There is a risk: 9 factors for blocking cryptocurrencies
Exchanges and exchangers check coins according to various indicators, suspicious ones are blocked
The crypto industry has recently faced many challenges: the collapse of the major cryptocurrency exchange FTX (comparable in importance to the collapse of Mtgox), the devaluation of the Terra UST ecosystem’s decentralised stablecoin due to a deliberate attack, ongoing attacks on the Binance exchange from the USA, etc. These precedents formed the basis for an even greater, more detailed tightening of the regulatory landscape for working with cryptocurrencies for both retail and corporate clients. In its turn, such changes have led to the implementation of updated, detailed anti-money laundering policies and procedures by centralised exchanges and custodians and the implementation of other requirements aimed at complying with the new rules of the game. Denys Kastin and Yevgen Borysenko, lawyers at Chainlock.pro, told Mind about the risks of using cryptocurrencies and their blocking.
Read also: The US sues the largest crypto exchange Binance. What consequences can this bring?
The most popular players in the cryptocurrency market, namely exchanges and exchangers, have been particularly active in conducting various types of checks and risk assessments. As a result of such innovations, Chainlock's lawyers have been contacted much more frequently by clients of exchanges whose accounts have been blocked due to "non-compliance with the terms of use". It is easier to prevent such situations than to try to resolve them later.
Here are a few important factors that can significantly increase the risk of crypto assets being blocked.
1. Sanctions
Blocking a user's account with a reference to the sanctions' policy literally means that your wallet/account has interacted with various sanctioned entities, such as Bitzlato or Garantex.
There are many such lists, but the most significant are the SDN (Specially Designated Nationals) lists regularly published by OFAC in the US, the EU, and the UN lists, as well as those of individual EU countries. Anyone can check themselves for inclusion in such lists simply by using free services on the Internet.
2. Illegal transactions (e.g. Darknet)
This category mostly includes coins that have somehow interacted with Darknet marketplaces (Silkroad, Hydra, etc.). Such digital assets will always be characterised as extremely high-risk.
The same section also includes the usage of digital funds to finance other crimes, such as the usage of coins related to drug or arms trafficking, kidnapping, etc.
3. Theft of coins
Unfortunately, fraudsters are taking advantage of the innovation of the cryptocurrency market and the fact that it is relatively young. They hack into centralised and decentralised services to obtain illegal benefits. It is worth noting that the addresses of such hackers are relatively quickly identified, clustered and, in some cases, can be frozen.
For example, the issuing company of the USDT TETHER INC stablecoin sometimes blocks transactions of attackers in its coin. In other cases, such crypto will be flagged by automatic services (or even by victims manually), and the entry of these assets into the exchange will lead to an account block.
4. Enforcement Action
This category includes cases of interaction with digital assets that have been the subject of judicial, criminal or other proceedings. An example is the Bitzlato service, which has led to the blocking of many wallets on centralised exchanges at the request of law enforcement agencies in different countries.
5. High-risk countries
The Financial Action Task Force on Money Laundering (FATF) conditionally divides all countries based on how effectively the country combats money laundering.
Even though the recommendations of this group (FATF) are not directly legally binding, its authority is so great that the inclusion of a country in a grey or other list will automatically entail increased attention of all market participants.
Accordingly, if you receive digital funds from high-risk countries, the risks of blocking also increase.
6. Unregulated exchanges or services
Despite the fact that in 2023, cryptocurrency regulation appeared almost worldwide, some companies are still registered in offshore jurisdictions where such regulation is completely or partially absent. This category also includes decentralised exchanges and various decentralised services (e.g. liquidity pools, DEXs, etc.). On the other hand, compared to other factors, we consider interaction with such services to be a moderate risk factor.
7. Scams
Unfortunately, the digital money industry is often used to implement various fraudulent projects, Ponzi schemes, etc. Interaction with clustered wallets of scam projects is also a factor that will increase the chances of applying various sanctions to your account.
8. Mixers
These services used to be primarily used to 'mix' cryptocurrencies in order to achieve an additional degree of anonymity, but in recent years, more and more often, attackers have started using mixers to get rid of marked or 'dirty' cryptocurrencies.
Accordingly, if your coins have been obtained from such a service, they will also be assessed as suspicious.
9. Other factors
These are other circumstances that can increase the risk of blocking (for example, cryptocurrency received from gambling projects, unregulated p2p platforms, etc.)
Chainlock recommends you to contact your experts both in case of virtual money blocking and in other cases. This will help you decrease the risks of the transaction and get your digital assets back.
The OpenMind authors, as a rule, are invited experts and contributors who prepare the material on request of our editors. Yet, their point of view may not coincide with that of the Mind editorial team.
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