Crypto AML/CFT Training Program

This module provides a comprehensive introduction to blockchain technology and its role in the crypto industry. Blockchain is a decentralized, immutable, and secure digital ledger that stores data in encrypted blocks linked chronologically, ensuring transparency and tamper resistance. The main features of blockchain include decentralization, immutability, and consensus, with network categories such as public, private, hybrid, and consortium blockchains serving diverse purposes like voting, supply chain management, and banking.

The module also covers crypto assets, which leverage cryptography, peer-to-peer networks, and distributed ledgers for secure transactions. Key crypto asset types include cryptocurrencies (e.g., Bitcoin, Ethereum), utility tokens, security tokens, and NFTs, each serving unique roles in digital exchanges, fundraising, and ownership representation. Lastly, it highlights methods for securely storing cryptocurrencies, emphasizing hot and cold wallet solutions to protect digital assets.

The module explains the differences between centralized and decentralized cryptoassets, highlighting centralized control (e.g., CBDCs) versus decentralized independence (e.g., Bitcoin), and compares fiat currencies (government-issued) with cryptocurrencies (market-driven, global, and volatile). It introduces cryptoasset mining, where miners validate transactions and create new blocks by solving complex puzzles, earning rewards in return.

Mining pools allow miners to combine computational resources for better chances at rewards, addressing cost and competition challenges. Transaction validation mechanisms, Proof of Work and Proof of Stake, are discussed: PoW ensures trust through energy-intensive mining, while PoS allows validators to stake coins for rewards but with potential security trade-offs. Real-world examples like Lisa’s Renewable Energy Blockchain Group and Liam’s Proof of Stake Validator Pool illustrate blockchain operations, mining processes, and the importance of securing private keys to prevent unauthorized access.

This module covers the revised definition of Virtual Asset Service Providers (VASPs) as outlined by the Financial Action Task Force (FATF) in 2021. It explains that VASPs include individuals or entities involved in activities such as exchanging, transferring, converting, and managing virtual assets, including services like virtual to fiat currency conversions, asset transfers, and custody solutions.

The module distinguishes between centralized and decentralized exchanges, exploring the regulatory challenges and AML concerns associated with each. It also covers cryptoasset lending, mixers and tumblers for transaction obfuscation, and decentralized applications (dApps) and autonomous organizations (DAOs), discussing their roles and the regulatory issues they present in the virtual asset landscape.

This module explores key blockchain events and risks, including 51% attacks, where a single miner or group gains control of over 50% of the network, enabling transaction manipulation and double spending. It delves into hard forks (radical protocol changes creating new blockchains) and soft forks (minor, backward-compatible updates). Smart contracts are highlighted as self-executing blockchain programs that streamline transactions, offering transparency and security but posing risks like code exploits, re-entrancy attacks, and malicious development. Block halving, a mechanism that reduces mining rewards by 50% every 210,000 blocks, ensures controlled cryptocurrency issuance, often impacting supply and prices.

The module underscores the importance of thorough security audits, trusted protocols, and cautious engagement to mitigate risks in decentralized finance (DeFi) and blockchain environments.

This module highlights key international organizations and their roles in Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF). The United Nations addresses AML through its Office on Drugs and Crime (UNODC) and initiatives like the Global Program Against Money Laundering (GPML), promoting legal frameworks and international cooperation, particularly in crypto asset oversight. Non-regulatory bodies such as the Wolfsberg Group (global banks), the Basel Committee on Banking Supervision (BCBS), and the Egmont Group (Financial Intelligence Units) provide essential financial crime frameworks, including KYC, risk management, and secure intelligence sharing.

The World Bank and IMF integrate AML/CTF measures into economic development programs and assess compliance with global FATF standards. The Financial Action Task Force (FATF), a leading AML body, sets 40 Recommendations for combating financial crimes, emphasizing risk-based approaches, international cooperation, and specific regulations for crypto assets through initiatives like the "Travel Rule" to ensure transparency and prevent misuse of virtual assets.

This module provides an overview of Jurisdiction-Specific Regulatory Frameworks of AML regulations in the top ten economic powers, including the US, EU, UK, China, Japan, India, Canada, South Korea, Russia, and Brazil—all FATF members adhering to its 40 Recommendations. While AML laws share broad similarities, differences exist in implementation and supervision. For example, the US relies on FinCEN, the BSA, and the USA PATRIOT Act to enforce AML measures, including reporting obligations and correspondent account scrutiny. The EU enforces AML through directives like 5AMLD and regulatory reforms under the 2021 AML framework, emphasizing beneficial ownership, crypto asset governance (e.g., MiCA), and unified supervision.

