Major American cryptocurrency exchange Coinbase has been awarded a patent for a system that identifies and flags non-compliant accounts.
A filing with the United States Patent and Trademark Office on Nov. 19 details a system containing a scoring model that “determines a compliance score for each one of the accounts based on the respective factors associated with the respective account.” The system then compares the compliance score for each account to detect those accounts that fail compliance standards.
Eliminating non-compliant accounts
After a flagging unit identifies purportedly non-compliant accounts, the system assesses whether they are good or bad, enters the determination into a feedback system and decides whether or not to close the account. The filing stated:
“An investigator may be able to determine whether an account is being used for illicit activities by doing research on the parties of the transaction who receive or send payment and determining whether such parties are regularly involved in illicit activities. It may for example be relatively easy to determine that a party sending or receiving payment is in the business of conducting online services that may be illegal.”
According to CipherTrace’s report for the third quarter of 2019, the total volume of cryptocurrency-related fraud and theft resulted in losses worth $4.4 billion in 2019. CipherTrace delved into the 120 most popular cryptocurrency exchanges’ Know Your Customer (KYC) and Anti-Money Laundering compliance requirements and analyzed patterns in crypto-related crimes.
Earlier in November, a lawyer and general counsel at decentralized finance startup Compound Finance, Jake Chervinsky, raised the question of whether exposing the public to data risks that KYC requirements entail is worth it. He explained that KYC helps law enforcement to track illegal transactions, but also exposes the public to hacking, phishing and identity theft.
