Former Commodity Futures Trading Commission (CFTC) Chairman Timothy Massad said that cryptocurrency exchanges can help prevent illicit activity by implementing controls such as know-your-customer (KYC) and anti-money laundering (AML) requirements. Massad made this statement during a December 16 episode of the Lunch Hour podcast.
"Crypto exchanges play a role, because people do connect through those institutions," said Massad. "We often refer to those as the onramps and the off ramps of crypto. So if you're converting crypto into dollars or converting dollars into crypto, you pass through one of those institutions, and we require those institutions to do checks on knowing your customer and prevent money laundering. We can also monitor the blockchain and monitor who's transacting."
According to Binance Academy, cryptocurrency exchanges can guard against their services being used for illicit activities by implementing AML protocols, which are typically linked to KYC requirements. "One interesting trend relating to AML and KYC compliance in the cryptocurrency ecosystem is the willingness of many exchanges to self-regulate, even when they do not fall within the purview of existing regulatory guidelines," Binance Academy said. "In some cases, companies have even banded together to form industry bodies aimed at creating frameworks for self-regulation."
Noah Perlman, chief compliance officer at Binance, which is the largest crypto exchange in the world by trading volume, said he believes the exchange has reached an industry-leading status of compliance due to significant investments and hiring "world-class industry experts," including former government agents. Perlman emphasized that Binance strives "for continuous improvement" and prioritizes collaboration with law enforcement to proactively combat illicit activity.
In one investigation, Binance partnered with the Cyber Crime Investigation Bureau (CCIB) of the Royal Thai Police, providing intelligence that led to the arrests of five key members of a criminal group involved in "pig butchering" scams. Thai officials confiscated approximately $277 million USD worth of assets from these criminals, and since their arrest, more than 3,000 victims have come forward.
Binance noted that although only a small percentage of crypto transactions are linked to "illicit activity," as crypto usage continues to grow, criminal actors seek to "abuse the ecosystem." Blockchain expertise and commercial tools are typically necessary to combat cybercrimes involving crypto. The company uses its "industry-leading" Law Enforcement Training Program to share knowledge and resources with law enforcement agencies in order to combat crimes involving crypto, aiming to bridge the expertise gap that arises as new types of crime emerge in digital finance.
Massad has previously served as CFTC chairman and as Assistant Secretary for Financial Stability at the U.S. Department of the Treasury. Prior to his public service roles, he was a partner at Cravath, Swaine & Moore LLP where he assisted businesses in hedging exposures in derivatives markets.