Post-Brexit, the UK aligns with similar AML laws under its independent regulatory approach, overseen by the FCA. Other jurisdictions, like China and India, have adopted stringent AML measures, including crypto bans to manage financial risks. Meanwhile, Canada, South Korea, Russia, and Brazil focus on areas such as transaction monitoring, privacy coin restrictions, and domestic money laundering enforcement. This module highlights the evolving global AML landscape, particularly the enhanced scrutiny of crypto assets and technology-driven financial crimes.

Module 7 focuses on the importance of a risk-based approach in combating financial crime, emphasizing the identification, assessment, and mitigation of risks through tailored strategies. Organizations manage financial crime risk by evaluating inherent risks—arising from customers, jurisdictions, products, and channels—and controlling them with preventive, detective, and corrective measures. Risk appetite, defined by senior management, guides acceptable risk levels and is periodically reviewed to align with business goals. Inherent risk, mitigated through controls like KYC, transaction monitoring, and governance practices, determines the residual risk, which must fall within organizational tolerance levels.

Tools, including internal and third-party solutions, streamline risk scoring and reporting, while sanctions risk assessments address exposure to high-risk jurisdictions and entities. Effective reporting of risk assessments ensures clarity, drives control enhancements, allocates resources, and aids ongoing compliance to manage financial crime risks efficiently.

This module introduces unique and traditional financial risks of Crypto assets to organizations, necessitating a balanced risk management framework. Understanding how crypto assets function, their potential for criminal use, anonymity features, and transaction complexities is crucial. Effective risk assessment involves examining blockchain evidence, identifying high-risk customers, and implementing enhanced due diligence (EDD) measures, especially when dealing with privacy-centred assets and Virtual Asset Service Providers (VASPs). Mitigating strategies include assessing AML/KYC controls, monitoring transactions, and analysing red flags like unusual activity or negative news.

Inherent risks such as pseudonymity, convertibility, privacy concerns, and chain-hopping strategies pose challenges to traceability and regulatory compliance. VASPs, often targets for exploitation due to regulatory inconsistencies, require evaluation for financial stability, cybersecurity controls, and alignment with AML frameworks to manage both operational and reputational risks effectively.

This module provides an in-depth overview of transaction monitoring, highlighting its importance in managing financial crime risks within organizations. It explains how transaction monitoring works alongside KYC controls to identify and assess transactions that deviate from expected patterns based on customer behaviour, jurisdictions, transaction channels, and product types. The module details how alerts are generated and risk-assessed, leading to potential investigations or SAR filings. It also emphasizes the role of advanced technologies such as AI, machine learning, and network analysis in improving alert accuracy and reducing false positives.

Additionally, the module covers the specific considerations for monitoring crypto asset transactions, including the use of blockchain intelligence tools and off-chain data for attribution, while addressing the challenges of data reliability and false positives. It further distinguishes between transaction monitoring and screening, outlining their respective roles in identifying high-risk individuals and activities before and after transactions occur.

This module covers tailored Know Your Customer (KYC) and transaction monitoring practices for Virtual Asset Service Providers (VASPs), emphasizing the need to assess risks based on the VASP's structure, services, licensing, jurisdiction, and reputation. It discusses the use of blockchain explorers and data aggregators to track crypto transactions and identify emerging trends, with a focus on understanding the source of funds and source of wealth for crypto asset transactions.

The module also highlights challenges in tracking privacy coins and mixers, which obscure transaction details, and offers insights into best practices for tracing crypto transactions in compliance with Anti-Money Laundering (AML) regulations.

This module covers the essential procedures for managing investigations in coordination with external partners such as law enforcement and regulators. It emphasizes the importance of clear, concise communication and proper documentation during interactions, following organizational policies for engagement. It also addresses processing law enforcement requests, the role of public and private financial intelligence units (FIUs) in combating financial crime, and the critical elements of Suspicious Activity Reports (SARs).

The module highlights the importance of handling customer rejections and terminations discreetly, ensuring compliance with regulations, and safeguarding sensitive information during investigations.