IF ANY TROUBLE CAN HAPPEN, IT HAPPENS

You are a law-abiding citizen. You own cryptocurrency. You perform completely legal operations for example sending/receiving crypto assets. Deciding to be reasonable and curious, you check your crypto wallet using, for example, with our Btrace service or solutions from Chainalysis, Crystal Blockchain.

To your surprise, you discover that your crypto address is in the yellow or, even worse, red risk zone.

In this situation, questions about how to avoid dirty crypto become secondary.**Your first priority is to save assets, avoid blocking and, of course, prevent the possibility of becoming involved in a criminal case.**It is these steps that we will talk about in this article.

OBSERVATION FROM AML CRYPTO:

AML (Anti-Money Laundering) advice in the cryptocurrency space from self-proclaimed experts on the topic of “what to do if you receive dirty cryptocurrency” is widespread. Unfortunately, the quality of such recommendations often leaves much to be desired due to a superficial understanding of the mechanisms of AML checks, the FATF recommendations and the European AML6D directive.

The problem is that many of these “experts” are simply resellers of other people’s solutions* and do not understand what lies inside the algorithm. However, they do not acknowledge their role in the resale, seeking to present themselves in a more favorable side. Greetings to some of our competitors :)*

STATEMENT OF THE PROBLEM

You have checked your cryptocurrency address and received high Risk-score.

Risk-score is an indicator of the risk of interaction with a particular blockchain address based on the source of its funds, its behavior on the network, as well as known information about the owner.

YOUR POSSIBLE STEPS

1. STOP ACCEPTING FUNDS TO THIS ADDRESS

If dirty cryptocurrency arrives as part of a transaction, it is likely that the funds previously held in your crypto address are now “contaminated.” By continuing to use this address, you run the risk of “sullying” incoming new funds. It is important to take the time to understand why your address’s risk score has deteriorated.

During this analysis, create and use a new address for new funds. Avoid linking your crypto addresses. Give up the idea of transferring a small amount of native token to pay for gas from the old address to the new one. Instead, use the exchange to fund your balance with the native token.”

2. IDENTIFY THE CAUSE OF THE PROBLEM

By regularly monitoring the risk score of your address, you can assume that the deterioration in the indicator is associated with the last transaction with a certain counterparty or that your address was included in databases associated with illegal activity.

It is worth noting: when analyzing transactions, check both the senders and recipients of your funds.

There is a common myth that if you receive “dirty” funds, you should return them. This approach works for exchanges that create individual deposit addresses for each client, but does not work for regular crypto addresses. Returning such funds will only worsen the situation. Two-way communication with a suspicious or dirty asset will significantly worsen the risk score of your address.

Most analytical tools are based on ML algorithms, which provide for risk score deterioration when interacting with high-risk addresses or dubious cryptocurrency. The more such interactions, the worse the risk score. Why don’t service providers make exceptions for such transactions? The answer is simple: scammers make mistakes too, sometimes accidentally linking their anonymous addresses with those by which they can be identified.

Consider an analogy: a robber stole money from a bank and transferred 10,000 to you. Later you return these funds. Will this return protect you from questions from law enforcement? Hardly. You will still have to explain the reasons for such transactions.

3. COLLECT ALL AVAILABLE EVIDENCE

As we mentioned earlier, dirty cryptocurrency can be obtained in various ways: from a friend, from an unlicensed crypto exchanger that ignores AML procedures, from an unknown project as part of an airdrop, from a freelance client paying for work in cryptocurrency, or as a result of a P2P exchange.

If your address has received a high risk score, it is important to collect as much data as possible about your transactions. This could be correspondence with P2P users when agreeing to exchange or pay with cryptocurrency, confirmation from crypto exchangers about a successful transaction, etc. All this evidence must be correlated with specific transactions.

4. BE TRANSPARENT IN YOUR COMMUNICATIONS WITH THE EXCHANGE

Be prepared, if you try to deposit these funds on the exchange, to provide all the collected evidence and undergo an in-depth KYC procedure. Be as polite as possible and demonstrate openness. However, if your funds are not only risky, but also have signs of links to fraud, terrorism or the dark web, such a move has its own risks. If the funds you received have a shady past, it can be compared to buying a car that turns out to be listed as stolen. You are required by law to report such incidents to law enforcement or you will be considered an accomplice.

INSTEAD OF LOCKING THE CONCLUSION

If you still decide to “bleach” not very clean products at your own risk, keep all the evidence of your innocence even after. Store them for at least 5 years. We have examples where we helped unblock funds on the exchange after they were blocked for transactions made 4 years ago.

Avoid using this address in the future as you may encounter a similar issue over time, whether on the same exchange or a different one.

In addition, we recommend changing the address for deposits on the exchange. Both our systems and those of leading international competitors track which addresses you transfer your funds to.

Well, be sure to take advantage of free cryptocurrency address verification with our** Btrace **service.