Banks inside and outside Malta would be willing to open accounts for cryptocurrency companies once they felt they could manage the risks involved, the head of a cyber-intelligence company in the sector said.
CipherTrace recently signed a one-year automatically renewable contract with the Malta Financial Services Authority to provide checks on cryptocurrency assets.
The regulator is going through procedures for the approval of the 29 cryptocurrency agents – known as virtual financial asset agents – that have already applied for licences. Once approved, the agents are expected to submit applications for operators like exchanges, wallets and initial coin offerings.
While the agents are expected to do the due diligence on the individuals and entities behind such operators, the MFSA will still require tracking of the assets that flow through them, which is where CipherTrace will come in.
Times of Malta reported that banks are reluctant to open accounts for companies in the cryptocurrency sector but CipherTrace CEO Dave Jevans believes that will change once regulations were in place and the sector proved to be actively supervised.
“As we know, there has been a lot of pressure on Malta to get more compliance. We are aware of banks interested in working in Malta and banks already here interested in providing accounts. It is all about managing the risk,” he said in a telephone interview from the US.
“Once the VFA agents are approved, they will do audits on their customers. They can use the same tools the MFSA is using.
“We have a very strong role not only for the companies using our system but also the banks using it to audit those companies and the agents using it to audit their customers. We have seen that strategy play out in different places around the world.
“We are confident that would work in Malta as well to give banks assurances about their customers,” he added.
Sector requires a proactive approach
Mr Jevans admitted the sector required a proactive approach to keep one step ahead of criminals.
“By having really state-of-the-art capabilities in monitoring criminal activity and criminal forums, dark webs and money-laundering services, you can be quite effective. You can never be 100 per cent effective but that applies to any system whether it is a cyber one or not.
“We have a strong background in tracing criminal, money-laundering or terrorist activity. We keep catching up. We also think forward as our team has been involved in beating online and cybercrime for 20 years in different projects and companies,” he said.
Mr Jevans said gathering intelligence on cryptocurrency transactions was not as impossible as it might sound to outsiders.
Transactions might not necessarily be associated with the individual making them but it was possible to track transactions by the same person or company.
And once crypto was changed into money – so-called fiat currencies – anonymity ended.
“If, at some point, you access the banking system, you will need to provide identification and have a bank account. And that is true of Bitcoin or any other cryptocurrency,” he said.
However, even crypto-to-crypto transactions were falling under the spotlight.
“There was the perception that if you are not converting crypto to fiat currency and don’t need a bank account, then you do not need compliance,” he said.
“That is a fallacy and the US has really put a lot of pressure on some of these crypto-to-crypto exchanges to have compliance and that is working.”
Will all this regulation, monitoring and enforcement help to reverse the bad im-pression given by well-publicised collapses and outright frauds in the sector?
Mr Jevans is adamant that regulation is the answer, whether for exchanges, wallets or initial coin offerings.
“You have seen most of these issues in countries that have not had good regulation and, more importantly, good supervision, without which regulation is just a piece of paper. Regulatory oversight is one of the biggest answers to the problems we have seen in unregulated countries where there are no audit requirements,” he remarked.
He said the race was on for Malta to be the jurisdiction that was safe for investors and for companies to operate in.
The island, he continued, crafted its regulation after looking at other jurisdictions, including the US, Japan and Switzerland.
Other countries, like Abu Dhabi, were trying to draw up regulations for the Gulf and were looking at Malta’s lead.
“Being a first mover in this case is an advantage,” Mr Jevans noted.
Highlights from CipherTrace’s report
• $1.7 billion worth of cryptocurrency stolen and scammed in 2018 has yet to be laundered.
• Of the $1.7 billion, hackers stole more than $950 million from cryptocurrency exchanges and infrastructure, 3.6 times more than in 2017.
• ICO exit scams, phony exchange hacks and Ponzi schemes victimised investors and cryptocurrency users for almost $0.75 billion.
• Bad guys have to launder the funds before tough new global anti-money laundering and counter terror financing regulations come into effect over the next year.
Source: Cryptocurrency Anti-Money Laundering Report