Dirty Crypto: Risks to Businesses and How to Stay Safe

While traditional businesses are still exploring ways to incorporate blockchain technology into their operations, the anonymity and decentralization inherent to many cryptocurrencies made them an attractive choice for criminals seeking to conceal their actions.

British analysts predict that the amount of laundered cryptocurrency will exceed $10 billion by 2025. This rising criminal activity presents an increasing danger to any business engaged in cryptocurrency transactions.

This article discusses the concept of dirty cryptocurrencies and offers insights on how businesses can protect themselves from regulatory consequences.

Cryptocurrency is neither inherently dirty nor clean. As a matter of fact, regulatory bodies and monitoring services concentrate on the specific addresses involved in the flow of these digital assets.

For instance, if cryptocurrency acquired through illegal activities like hacking or darknet transactions passes through an address (e.g., bc1...yz), that address is considered dirty, not the cryptocurrency itself.

However, for simplicity, we use the term ‘dirty crypto', which refers to the use of cryptocurrencies for illegal or malicious activities.

1. Businesses found to be involved in illegal activities may face regulatory fines, legal settlements, or even closure. Legal battles can be expensive and time-consuming, diverting resources away from core operations.

For instance, in the autumn of 2022, U.S. regulators imposed a $53 million fine on the cryptocurrency exchange Bittrex for various violations, including non-compliance with international anti-money laundering regulations.

2. Ransomware attacks, which often demand payment in cryptocurrency, pose a significant cybersecurity threat to businesses. Falling victim to such an attack can result in data breaches, loss of sensitive information, and substantial financial damages. The use of dirty crypto in these attacks can further complicate the situation, making it difficult for law enforcement agencies to trace and recover funds.

3. Engaging in dirty crypto practices can lead to a loss of access to traditional financial services. Banks and financial institutions are increasingly wary of businesses that have ties to cryptocurrencies with questionable origins. Losing access to banking services can severely hinder a company's ability to operate effectively.

While challenging a bank account freeze due to the questionable source of funds may be challenging but feasible (with supporting documents demonstrating the legal origin of funds), the chances of successfully contesting a freeze related to "dirty" cryptocurrency are nearly non-existent.

Businesses looking to incorporate cryptocurrency solutions must ensure the legitimacy of their clients and counterparts.

To address this concern, cryptocurrency exchanges and platforms commonly implement KYC (Know Your Customer) compliance solutions. These solutions serve as a reference point in the event of disputes with regulatory bodies and banks. Collecting and storing client data is not a mere formality but rather a precautionary measure against potential issues.

However, relying solely on KYC is insufficient for businesses. Criminal actors often utilize intermediaries (known as "drops") by registering on trading platforms using falsified information.

To combat the issue of fraudulent accounts, prominent cryptocurrency trading companies rely on their own teams of blockchain analysts specialized in Anti-Money Laundering (AML). These experts closely monitor blockchain transactions—both incoming and outgoing—using an in-house system.
This level of scrutiny comes at a cost. Developing a comprehensive monitoring system can be financially burdensome for small and medium-sized businesses. It requires significant resources to track blockchain data across various networks around the clock. Additionally, the expenses associated with employing AML specialists are substantial. The annual salary for such an expert typically amounts to approximately $90,000.

Recognizing the challenges that businesses face in the global regulatory landscape, we have introduced BitOK—an affordable KYT (Know Your Transaction) solution capable of identifying suspicious cryptocurrency transactions in real-time.

BitOK is not restricted to serving businesses alone. We also assist individuals in monitoring the legitimacy of their investment portfolios and develop infrastructure solutions tailored for the compliance departments of banks.