How Cryptocurrency is Affecting BSA Initiatives

Hannakah Rubin, CAMS
June 3, 2021
Read Time: min

Cryptocurrency continues gaining traction.

As the cryptocurrency industry continues to expand, financial institutions must remain vigilant to thwart cybercriminals.

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What's going on in cryptocurrency?

Cryptocurrency industry expands quickly

As cryptocurrency gains traction with consumers quickly, financial institutions (FIs) and other regulatory institutions are vying for the opportunity to provide this service to their customers to keep up with the growing demand for quick and convenient banking at a low cost. As this market expands, so does a new frontier of cyber-fraud. The need for adapting BSA initiatives to identify and mitigate financial loss is already upon us.

Cybercriminals are stealing cryptocurrency and accepting the payment for goods to hide the origin of the funds. A third party, known as a Nested Service Provider (NSP) or an Exchange, is used to send cryptocurrency to a deposit address they own. The illicit funds are first sent to the NSP to “clean” the money, and then the NSP sends it to the criminal's deposit account on the other side. The cybercriminals are both the buyer and the seller.

Does this sound familiar? This is just another piece of money laundering that needs to be studied and understood by FIs to identify it quickly, and new procedures need to be considered. BSA departments at FIs are fervently creating programs and processes to combat this specific piece of money laundering.

Risks ahead

The State of Crypto Crime

Primarily due to its monikers, cryptocurrency criminals are using NSPs to find more ways to defraud the consumer and the facilitator, all while staying anonymous.

According to the “2021 Crypto Crime Report” published by Chainalysis, 55% of all cybersecurity crime is comprised of just 270 deposit addresses. This is a lot of activity for such a small number of addresses; especially when you consider this activity pulled in $1.3 billion in criminal gain within one year. This indicates that fraudsters are surer of their cyber-crimes than with other crimes, where the activity would be broader and spread out to further avoid detection.

In 2020, cryptocurrency-related crime fell significantly, according to the same Chainalysis report. However, a large Ponzi scheme did somewhat inflate the 2019 numbers. Law enforcement is of the opinion that this activity will only become more difficult to manage by FIs.

Despite the risks, this new way of conducting business will mean an influx in profits for financial institutions and convenience for customers, and it's important that banks and credit unions are prepared.

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Tactical & Strategic Tips

Mitigating Cryptocurrency-related Risks

The most effective way to fight cryptocurrency-related risks and mitigate financial loss to your institution is to be vigilant and stay on top of existing and burgeoning fraud trends. Through actively seeking and understanding these trends, as well as reviewing your BSA processes, your institution can continue to fight the good fight to avert loss.

If you would like to have a more specific or tailored plan to address how your institution is mitigating risk with cryptocurrency or any other area, our advisory team is available to help with training, updating policies and procedures, and consulting.  

Here are a few things you can also do to arm yourself with information on growing trends:

  • Frequent trusted websites like the Federal Trade Commission FTC ( 5 key types of Nested Service Providers) and FinCEN
  • Ensure you are using the BAM+ platform to its fullest capabilities. Contact your Customer Success Manager or Abrigo Support should you have any questions
  • Stay in the know by taking advantage of Abrigo's blogs, webinars, and whitepapers
Learn more by watching the webinar, "BSA Exam Prep 101: Hot Topics"
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About the Author

Hannakah Rubin, CAMS

Risk Management Consultant
Hannakah Rubin is a Risk Management Consultant with Abrigo in the Advisory Services Group. She has 21+ years experience working in the financial institution & software industry. She has worked directly with financial institutions to incorporate automated solutions into BSA, AML, and Fraud programs. Hannakah has worked with other financial

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About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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