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Crypto Acquiring and AML Risks

Crypto Acquiring and AML Risks
As cryptocurrency gains momentum, businesses are increasingly exploring crypto acquiring. However, this new frontier comes with risks that must be understood and mitigated. In this article, we'll delve into the main risks associated with crypto acquiring and provide actionable strategies to ensure secure transactions.

Understanding Crypto Acquiring

Crypto acquiring refers to accepting payments in cryptocurrencies like Bitcoin or Ethereum. There are two primary methods:
  • Conversion-based:
    Accepting traditional fiat currency and converting it into cryptocurrency before transferring it to the customer.
  • Direct transfer:
    Enabling customers to make payments directly in cryptocurrency.
The first method carries the highest risk due to the intersection of easily stolen fiat money and anonymous cryptocurrencies. Fraudsters take advantage of this by exploiting the conversion process, making it vital to address potential vulnerabilities.

Primary Risks in Crypto Acquiring

  • Direct Financial Losses:
    Chargeback disputes initiated by cardholders can lead to significant financial losses. Fraudsters may exploit the system by either passing stolen cards through their channels or disputing transactions themselves, claiming that the services were not delivered. As a result, these malicious actors can recover up to 80% of their initial investment, considering fees and nominal service expenses.
  • Regulatory Risks:
    Compliance with merchant category codes (MCC) and adhering to regulations is crucial. Non-compliance, especially for high-risk categories like gambling or forex trading, can result in penalties starting from $25,000. Trying to deceive payment processors by misrepresenting the purpose of transactions or violating their rules is ineffective since the focus is on the transaction's purpose visible to the payer.
  • Reputational Risks:
    Negative perceptions can cause non-financial losses that impact your business's reputation. These losses can be translated into real financial setbacks, missed opportunities, and a decline in customer trust.

Strategies to Minimize Risks

To mitigate the risks associated with crypto acquiring, implement the following strategies:
  • Strong AML Policies:
    Establish robust anti-money laundering (AML) policies and integrate them into all aspects of your operations. AML policies go beyond mere documentation; they should be actively applied in your processes and procedures. By adapting to the specific needs of your business and meeting customer expectations, you can demonstrate your commitment to regulatory compliance.
  • Thorough Merchant Screening:
    Conduct rigorous checks on merchants accepting payments. Scrutinize their activities to ensure they align with their declared business functions, evaluating factors such as turnover, average transaction values, market presence, website traffic, and language diversity. Sudden fluctuations or suspicious transaction patterns should raise red flags.
  • Adaptive Anti-Fraud System:
    Deploy an advanced anti-fraud system that can adapt and scale as needed. This system should include not only traditional filters and rules but also the ability to modify rules based on predefined events. By swiftly identifying suspicious activities, such as sudden spikes in turnover or repeated creation of accounts with questionable characteristics, you can suspend transactions for manual review and prevent potential fraud.
  • Leverage Crypto Analytics:
    Use crypto analytics tools to enhance fraud detection capabilities. These tools can include blacklists of suspicious wallet addresses, visualization of transaction relationships, and scoring models to assess overall transaction risk.
Alternatively, you can implement a 24/7 automated AML/KYT monitoring solution, like BitOK, that will oversee all incoming and outgoing transactions. Relying solely on manual processes leaves room for errors and oversights. An automated solution provides consistent oversight, with human intervention needed only for system health checks, periodic adjustments, and handling exceptional cases.

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