AML

Sens. Warren and Marshall introduce new money-laundering legislation for crypto

The senators have created a harsh, sweeping bill to clean up crypto’s AML/KYC act that will benefit from further discussion in the next Congress.

As the cryptosphere focused on the drama unfolding around FTX, United States Senators Elizabeth Warren and Roger Marshall introduced the Digital Asset Anti-Money Laundering Act of 2022 on Dec. 14. The seven-page bill would expand the classification of a money service business (MSB), prohibit financial institutions from using technology such as digital asset mixers, and regulate digital asset kiosks, otherwise known as automated teller machines, or ATMs.

Announcing the introduction of the bill at the Senate Banking Committee hearing “Crypto Crash: Why the FTX Bubble Burst and the Harm to Consumers,” Warren, a vocal crypto critic, said:

“Senator Marshall and I introduced a bipartisan bill today that requires crypto to follow the same money-laundering rules as every bank, every broker and Western Union all have to follow today.”

Under the legislation, money service businesses, a classification created by the Financial Crimes Enforcement Network (FinCEN), would be “custodial and unhosted wallet providers, cryptocurrency miners, validators, or other nodes who may act to validate or secure third-party transactions, independent network participants, including MEV [maximum extractable value] searchers, and other validators with control over network protocols.”

Unhosted wallets, miners and validators were not previous considered MSBs.

Money service businesses would be required to have written Anti-Money Laundering policies and to implement them. The bill would finalize reporting requirements already proposed by FinCEN and impose new requirements, including reporting transactions over $10,000 in accordance with the Bank Secrecy Act.

The bill also instructs the Treasury Department to create a rule banning financial institutions from interacting with “digital asset mixers, privacy coins, and other anonymity-enhancing technologies.”

It would require the Treasury Department, Securities and Exchange Commission and Commodity Futures Trading Commission to set up review processes for the entities that each regulates.

Finally, the bill would create reporting requirements for owners of digital asset kiosks and for FinCEN and the Drug Enforcement Administration.

Related: Institutional crypto adoption requires robust analytics for money laundering

Somewhat like the legislative duo Cynthia Lummis and Kirsten Gillibrand, who authored the Responsible Financial Innovation Act, Warren and Marshall represent opposite ends of the U.S. political spectrum. Warren is a liberal Democrat from Massachusetts, while Marshall is a conservative Kansas Republican.

“I am delighted to see Senator Warren acting in a bipartisan manner by joining with Senator Marshall in the introduction of this bill,” Patrick Daugherty, head of Foley & Lardner’s digital asset practice and adjunct professor of digital assets at Cornell Law School, told Cointelegraph in a statement.

Daugherty acknowledged the bill’s “salutary effect of impeding more thoroughly the abuse of digital assets for crime” but expressed concern about “the loss of financial privacy for millions of digital asset buyers and sellers who are not criminals.”

Casey Jenkins, counsel at Seward & Kissel and former Consumer Financial Protection Bureau staffer, told Cointelegraph that the bill could have “sweeping ramifications” for MSBs. The prohibition of institutions from interacting with digital mixers — defined in the bill as “a website, software, or other service designed to conceal or obfuscate the origin, destination, and counterparties of digital asset transactions” — would amount to a ban on mixers and privacy coins.

The requirement that miners and validators do due diligence is also potentially problematic. “Miners and validators are not equipped to perform the new duties that this legislation would thrust upon them. They aren’t banks or brokers, which are already staffed up for this function,” Daugherty said.

The bill seemed to be “thrown together at the last minute,” Jenkins said, and intended to “set the tone” for further discussion in Congress. It has no chance of being considered in this session.

Warren has also promised to write comprehensive crypto regulation legislation that reportedly would favor the SEC in the role of regulator.

US DOJ split over charging Binance in the 2018 AML investigation: Report

Binance has faced compliance warnings from many countries over the past couple of years, but it managed to overcome those shortcomings in most nations barring the U.S.

The United States Department of Justice (DOJ) is nearing the completion of its investigation into cryptocurrency exchange Binance, which started in 2018. A report from Reuters suggests there is a conflict among US prosecutors over whether the gathered evidence is enough to press criminal charges against the crypto exchange and its executive or not.

The 2018 investigation revolve around Binance’s compliance with the U.S. anti-money laundering (AML) laws and sanctions. The U.S. prosecutors were investigating charges related to unlicensed money transmission, money laundering conspiracy and criminal sanctions violations.

The report noted that Binance’s defense attorneys held meetings in recent months with Justice Department officials, and argued against any criminal proceedings.

Binance reportedly claimed any criminal proceedings against them could run havoc on the crypto industry amid a prolonged market downturn. The report claimed that the discussions included potential plea deals.

A Binance spokesperson told Cointelegraph that the Reuters report suggests the regulators are doing a “sweeping review of every crypto company against many of the same issues” and added:

“This nascent industry has grown quickly and Binance has shown its commitment to security and compliance through large investments in our team as well as the tools and technology we use to detect and deter illicit activity.”

Binance launched the dedicated crypto exchange for U.S. customers in July 2017, owing to the tough regulatory requirements to offer services in the U.S. However, the 2018 investigation within a year of its launch hampered the progress of the exchange in the States.

Related: Binance’s proof of reserves raises red flags: Report

Another report published by Reuters in June earlier this year accused the crypto exchange of being a hot spot for money launderers. Binance refuted all such claims, suggesting the report has cherry-picked data.

