Mon. Jan 3rd, 2022
    KYC, AML

    Since the advent of cryptocurrencies and the possibility of paying for goods and services, there has been a problem of regulating the use of electronic money in illegal transactions, including those related to terrorism.

    The term for combating illegal financial activities sounds like AML — Anti-Money Laundering. To be more precise, the abbreviation should have been longer, AML CFT CWMDF — anti-money laundering and counter-terrorist financing and counter-weapons of mass destruction financing.

    This is exactly how the task of the non-governmental international organization Financial Action Task Force on Money Laundering sounds. Parts of this long abbreviation are found in many financial documents, openness manifestos, company security policies.

    KYC Procedure — A Means To Achieve The AML Goal

    While a single mechanism for regulating the sphere of cryptocurrencies is being developed, exchanges that value their reputation apply their own security measures.

    The most common way to minimize illegal transactions is KYC (Know Your Customer) — the customer identification process.

    The essence of the process is to verify and confirm the identity of the user, verify participation in illegal activities, study the source of funds and exclude suspicious transactions.

    KYC Verification On The EXMO Exchange

    Usually, the exchange itself offers to pass verification in your personal account after registering on it. For example, on EXMO, after registration, you will be offered to pass a three-stage verification:

    Identity Verification

    Identity verification takes 4 steps:

    1. Entering personal information:
    • full name; 
    • date of birth;
    • country of residence.
    1. Details of the document. You must enter the details of the document that will be used for identification. Such a document can serve as a passport, ID card or driver’s license.
    2. Upload a scan or photo of an identifying document. 
    3. Selfie with the document. It also has its own requirements. EXMO requires that not only the document itself is visible on the selfie, but also a piece of paper with the inscription “EXMO” and the date of the photo.
    selfie with document
    Proof Of Residence

    After fulfilling all the conditions for identification, you can proceed to the confirmation of the actual place of residence:

    1. The first step is to enter data about the place of residence. In addition to the actual address itself, you will need to enter the serial number of the document that confirms residence at this address. 

    A passport can not serve as such a document, but it can be considered:

    • bank statement;
    • utility bill;
    • judicial, tax or other documents issued by the competent authorities.

    2. The second step is to upload this very document for verification.

    Proof Of Ownership Of A Bank Card

    The last stage, checking the bank card, is also a two-step process:

    1. Entering bank card details: number and name of the owner.
    2. As with the previous verification steps, you need to upload an image of the document, namely a bank card.
    bank card, verification

    After all the steps are completed, it remains only to wait for an e-mail message that verification has been passed, and you can start working on the exchange.

    Other Ways To Regulate The Cryptocurrency Market

    Personal identification, as well as other ways of regulating the sphere of cryptocurrencies, are already provided for in the legislation of various countries.

    Common to the countries of the European Union, as well as to South Korea, the United States and Canada, is that they must license cryptocurrency exchanges and companies that provide users with cryptocurrency wallets. In addition, for all users entering the exchanges, identity verification is required.

    The tax legislation of the countries is also being transformed due to the spread of the use of cryptocurrencies.

    In Finland, there is an instruction on the taxation of both the currencies themselves and their mining.

    Canada, although it is a supporter of the development of cryptocurrencies, does not recognize them as a means of payment. Transactions with digital assets are not prohibited, but they are not subject to taxes. But the income tax act, like other tax laws and regulations in Canada, applies to the crypt.

    There is no separate bill on cryptocurrencies in Estonia. But at the same time as they were recognized as equal means of payment, they were subject to strict Estonian legislation against financial crimes and money laundering. The United States took a similar position at the federal level. 

    Belarus became one of the first countries to regulate its laws on cryptocurrencies. Since December 2017, their exchange, mining, as well as smart contracts, blockchains, etc. have been legalized. At the same time, actions with cryptocurrency are not equated with entrepreneurial activity.

    Cryptocurrency Legislation Of Russia

    In Russia, until this year, there was no law regulating the cryptocurrency sphere. On January 1, 2021, the version of the bill, adopted in July 2020, came into effect, but with amendments made to it after the adoption. According to the bill, digital financial assets (DFA) and cryptocurrency are not recognized as means of payment. It also prohibits the release and circulation of cryptocurrency, except in cases of its transfer by inheritance or collection within the framework of enforcement proceedings or bankruptcy.

    In addition, the law does not prohibit the production of mining equipment, the use of currency by third parties and operations in foreign systems. However, receiving a reward in cryptocurrency for such actions will already be a violation of the law, punishable by fines of up to 1 million Russian rubles, as well as imprisonment or prison arrest.

    KYC procedure: what happens for its absence

    Despite the measures taken by countries to remove the crypto economy from the gray and black zone of the economy, there are still participants in this sphere who prefer to conduct unsafe trading.

    For example, in October of this year, the US authorities filed charges against the owners and some operators of the BitMEX exchange. They are accused of violating the rules of the Commodity Futures Trading Commission, including anti-money laundering.

    The exchange allowed large-value transactions without going through the KYC procedure. In addition, the exchange did not receive a license to operate, which is also contrary to US federal law.

    Opinions of users of cryptocurrency exchanges differ regarding KYC compatibility and decentralization. There is also a downside to using KYC: service providers become owners of a set of critical personal data. This deprives the user of confidence that their data will not be used in any way that is not in their best interests. In addition, the authorities of authoritarian and totalitarian states, having obtained such information, can use it to influence their citizens.

    However, according to CoinMarketCap, transactions using KYC are more popular with users than those for which verification is not required.

    Such procedures take little time, but users of the exchange can be sure that they will not violate the legislation of any country and will not become a participant in illegal transactions with cryptocurrencies.