Babbitt Column | Money Money Risk Avoidance Guide for Digital Currency Trading Subjects

The anonymity and complexity of digital currency trading make trading participants and trading platforms face many risks, such as abnormal trading of trading participant accounts, so that the trading platform believes that there is a risk of money laundering, and the platform adopts measures to freeze accounts, which will be more serious. There will be a risk of the transaction bank account being frozen; the trading platform has not detected the transaction anomaly due to its own technical reasons, thus becoming a tool for money laundering. This article will combine specific cases to explore how trading entities can avoid money laundering risks in digital currency transactions.
First, the case brief

On July 6, 2016, Lee purchased 2 bitcoins through a website, the unit price was 4480 yuan, and then sold at 12:14:44 on July 7. At 17:44:44 on July 6, Li bought orders for 6.141 bitcoins, and the unit price was 4,470 yuan. After that, it was sold at 12:14:52 to 15:01 on July 7. At this point, Lee bought a total of 11.141 bitcoins, spending a total of 50,000.27 yuan. At 18:05:57 on July 7, Li applied for the transfer of 3 bitcoins to the transfer address ××× through the account involved. A website immediately restricted the bitcoin transfer and the cash withdrawal and transfer of the account involved. The reason was that the account involved was registered, recharged, purchased and transferred out on the same day, and was recognized by the system as an overseas IP address. Therefore, due to the obligation and consideration of anti-money laundering, the account involved was locked. Because Li did not leave the mobile phone number, he could not contact Li immediately, and he could only wait for Li to take the initiative. From July 19th to 20:12 on July 7th, because Bitcoin could not be transferred, Li communicated with a customer service through QQ, and the customer service told him that Bitcoin would need to verify identity information. According to the format provided by the customer service, Li will send the photo of the front and back of the ID card and the reloading voucher to the authentication mailbox. At 10:26 on July 8th, Li once again contacted a customer service company for video certification, and completed the video certification at 10:37. After the customer service, the information was submitted for review. However, during Li’s account review, his account was hacked and all bitcoin was stolen. Li Mou sued the people’s court and requested a website to compensate for his economic losses.

The court held that: On July 6, 2016, Li registered, recharged, purchased and raised coins on the same day on a bitcoin transaction network, and the login and operation IP address of the account involved was displayed as an overseas IP address, and Li was again If the mobile phone number is not registered, in this case, according to the agreement on anti-money laundering in the user agreement and relevant laws, regulations and rules, it is not inappropriate to restrict the withdrawal of funds and the transfer of bitcoin out of the account involved, and a website has already Failure to comply with the contract or reasonable security obligations.

The final court rule dismissed Li’s claim.

Second, how to avoid the risk of money laundering in the subject of digital currency transactions

Through the above cases, we learned that when trading participants trade on the trading platform, if the trading is frequent or the transaction amount is large, the trading platform can urgently verify the authenticity and legality of the transaction for the purpose of preventing money laundering risks. Take measures to freeze the trading participant's account and stop trading. As a third-party service platform, if the transaction's identity of the trading participant is not recognized or not fully recognized, it will easily lead to anti-money laundering work, and it is also a criminal. Money laundering provides convenience, so digital currency trading entities are against the risk of money laundering, which is especially important for digital currency trading.
01
China's anti-money laundering supervision system
In order to prevent money laundering activities, the relevant laws, regulations and policies promulgated in China include:
Judging from the types of regulated entities, China has introduced anti-money laundering regulations on banking, payment institutions, foreign exchange management, Internet finance, real estate, securities, futures, and insurance. At the same time, the People's Bank of China and the China Insurance Regulatory Commission and the China Securities Regulatory Commission have established anti-money laundering. The Work Coordination Group set up an anti-money laundering office within the People's Bank of China and established a customer identity registration and understanding of your client system and a transaction reporting system to combat money laundering. However, for the anti-money laundering supervision in digital currency transactions, China has not yet issued clear laws and regulations.
According to the Measures for the Administration of Anti-Money Laundering and Anti-Terrorism Financing of Banking Financial Institutions (hereinafter referred to as the “Administrative Measures”) promulgated by the Bank of China’s Insurance Regulatory Commission in January 2019, when the identity of the transaction is unknown or the identity is denied, the financial The organization must not provide services and conduct transactions with it. If the client has a single or cumulative transaction of more than 50,000 yuan (including 50,000 yuan) and foreign currency equivalent of more than 10,000 US dollars in cash receipts and payments, financial institutions, non-bank payment institutions, other institutions should be 5 after the transaction Submit large transaction reports within one working day. For the digital currency trading platform, it is especially necessary to formulate its own anti-money laundering system with reference to the anti-money laundering rules of financial institutions and specific institutions without clear normative guidance.

02

Digital currency trading platform

Internal control

For the trading platform, the establishment of the anti-money laundering system should first establish a sound internal control system, clarify the division of responsibilities, set up a special compliance/risk control department, adopt real-name certification for large-value transactions or suspicious transactions, suspend transactions, and freeze accounts. And other measures; secondly, during the existence of the business relationship with the user, the KYC (know your customer) measures are implemented continuously, the abnormal situation is reported to the relevant authorities in a timely manner, and the technical standards are continuously improved to meet the global anti-money laundering regulatory requirements. If there is an outsourcing service on the trading platform, for the outsourcing organization, the anti-money laundering prevention should be agreed in the cooperation agreement.

From the content of internal control, the internal control should at least include the following rules:

(1) A valid KYC system (know your customer), including identifying and verifying the true identity of the customer based on information or data obtained by the customer and externally reliable means;

(2) Implementing classified risk customer management for different customers and applying different auditing frequencies;

(3) Preserving the information, data and information generated by the implementation of anti-money laundering and anti-terrorism financing obligations, ensuring that each transaction can be fully reproduced and that relevant work is traceable. The retention information should include the digital wallet address, IP address, and digital currency type and quantity of each party;

(4) Establish a large-value transaction and suspicious transaction reporting system. The trading platform can reasonably set the upper limit of the transaction, that is, the transaction does not support the provision of services to the customer after the transaction reaches the quota. For customers involved in the above-mentioned list of fears and sanctions, they may directly refuse to serve such customers or report to the public security organs.

2. External supervision

In addition to the above internal management, the trading platform should actively engage security audit agencies to assess or conduct due diligence on the compliance risks of the platform itself, and timely coordinate with the rectification to continuously meet the compliance standards. In addition, the trading platform can also take the initiative to The competent authorities of national jurisdictions submit applications for entry into the “Regulatory Sandbox” to mitigate to some extent the compliance risks arising from policy or regulatory gaps.

Many companies may still have different views on whether digital currency trading platforms should fulfill their anti-money laundering and anti-terrorism financing obligations. However, it is worth noting that in the criminal elements of the criminal law in China’s Criminal Law, “knowing” or “informed” criminal activities If you have the possibility to know, and provide a fund account, assist in the transfer of funds or remitted abroad, you may face severe criminal law accountability. Therefore, the digital currency trading platform should establish the internal control system of anti-money laundering and anti-terrorism financing as soon as possible according to its actual business conditions.

In addition, for the digital currency transaction party, it is necessary to submit its own identity information before the transaction, and carry out the real-name transaction of the digital currency through the trading platform to avoid the fact that the transaction platform cannot be verified and verified when the account is frozen, and the transaction is stopped. Unnecessary losses.

Author: Chen Yunfeng