Discrepancies in AML evaluations among blockchain analytics firms raise concerns for users regarding the security of their crypto assets.
On May 19, the blockchain analytics firm Crystal identified the Belarusian crypto service WHITEBIRD as being closely tied to attempts to bypass international sanctions, marking a significant move in the realm of anti-money laundering (AML) services. This designation followed the EU's 20th sanctions package. Notably, however, other analytics providers have not echoed this classification.
Instead of focusing on the sanctions themselves, many analysts are raising alarms about the discrepancies in how different AML services evaluate crypto addresses. For example, one service might classify a wallet as legitimate, while another may flag it as high-risk. This inconsistency can mislead users, leading them to believe their assets are secure when they may not be, as exchanges often utilize varying methodologies for transaction assessments.
Diverse Methodologies in AML Services
A common misconception among users is that all AML services operate from a unified blacklist. In reality, these services use distinct commercial products, each with unique databases and methods for interpreting sanctions. While results typically align, they can diverge significantly in certain cases.
Major exchanges, including Binance and OKX, often depend on data from Western firms like Chainalysis and Elliptic, while users in CIS countries may utilize different providers. However, an AML report does not guarantee consistent evaluations across platforms, which can lead to unexpected risks for users.
The risk scores assigned to transactions can escalate, not just for direct dealings with high-risk services, but also for users who have engaged with intermediaries. The nuances of how addresses are connected and the identities of their owners were explored in depth in a previous article by ForkLog.
"The idea that 'I checked the coins six months ago, they were clean' is no longer valid. The analyst's perspective can change, and users may only learn of a problem when their funds are frozen," warned Mixer.Money.
Strategies for Risk Management
In light of these discrepancies, users should not hastily transfer funds between wallets. The initial step should be to conduct a thorough evaluation.
"If you have concerns about your coins potentially being 'tainted,' verify them through at least one AML service. The cost for such checks usually ranges from a few cents to a dollar. Document the findings with a timestamp to provide proof in case of future issues," advised Mixer.Money.
Transferring coins between personal addresses does not eliminate the risk of association, as clustering algorithms can trace back to the original owner. Additionally, while some users may consider using mixers to obfuscate their transaction history, this can inadvertently raise risk scores.
"CoinJoin transactions leave a clear on-chain trail, mixing clean coins with potentially tainted ones, which raises the risk score for users," cautioned Mixer.Money.
Instead, proactive privacy measures can effectively prevent clean coins from becoming associated with suspicious activities. Mixer.Money has developed a method that avoids mixing user funds, instead issuing coins withdrawn from major exchanges to maintain a clean history.
The bitcoin.mixer 2.0 algorithm operates by breaking incoming amounts into random parts and managing the timing and distribution of transfers, ensuring that clients receive bitcoins with a distinct exchange history, thereby minimizing their risk.
"Our system does not mix funds between users; clients receive coins that are cleanly withdrawn from exchanges, keeping their risk scores low," highlighted Mixer.Money.
In its "Full Anonymity" mode, the service provides users with bitcoins from independent investors' exchange withdrawals, making these transactions appear standard across any AML system.
Given the variance in how AML services evaluate transactions, it remains crucial for users to select services that do not increase their risk scores while ensuring a transparent exchange history, ultimately reducing the likelihood of unexpected sanctions.
