Malta has been pursuing the title of “Blockchain Island” as it aims to become a hotspot for blockchain and cryptocurrency. In June, the Maltese Parliament approved three bills on cryptocurrency and blockchain designed to attract foreign entrepreneurs and startups in the space.

Some already made the leap including Binance, OKEx and BitBay which chose to either relocate or expand to the crypto-friendly island.

The Malta Financial Services Authority (MFSA), the single regulator of financial services in Malta, has partnered with CipherTrace to implement a cryptocurrency intelligence solution to regulate virtual asset businesses licensed on the island.

The technology tool, called Compliance Monitoring, rates the risks of cryptocurrency businesses to protect consumers, investors and business partners, and will enable the MFSA to better identify fraud and prevent money laundering and funding of terrorism.

But the growth of blockchain in Malta has created “significant risks” of money laundering and terrorism finance in the island’s economy, an International Monetary Fund mission said
in January. The IMF mission called on the Maltese authorities to ensure that virtual asset service providers fulfilled their anti-money-laundering requirements effectively.

The CipherTrace Compliance Monitoring solution, which uses machine learning to de-anonymize transactions, will enable the regulator to evaluate and monitor the trustworthiness of virtual asset businesses. It tracks the risk exposure of virtual asset businesses including cryptocurrency exchanges, collective investment schemes and initial coin offerings (ICOs) to gauge and measure potential exposure.

“Being strongly aware of the money laundering and financing of terrorism risks associated with entities operating in this sphere, the decision has been taken to engage the services of CipherTrace in order to reduce fraud and detect transactions with illegal sources of funds”, said Joseph Cuschieri, CEO of the MFSA. “CipherTrace Compliance Monitoring will provide the MFSA with powerful oversight tools to automate regulatory processes and audit the risk management of virtual asset businesses that are licensed in Malta.”

Crypto crime hit record heights in 2018 with some US$1.7 billion worth of funds being stolen and exit scammed. 3.6 times more cryptocurrency value was stolen during 2018 than in 2017 despite the so-called “crypto winter”, according to the CipherTrace Q4 Anti-Money Laundering Report.

Criminals use various methods and techniques to launder their ill-gotten gains including mixers and tumblers services, which blend potentially identifiable cryptocurrency funds with large amounts of other funds.

Founded in 2015 by Silicon Valley entrepreneurs, CipherTrace develops cryptocurrency AML, forensics and blockchain threat intelligence solutions. The company’s machine learning algorithms calculate risk levels for exchanges, addresses, wallets and other entities based on known associations, criminal addresses, and money laundering services.

It also profiles hundreds of global exchanges, dark markets, mixers, gambling services, high-yield investment products, and ATMs to determine risk levels of transactions based on activity related to suspicious addresses and wallets.

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