Тег: Exchange

How the state’s imposition of AML/KYC encourages fraud

One of the requirements from the state is the identification of individuals participating in financial transactions and the sources of their funds. KYC (Know Your Customer) and AML (Anti-Money Laundering, consisting of transaction history analysis) procedures are explicitly stated in the laws of many countries. Usually, when someone wants to exchange cryptocurrency through a “white” exchanger or exchange platform, their transaction is checked by AML tools and, if it is assessed as high-risk, the client is required to undergo KYC—provide their passport details and information about the source of funds. All this is justified as a fight against various crimes, fraud, and even terrorism. However, as we will now see, such procedures can, on the contrary, encourage fraudulent activity.

One of the fraudulent schemes directly linked to AML/KYC is revealed by the creator of the cryptocurrency exchange monitor antiswap.info. When someone wants to perform a crypto exchange, exchangers conduct an AML check of the transaction via third-party services. But the methods used by such services raise doubts. For example, you yourself may not be involved in criminal activity in any way, but if the coins you currently hold were involved in it a dozen transactions ago, they will already be considered “dirty,” and you will have to deanonymize yourself and somehow prove the legality of the origin of the funds.

One of the users of the kurs.expert monitor points to cases where people were simply withdrawing funds from closing exchanges, and these were flagged by AML verification services as stolen. The essence of AML checks was also well described by one of the commenters on the miningclub.info forum: “I sold a bicycle to Vasya and bought a car from Masha. A year later, it turned out that Vasya was dealing drugs and making drops while riding the bike he bought from me with drug dealers’ money. It turns out I am an accomplice and Masha is the owner of ‘dirty’ money. Consequently, will her account be blocked, as well as the cash register of the store where she bought sausage yesterday?”. Furthermore, many commenters there point out that AML verification services may assign a transaction risk without any basis at all, since no one checks how they conduct this procedure.

Naturally, if you fail the AML check and the exchanger does not like your arguments during KYC (or if you simply do not wish to deanonymize yourself), your funds may simply be stolen, or you may be charged a huge commission for their return. As the creator of Antiswap writes, a third of the exchangers listed on the popular Bestchange monitor were caught doing this. But why then do almost all exchangers there have a perfect rating? The reason is that Bestchange considers the seizure of coins due to failure to pass AML/KYC to be solely the client’s fault, and all complaints regarding this are moved from negative reviews to neutral ones, which do not affect the exchangers’ rating.

At the same time, you are unlikely to go to state authorities to complain about such exchangers, as they will likely also have questions regarding the origin of your funds, and thus you may only create new problems for yourself and recover nothing. Thus, exchangers with dishonest owners and employees can practically legally engage in theft and fraud.

The website antiswap.info contains a list of such fraudulent exchangers, as well as a list of those who can be trusted. Of course, among the trusted exchangers, very few openly state their readiness to conduct exchanges without forcing the user to undergo AML/KYC, because many are still afraid of repression from the stationary bandit and publicly report their compliance with its requirements, even if they actually perform no checks. This creates difficulties in finding exchangers that are truly ready to conduct anonymous transactions. However, it is still important to separate blatantly fraudulent exchangers from those who can be trusted with high probability.

Voluntarist, Bitarch

Why is it so important to sell bitcoins for cash, rather than for transfers to a card?

Or—what are the risks of sending bitcoin to a personal card? Because all I hear from everyone is that it should only be cash. Are there real cases where sending to a card led to bad consequences? Does it depend on the amount or other circumstances?

анонимный вопрос

The most direct way to exchange bitcoin for fiat is to sit down together, agree on a deal, then the fiat amount is placed on the table, the bitcoin seller transfers them to the buyer, the parties wait for the first confirmation, after which the seller takes the fiat from the table and puts it in their pocket.

The main inconvenience with this type of deal is the need for very serious trust in the buyer. Nothing stops the cash owner from pulling out a gun after the transaction is complete and demanding their cash back, as well as the private keys to the bitcoin wallet. Using bank transfers instead of cash at least allows you to avoid meeting in person. Therefore, a service such as localbitcoins has gained considerable popularity.

The essence of exchanging through this service is that the parties trust the service itself rather than each other. One party publishes an ad, the second responds to it, after which the seller’s bitcoins (previously transferred to an online wallet belonging to the service) are frozen. When the bank transfer is received from the buyer, the seller notifies the service, and the service transfers the bitcoins to the buyer. If a conflict arises, the service acts as a judge (so-called escrow), requires proof of money transfer and proof of non-receipt on the account from the parties, after which it makes a decision in favor of one of the parties.

From the bank’s point of view, it is a transfer from one individual to another individual. The bank knows nothing about any bitcoins. Reversing such a transfer is practically impossible. Of course, as part of the fight against money laundering, the bank may freeze the transfer, but that is the buyer’s problem—they will not receive the bitcoins, the frozen amount will simply return to the seller, and the seller can make another attempt.

Localbitcoins is a large international service that is good because it allows you to obtain fiat money from any country, wherever you are. But specifically in Russia, I personally find it more convenient to use a Telegram bot with completely identical functionality (I have already advertised it here).

In any such service, there is also the option to buy bitcoin for cash. I haven’t used it myself because the rate is usually much less favorable. Remotely, this is done by topping up the bitcoin seller’s card with cash at an ATM. This method provides the greatest security for buying bitcoins, as the buyer’s personal data does not reach any bank. As for the seller, they don’t care; the fiat still ends up in a bank account.

Bitcoins can also be bought for cash in crypto ATMs, but selling them for fiat in this way is not yet possible. As Lightning is implemented, crypto ATMs with the ability to operate in both directions will likely enter the market.

To summarize. Buying bitcoins for cash is indeed a way to ensure additional anonymity. Selling bitcoins for cash carries the same risks at best, and even more serious ones at worst. As long as your sales volume is small, receiving fiat on a bank card is the most reliable way to protect yourself. When volumes grow, you can accept fiat on cards from different banks. If they grow even further—try using strawmen.

And for the most paranoid, I want to recommend an article from a very peculiar channel Cryptoagora, where even more curious ways of ensuring anonymity when working with fiat are detailed.