Cryptocurrency compliance consultant Adam S. Tracy explains the difference between Anti-Money Laundering (AML) v. Know-Your-Customer (KYC) requirements and its application in cryptocurrency ventures.
TRANSCRIBED FROM: https://adamtracy.io/video/aml-kyc-cryptocurrency/
So there’s a great deal of confusion over AML, Anti-Money Laundering, and KYC, Know Your Customer, and I see a lot of people interchanging them and or assuming the same thing, and they’re not. AML is an overall program or policy to prevent the proceeds of criminal activities from flowing through money service businesses. And money service businesses is anything from a bank to the crypto space, a money transmitter, or a money remitter, which is what you see exchanges like coinbase or even cracking get at the state level. That state level license, which was originally was created for purpose of sending things like Western Union and money orders and things of that nature, is what triggers your money service business registration with FinCEN, which is the US Federal Government Official Crimes Network. And that’s where your AML policy requirements are triggered. So, AML is sort of the umbrella of requirements and regulatory requirements with respect to being a money service business.
KYC, or Know Your Customer, is really an element of AML, almost like a department. The biggest issue with KYC, which is really more pertinent for crypto currency based operation, is CIP, which is Customer Identification Procedures. These are simple things like collecting certain quantitative and qualitative information about a person. So we’re talking about basic information — address, name, phone number, tax ID, or passport number, something similar numeric that would be unique to that individual. That’s how you can meet your KYC burden. And it’s an ongoing burden because, not only do you have to collect and follow the CIP procedures when you on board a client, but you’re an ongoing requirement with respect to transactions and suspicious transactions — suspicious transactions being certain denominations, transactions with certain countries or places. And then also, there’s a list kept by OFAC, which is Specially Designated Nationals (SDN) List, which you have to consistently scrub your clients both, individual and corporate, against to make sure they’re not in the list, which is deemed to be known sponsors of money laundering, terrorism, and things of that nature. So, KYC from a cryptocurrency standpoint, whether it’s an exchange or even mining operations, where there is some transfer of FIAT currency to cryptocurrency and back, you really have a medium or a modicum of requirements from the KYC side. And even if you’re an exchange that doesn’t accept FIAT currency, where you’re just trading cryptocurrencies, right, you still ideally would have to register as a money service business so that AML and KYC would trigger in.
Now at the AML level, there’s sort of a broader policy — a lot of it’s very expansive probably not entirely relevant to most crypto ventures — but it does require some ongoing policing at a higher level to understand where the sources and uses of funds that are coming through your company. And it also requires the filing of SARS, or Suspicious Activity Reports, if you’re within the United States, which refers to certain transactions or patterns of transactions that, for instance, are meant to be below the five thousand dollar threshold, or a series of transactions that are broken up into smaller amounts to evade detection coming from certain locales and the like. And it’s a very broad thing. On my website TracyFirm.com or Bitcoin-Lawyer.org, you’ll see a sample AML KYC policy that I’ve come up with and I’ve used with some successful crypto ventures in the past. Take a look at it. It doesn’t hurt to have it. Most of the time you’re following your KYC procedures, if you simply are identifying who your people are. So, it’s really not a terribly difficult burden to meet. And there’s also a lot of great third parties that’ll do it. So that’s my take — KYC vs. AML. There is a difference, and you need to take note of it in either event. So check out my website. I’ve got those up there. Feel free to use them.
A former professional rugby player, Adam S. Tracy brings over twenty years’ experience as an attorney, consultant and dealmaker with a particular focus on cryptocurrency, digital products, payments and immersive corporate structures. As an accomplished executive and advisor to high risk merchants and stakeholders, Adam has proven himself as a results oriented, decisive leader with proven success advising early market entrants, technology adapters, as well as established participants across a wide range of verticals. Adam Tracy’s attack-first personality allows him to excel in dynamic, demanding environments including complex corporate negotiations, distressed environments and regulatory investigations.
In addition, Adam S. Tracy also has a successful track record co-founding high risk industry ventures, building & leading cross-functional teams, and spearheading diverse corporate transactions. A serial entrepreneur, Adam has successfully started and created exits across a wide swath of markets, including various mobile SaaS ventures, nutraceuticals, peer-to-peer payment systems, and several telemarketing-based ventures. Moreover, as a recognized expert in the payments field, Adam Tracy has been a blockchain and digital currency evangelist and influencer since the early days of Bitcoin.
Utilizing his proprietary “Pre-Event Driven™” strategy for decision making, Adam S. Tracy further leverages his over twenty years’ experience to create cost-effective, value-add solutions for each client. A data-driven acolyte, Adam continually refines his strategies based on field studies and data collection. Moreover, Adam Tracy further augments his range of solutions by actively networking with regulators, liquidity providers, legal and compliance experts, deal-flow brokers, investors and management of leading high risk industry ventures.
Adam S. Tracy earned his Bachelor of Science in Computer Applications and Bachelor of Science in Finance from the University of Notre Dame. He subsequently earned his Masters in Business Administration from the DePaul Kellstadt Graduate School of Business, while concurrently earning his Juris Doctorate from the DePaul College of Law. Adam lives outside Chicago with his with his wife, four dogs, and two cats.
On the Web: https://www.adamtracy.io
Email me: [email protected]