Fraudsters are increasingly using crypto-currency in money laundering activities around the world. In an effort to help combat that activity, cyber-security startup CipherTrace announced its Cryptocurrency Anti-Money Laundering (AML) Compliance Solution on July 3.
CipherTrace is led by CEO Dave Jevans, who is well-known in the cyber-security industry as the chair of the Anti-Phishing Working Group (APWG) and was formerly the founder of USB hardware security vendor Ironkey, which was acquired by Imation in 2011. With CipherTrace, Jevans has built a platform that makes use of advanced analytics and fraud detection techniques to help financial institutions and crypto-currency exchanges combat money laundering.
"We have seen a dramatic increase in crypto-currency money laundering in 2018 so far," Jevans said. "We've already tripled 2017, and we're only halfway through the year."
According to data collected by CipherTrace, $761 million has already been laundered with cryptocurrency thus far in 2018. In contrast, for all of 2017 CipherTrace reported that $266 million was laundered via crypto-currency. There have also been regulatory initiatives in the financial services industry to directly address the issue of crypto-currency being used for money laundering activities, Jevans said.
A key challenge for regulators and law enforcement in dealing with crypto-currency has been the notion that crypto-currencies can be anonymous, making them difficult to track. Jevans said there are multiple methods that can be used to help identify money laundering with crypto-currency.
The CipherTrace AML technology provides a visual interface, which shows the traces of currency flows and attribution information about where that currency is, in terms of what country and what exchanges were used. Jevans said that flows can identify if a crypto-currency transaction came through an illicit dark market as well.
"Then at the high level, we also provide a risk scoring mechanism which allows someone who has to do high-volume transactions tracking to look at every transaction or every address," he said.
The risk scoring mechanism provides insight into the entities that were directly involved with the transaction, as well as all the other parties that were involved with the transactions around a given entity. The goal of the risk score is to highlight and identify potential sources of money laundering activities.
How It Works
CipherTrace has a big data infrastructure that is able to consume and analyze crypto-currency data as well as data from other sources that helps to inform analysis.
Crypto-currencies rely on the use of a blockchain—that is, a distributed ledger system that includes information about transactions. Jevans emphasized that the intelligence that CipherTrace provides is outside of what is stored inside of a given crypto-currency's blockchain. Data looked at by CipherTrace includes currency swaps, geography and other flows that are outside of blockchain.
"The intelligence is derived from many different sources," he said.
From an infrastructure perspective, Jevans said CipherTrace has a hybrid model, using public cloud services for some functions as well as private data centers, where the company has its own hardware in place. The CipherTrace AML technology is provided to organizations on an annual subscription basis.
There is an intersection between the work being done at the Anti-Phishing Working Group and crypto-currency money laundering. Jevans founded the APWG in 2003 as a global consortium of vendors and law enforcement agencies that work together to report on and stop phishing activities. He currently serves as the chairman of the crypto-currency working group inside of the APWG. That group includes crypto-currency exchanges, regulators and universities.
"It's basically a community where we can talk about anti-money laundering and then also exchange data," Jevans said. "So we built up a data exchange capability at APWG that enables companies and contributors to share intelligence."
Looking ahead, Jevans said CipherTrace will expand its platform to support enterprise blockchain efforts like the Linux Foundation's Hyperledger and will also work to bring its technology to a wider audience of traditional financial institutions.
Sean Michael Kerner is a senior editor at eWEEK and InternetNews.com. Follow him on Twitter @TechJournalist.