What is transaction screening, and how to implement it?

When a company works in the cryptocurrency market, ensuring compliance with regulatory standards is its top priority. One of the critical areas of focus is implementing an AML crypto check, which helps detect and prevent illegal activities, such as money laundering and terrorism financing. One of the essential mechanisms in this process is transaction screening, a tool that helps protect the financial system’s integrity.

What is Anti-Money Laundering in Crypto?

Anti-Money Laundering (AML) is the set of laws, regulations, and procedures to prevent criminals from disguising illegally obtained funds as legitimate income. In cryptocurrency, AML practices are critical to prevent the abuse of digital assets for illicit activities. The main components of an AML framework in cryptocurrency include:

● Know-your-customer (KYC). This process involves verifying the identity of users before they can engage in transactions. KYC helps ensure that customer transactions are legitimate.
● Transaction screening – a proactive measure used to identify suspicious or high-risk transactions before they are completed.
● Transaction monitoring – the continuous review of customer activities after the initial transaction to identify suspicious patterns that may indicate financial crime.
● Reporting and record-keeping. Transactions and activities that raise suspicion must be reported to regulatory bodies as per AML regulations.
Together, these components help ensure compliance and lower the risk of the crypto ecosystem being exploited for illegal activities.

What is Transaction Screening, and How Is It Different from Transaction Monitoring?

Transaction screening is a crucial component of the AML process that involves evaluating individual transactions in real-time to assess whether they are associated with illicit activity. This screening process occurs before the transaction is completed, making it a proactive defense mechanism. The purpose of transaction screening is to detect whether a transaction or the entities involved are linked to issues such as money laundering, terrorism financing, or violations of sanctions.
On the other hand, transaction monitoring is an ongoing process that evaluates customer transactions after they have been completed. It analyzes patterns of behavior over time to detect anomalies that may suggest illicit activities.

The Main Components of Transaction Screening

Implementing a robust transaction screening system requires several key components:

1. KYC processes are foundational in ensuring that a business can verify the identity of its customers before allowing them to transfer funds or engage in crypto transactions. KYC includes gathering and verifying personal information, such as ID documents, proof of address, and sometimes even biometric data.

2. Screening against Politically Exposed Persons (PEP) is another critical aspect of transaction screening. PEPs are individuals who hold prominent public positions and, due to their influence, may be at higher risk of being involved in financial crime. Transaction screening tools are designed to flag transactions involving PEPs so that they can be subject to additional scrutiny.

3. Sanctions screening ensures that entities or individuals involved in a transaction are not on global sanction lists maintained by international bodies such as the United Nations or government agencies. This component is essential for complying with international AML regulations and preventing businesses from engaging with blacklisted entities.
By implementing robust screening systems, businesses can ensure compliance with AML regulations and reduce risks associated with financial crime. The combination of KYC processes, PEP screening, sanctions checks, and ongoing transaction monitoring creates a layered defense against illicit activities in the crypto space.