AML Compliance for Crypto Businesses and VASPs

FATF standards apply globally to virtual asset service providers. Jurisdictions implement these expectations through licensing and supervision. Banks, exchanges, and counterparty VASPs require compliance evidence before transacting. We provide compliance officer coverage and crypto-specific AML frameworks.

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Why crypto compliance expectations are universal

The Financial Action Task Force sets international standards for AML controls. FATF Recommendation 15 applies AML requirements to virtual asset service providers, and related guidance covers the Travel Rule and other crypto-specific expectations.

Individual jurisdictions implement these standards through licensing regimes, registration requirements, and supervisory frameworks. While specific rules differ by country, the core principle is consistent: VASPs must have AML programs comparable to traditional financial institutions.

This creates practical compliance requirements regardless of where you operate. You need a named compliance officer, documented AML policies, customer due diligence procedures, transaction monitoring, sanctions screening, and suspicious activity reporting. Without these elements, you cannot obtain licensing in regulated jurisdictions or maintain relationships with banks and other VASPs.

The Travel Rule requires VASPs to collect and share originator and beneficiary information for virtual asset transfers above specified thresholds. Implementation varies by jurisdiction, but the underlying expectation is established in international standards and increasingly enforced through licensing conditions and supervisory actions.

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Crypto-specific controls

Wallet risk screening and attribution

Blockchain transparency enables wallet risk assessment that isn’t possible in traditional finance. You can analyze wallet transaction history, identify exposure to sanctioned addresses, detect interaction with mixing services or dark markets, and assess overall wallet risk scores.

Your controls must cover wallet screening at customer onboarding, ongoing monitoring of customer wallet activity, screening of destination addresses before processing withdrawals, and escalation procedures for high-risk wallet exposures.

Wallet attribution is equally important. When possible, you should identify whether wallets belong to known exchanges, other VASPs, sanctioned entities, or criminal operations. This informs risk decisions and supports suspicious activity reporting.

On-chain plus off-chain monitoring

Effective transaction monitoring combines blockchain analysis with platform activity. On-chain monitoring tracks wallet behavior, transaction patterns, and counterparty interactions. Off-chain monitoring covers customer account activity, deposit and withdrawal patterns, trading behavior, and platform usage.

Integration is critical. A customer might show normal platform activity but transact with high-risk wallets off-platform. Or they might use your platform to structure transactions below reporting thresholds while consolidating funds on-chain afterward. Combined monitoring detects these patterns where single-source monitoring fails.

Your monitoring approach must define scenarios covering both on-chain and off-chain activity, set appropriate thresholds, document investigation procedures, and establish escalation criteria for confirmed suspicious activity.

Travel Rule readiness and counterparty VASP checks

Where the Travel Rule applies, you must collect originator information from sending VASPs and provide beneficiary information to receiving VASPs. This requires technical capabilities, documented procedures, and counterparty due diligence.

Travel Rule compliance includes capability to receive and validate originator information, processes for collecting and verifying beneficiary information, procedures for handling incomplete or suspicious information, and escalation paths for Travel Rule violations or concerning counterparty behavior.

You also need due diligence on counterparty VASPs. Before establishing information-sharing relationships, you should verify the counterparty’s licensing status, assess their compliance program quality, and confirm they maintain adequate AML controls. Poor counterparty controls expose you to indirect risk.

Enhanced due diligence for high-risk geographies and typologies

Crypto enables cross-border transactions with minimal friction. This introduces geographic risk that requires enhanced due diligence. Customers or counterparties in high-risk jurisdictions, sanctioned countries, or locations with weak AML frameworks need additional scrutiny.

Your procedures must identify high-risk geographies based on FATF assessments and other risk factors, define enhanced due diligence requirements for customers or transactions involving these locations, document source of funds and wealth verification procedures, and establish decision criteria for accepting or declining high-risk business.

Typology-based enhanced due diligence is equally important. Transactions matching known laundering typologies such as rapid movement through multiple wallets, layering through mixing services, or cash-to-crypto-to-cash patterns should trigger enhanced review regardless of customer risk level.

Incident response and escalation

Crypto platforms face unique risks including exchange hacks, wallet compromises, smart contract exploits, and fraudulent token offerings. When these incidents affect your platform or your customers, you need clear incident response procedures that include AML considerations.

Your controls must cover detection of security incidents with potential AML implications, assessment of whether incidents involve proceeds of crime, escalation procedures for criminal activity, coordination with law enforcement where appropriate, and suspicious activity reporting for incident-related transactions.

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What banks require from crypto clients

Banks are extremely selective about providing services to crypto businesses. They view the sector as high risk and conduct extensive due diligence before opening accounts. To satisfy bank requirements, you must demonstrate:

Regulatory compliance

Current licensing or registration in applicable jurisdictions, evidence of regulatory good standing, and confirmation that you operate within licensed scope

Qualified compliance ownership

Named compliance officer with crypto-specific experience, documented authority to implement controls, and regular reporting to senior management or board

Comprehensive AML program

Documented policies covering customer due diligence, transaction monitoring, wallet screening, Travel Rule compliance where applicable, sanctions screening, and suspicious activity reporting

Blockchain monitoring capabilities

Evidence that you analyze on-chain activity, screen wallet risks, and integrate blockchain intelligence into transaction monitoring

Monthly evidence production

KRI dashboards, alert investigation logs, training records, effectiveness review documentation, and proof that your program operates continuously

Banks often request ongoing compliance reporting as a condition of maintaining your account. They may also conduct periodic reviews of your program. Our service includes the evidence production and reporting that satisfies these ongoing requirements.

Licensing and registration across jurisdictions

Crypto licensing requirements vary significantly by jurisdiction. Some countries require full financial institution licenses for VASPs, others have registration-only regimes, and some have not yet implemented specific VASP regulations.

Regardless of the licensing structure, most jurisdictions that regulate VASPs require similar compliance elements:

Compliance officer appointment - A named individual responsible for AML program oversight, with appropriate qualifications and authority
AML policies and procedures - Documented frameworks covering risk assessment, customer due diligence, transaction monitoring, screening, and reporting
Risk-based approach - Evidence that controls are calibrated to actual risks from your products, customers, geographies, and transaction types
Training and testing - Programs ensuring staff understand AML obligations and can execute procedures correctly
Independent review - Periodic effectiveness reviews assessing whether the program is working as designed

Even in jurisdictions without formal VASP licensing, these program elements remain critical for maintaining banking relationships and counterparty VASP partnerships.

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