Ripple, the largest single owner of the XRP cryptocurrency (currently valued at $20 billion), has signed a deal with regulation technology startup Coinfirm, to shine new light on how the third-largest cryptocurrency is being used.
Among the new anti-money-laundering (AML) information Coinfirm will provide about cryptocurrency users is whether the cryptocurrency has been processed by technology called a “mixer,” designed to launder cryptocurrency by privately exchanging funds from multiple counterparties; information on clustering, when small amounts of currency are sent via many different addresses to disguise the size of large transactions; and whether or not the funds come from a known theft or hack.
Notably, the new information will not include the actual identities associated with public addresses where cryptocurrency is stored, according to Coinfirm CEO Pawel Kuskowski. But it will include information like whether or not an address is owned by an exchange that allows anonymous trading, and whether or not the entity that owns the address is registered in a country deemed high risk. A report then grades the address as low, medium or high risk and gives it a score of 0 to 99, with 99 being the highest risk for money laundering.
Coming just a week after international rule-maker, the Financial Action Task Force (FATF) issued guidance requiring that cryptocurrency exchanges share information with each other, including names of counterparties, as required of the traditional banking system, this latest development shows how developers of cryptocurrency technology continue to imagine new ways to protect users identities.
“I won’t know who you are personally. We don’t do any personal data,” says Kuskowski. “We argue with FATF that this is completely sufficient, and effectively it is sufficient.”
FATF’s 37 member countries have one year to comply with the requirements or face consequences. But since membership in FATF is voluntary, each nation will be able to roll out the requirements as it sees fit. European nations also subject to the newly enacted General Data Privacy Regulation (GDPR) may actually be legally prevented from accepting the personally identifiable information required by FATF, giving the Coinfirm system and others like it an advantage, according to Kuskowski, who is the former head of global AML for the Royal Bank of Scotland.