions lists. In SamSam Ransomeware Case, since the Bitcoin Address(es) of the culprits are added to the OFAC list, no transactions can be made using those addresses now. What more can be done is to associate the names, DoBs and other sensitive information of the convicts with those Bitcoin Address(es). In case any such information is screened against the OFAC consolidated lists, the match must be immediate. Not only this but through effective identity verification services, screening of users for PEPs in terrorist funding lists and other watch lists is necessary so any dubious detail can be caught and investigated further.

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