This means that in coming years financial services and law firms will increasingly engage with clients who have interacted with or generated wealth in cryptocurrencies.
In most cases, this means evidencing how the client generated those funds - for example, inheritance, salary, bonuses, the sale of a house - and ensuring, where possible, the funds are not the proceeds of crime.
Cryptocurrencies are pseudonymous. For example, every Bitcoin transaction that has ever been executed is publicly viewable online, for free. But the names of the people or entities undertaking those transactions are not disclosed. What you’ll see is the public addresses - a series of alphanumeric characters - sending and receiving funds.
example we chose at random from blockchain.com, a Bitcoin block explorer. It shows one address sending BTC 0.1097 ($3,166) to another addresses. _
If you have enough data about who controls those other addresses, you can construct a complete map of their transaction history and start to run AML checks.
Using blockchain data to run source of funds analysis**
more than 250 million tagged addresses - from exchange venues, payment services and NFT marketplaces to darknet shops, mixing services and addresses tied to hacks, scams and sanctions.
Imagine the sender above was your client’s address. We can use Hoptrail’s tools to verify their source of funds.
Once you have that you can roll forward and follow the money, all the way to the cash out. Below is an example of an address sending funds to exchanges they use to cash out into fiat currency.
In this case, the client was using Binance and Kraken to liquidate funds. We would therefore need trading statements for these exchanges to evidence the BTC deposits and sales to GBP. That would be the next and final step in assessing a client’s on-chain activity - what we call ‘off-ramp’ activity.
**Hoptrail’s onboarding checklist has three core requirements for source of funds and source of wealth checks. Ensure to ask each crypto client for these things before starting any analysis.
**If you suspect wallets provided by your client are not theirs, you can ask them to prove ownership. There are many ways of doing this. You may ask the client to transmit a specific amount to a designated wallet, or you could ask for further documentation from the service or exchange tied to the address.
signature verification tool that allows public or private cryptographic proofs.
cryptocomplianceAMLonboarding