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Banks failing to identify up to 90% of suspicious crypto transactions

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Financial institutions worldwide have reported 134,500 suspicious transactions concerning virtual currencies in the past two years — but that’s just the tip of the iceberg according to a report published by blockchain forensics firm CipherTrace.

The report says the Financial Crimes Enforcement Network (FinCEN) has seen a major increase in suspicious transaction reports from institutions since publishing its May 2019 Advisory on Illicit Activity Involving Convertible Virtual Currency (CVC).

Despite this, CipherTrace asserts that many financial institutions have developed inadequate “home-grown” systems for identifying cryptocurrency-related accounts and transactions, that simply use lists of the names of crypto exchanges and virtual asset service providers (VASPs) to flag transfers associations with cryptocurrency.

This strategy “results in many false positives and misses significant, large amounts of funds flows that cannot be discovered by home-grown name matching:”

A typical name-based system may entirely miss up to 70% or more of the crypto exchanges out there, and up to 90% of the actual transaction volume

The report asserts that few financial institutions screen for exchanges outside of the top 100. Many crypto exchanges also operate under a business name that differs from their branding, evidencing further shortcomings of using name-matching to flag crypto transactions.

CipherTrace advocates that banks use a monitoring system that seeks to track the accounts associated with peer-to-peer crypto exchanges and smaller virtual currency kiosks, and cross-references the contact information of small VASPs with customer records to flag suspicious activities.

CipherTrace’s report comes on the heels of the U.S. Internal Revenue Service (IRS) inking a $249,900 contract with the firm Blockchain Analytics and Tax Software to expand its cryptocurrency tracing capabilities.

At the end of August, CipherTrace claimed it had developed a tool for the US Department of Homeland Security that can trace transactions made in the privacy-coin Monero (XMR).



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Regulation

El Salvadorians take to the streets to protest Bitcoin law

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Protesters calling themselves the Popular Resistance and Rebellion Block have come out against El Salvador’s government passing a law making Bitcoin legal tender.

A Tuesday tweet from local news outlet El Mundo shows El Salvadorians carrying banners saying “no to Bitcoin” in the streets of San Salvador demanding a repeal of the country’s Bitcoin law. Legislative assembly members Anabel Belloso and Dina Argueta addressed the protesters after first meeting the group separated by a barrier of razor wire.

In a letter made available at the protest, the Popular Resistance and Rebellion Block group claimed that President Nayib Bukele passed the law making the cryptocurrency legal tender in the country without proper consultations with the people. It also cited the volatility of Bitcoin (BTC), comparing investing in the cryptocurrency to playing the lottery: “betting on the lottery is a voluntary act, while Bitcoin is required by law.”

Related: Coercion and coexistence: How El Salvador’s Bitcoin Law may change global finance

However, the group’s main grievance around the Bitcoin legal framework seemed to be centered around a perceived disparity in the cryptocurrency’s usage by the government when compared with the average resident in El Salvador. Protesters said Bitcoin “only serves some large businessmen, especially those linked to the government, to launder ill-gotten money.”

“Entrepreneurs who put their capital in Bitcoin will not pay taxes on their earnings,” said the letter. “In addition, to apply Bitcoin the government will spend millions of dollars of the taxes paid by the people.”

They added:

“Bitcoin would facilitate public corruption and the operations of drug, arms and human traffickers, extortionists and tax evaders. It would also cause monetary chaos. It would hit people’s salaries, pensions and savings, ruin many MSMEs, affect low-income families and hit the middle class.”

Though passed by El Salvador’s government and signed into law by Bukele in June, the law recognizing Bitcoin as legal currency in the country will not go into effect until Sept. 7. The Popular Resistance and Rebellion Block’s protest was aimed at government officials to demand the law be repealed. In addition, the World Bank has also refused to help El Salvador transition to a Bitcoin-friendly framework, given its “environmental and transparency shortcomings.”

Related: What is really behind El Salvador’s ‘Bitcoin Law’? Experts answer

During a scheduled visit by the U.S. State Department earlier this month, Under Secretary of State for Political Affairs Victoria Nuland suggested El Salvador ensure Bitcoin is well regulated and transparent, but did not explicitly say anything against the country’s move to a more digital economy. Some proponents of the law including Bukele have suggested Bitcoin could help facilitate remittance payments from El Salvador citizens living abroad and lessen the country’s reliance on the U.S. dollar.