The KYC (Know Your Customer) is an essential feature that should be established by the authorities to control the crypto transitions. It will make it easier to track suspicious activity and prevent massive economic crimes.
Criminals and terrorists exploit law enforcement’s inability to monitor transactions due to government inaction on cryptocurrencies, specifically privacy coins, resulting in a significant security issue.
The Government Doesn’t Know What to Do
Limited law enforcement personnel in the US dedicated to tracking and extracting cryptocurrencies used for illegal purposes is a major issue. They investigate various crypto violations such as money laundering and terrorism funding, leading to potential misuse going unnoticed. Criminals migrating to privacy coins like Monero that decrypts wallets and transactions, further complicates the issue.
A pro-ISIS website, a National Socialist Order support site, and a neo-Nazi chat group on Telegram solicited Monero cryptocurrency donations in 2020 due to its superior privacy and safety features compared to Bitcoin. The neo-Nazi group, The Base, also sought Monero donations for training and equipment.
Despite advanced tracking capabilities, the US and other countries struggle to overcome technical obstacles posed by privacy coins. These coins’ encryption hinders law enforcement’s ability to identify their owners and intentions.
The Senate reported in May 2022 that the IRS collaborated with private firms to track Monero transactions, but transparency issues remain. Congress has yet to create regulations or fund tools to reduce terrorism financing risks from these privacy-boosting technologies.
To fight terrorism financing with cryptocurrencies, the government should implement behavior-based transaction controlling standards and regulatory requirements for tech companies working with law enforcement. Service providers, given their ties to social media, messenger and crowdfunding platforms, should be part of the initial defense.
However, the tech industry is unlikely to prioritize countering terrorism financing without regulation and liability risks. Exchanges can detect suspicious patterns using behavior-based monitoring, but regulatory standards are essential to advise their use and safeguard user data.
Know Your Customer Approach
Regulating content monitoring and KYC procedures is necessary for social media, messenger services, and crowdfunding platforms that are utilized for commercial purposes, as they currently operate on non-regulated standards with low moderation standards.
The Financial Action Task Force (FATF) recommends considering noncustodial wallets and exchanges risky technology, indicating potential nefarious activity. Exchanges must require users to totally reveal their identity during transactions involving noncustodial wallets.
Efficient policy requirements for fintech and its sectors, combined with government cooperation, are crucial in reducing the risk of cryptocurrencies funding extremism and terrorism.