Binance’s struggle with compliance is nothing new, as the exchange has faced numerous warnings over the years from multiple jurisdictions. However, the exchange has managed to overcome the compliance issues in many of those countries barring the U.S., despite its slew of hirings to strengthen its regulatory and compliance team.

US regulator to seek feedback on DeFi’s impact on financial crime

A “close look” is being taken at money laundering and terror financing laws by FinCEN as it asked banking sector players for feedback on DeFi’s crime risks.

A United States financial regulator is looking to gain feedback from the banking industry about how decentralized finance (DeFi) may affect the bureau’s efforts to stop financial crime.

The Financial Crimes Enforcement Network (FinCEN) said it is “looking carefully” at DeFi, while the agency’s acting director, Himamauli Das, said the digital asset ecosystem and digital currencies are a “key priority area” for the agency.

Das gave prepared remarks on Dec. 6 at the American Bankers Association’s Financial Crimes Enforcement Conference.

The acting director added the agency is “taking a close look” at its Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) framework for cryptocurrencies and digital assets to decide if “additional regulations or guidance are necessary.”

“We are engaging with relevant U.S. government stakeholders in this effort,” said Das. “We welcome engagement with industry — including the banking community — to better understand your assessment of the vulnerabilities and risks.”

In particular, the regulator was concerned at DeFi’s “potential to reduce or eliminate the role of financial intermediaries” that are critical to its AML and CFT efforts.

Das said it recognizes DeFi “will continue to impact the financial services industry” and the agency will need to mitigate the “illicit finance and national security risks posed by the misuse of digital assets.”

Related: Terrorists still predominantly use cash over crypto: UN officials

FinCEN’s evaluation of its AML and CFT frameworks is part of the Executive Order on Ensuring Responsible Development of Digital Assets issued by United States President Joe Biden on Mar. 9.

A result of the Executive Order was the U.S. Treasury Department’s “Action Plan to Address Illicit Financing Risks of Digital Assets.”

Among other priority actions, the plan recommended increased private sector engagement through “the publication of official documents, discussions, and Treasury programs that enable public‐private and private‐private information sharing.”

Crypto adoption via regulation: Setting rules for centralized exchanges

While some security issues do exist, major internet outages like the one witnessed across the EU recently cannot really threaten cryptocurrencies or their associated networks.

Centralized cryptocurrency exchanges have become the backbone of the nascent crypto ecosystem, making way for retail and institutional traders to trade cryptocurrencies despite a constant fear of government crackdowns and lack of support from policymakers. 

These crypto exchanges over the years have managed to put self-regulatory checks and implemented policies in line with the local financial regulations to grow despite the looming uncertainty.

Cryptocurrency regulation continues to occupy mainstream debates and experts’ opinions, but despite public demand and requests from stakeholders of the nascent ecosystem, policymakers continue to overlook the rapidly growing sector that reached a market capitalization of $3 trillion at the peak of the bull run in 2021.

Over the past five years, many local and national governments have shown interest in regulating the crypto market but often got perplexed by the vast ecosystem and complexities involved in regulating certain decentralized aspects of the market. As a result, most of the governments that have issued some guidelines or rules related to crypto have done so based on the existing financial regulations, but the evolving market has proven too fast-paced.

Some countries have moved to recognize crypto trading as a legal activity, while others have approved Bitcoin (BTC)-based exchange-traded funds. Many countries have also made way for crypto platforms to operate with a license, but the strict requirements often deter certain small platforms to stay away. As a result, there is no universal blueprint for regulators to adhere to, and experts believe leading centralized crypto exchanges can change that.

In traditional markets, it is perfectly normal for regulators to work closely with industry participants, including exchanges, to ensure that regulations and guidance work well and keep pace with fast-changing technological advances. However, the same can’t be said for the crypto market, as regulators have maintained a safe distance from the nascent industry.

Oliver Linch, CEO of global crypto exchange Bittrex Global, said that the regulators must interact with service providers of the crypto ecosystem to get a better grasp of the industry. He cited the example of Bermuda and Liechtenstein, where the crypto exchange has been working with local lawmakers to make way for positive regulations.

He noted that even though decentralized exchanges continue to remain the flag bearer of crypto’s decentralized ethos, which are thus more complex to regulate, centralized exchanges will be key to major adoption:

“Centralized exchanges have perhaps the most important role to play here. While decentralized exchanges tend to be the ‘poster boys’ for the industry’s cutting edge, they are naturally hesitant to get involved in regulatory matters. In any event, the majority of activity, especially for ordinary retail users (who are front of mind for regulators) happens on centralized exchanges.”

He added that regulating the entire crypto market will follow, but the approach of “Liechtenstein, Bermuda and now the European Union, of regulating service providers, including centralized exchanges, is a good starting place. By properly regulating centralized exchanges, regulators and legislators create a legitimate path for users — from individuals to giant corporates — to get involved in crypto in a safe and regulated manner.”

A Binance spokesperson told Cointelegraph that being a centralized exchange, it needs a centralized entity to work well with regulators.

“Binance believes it has a fundamental responsibility to work with regulators and believes that a well-regulated crypto market provides greater protection for everyday users. We strongly believe that a stable regulatory environment can support innovation and is essential to establishing trust in the industry that will lead to long-term growth,” the spokesperson added.

Centralized exchanges prove to be regulators’ allies

In major economies and developed countries, regulators have not been very keen on involving industry players, but those nations that see the future in the nascent tech have actively partnered and on-boarded leading centralized crypto exchanges to not only help them build the infrastructure but also assist them with formulating right policies for the crypto market.

Binance recently signed a memorandum of understanding with Kazakhstan to help fight financial crimes. The program further aims to identify and block digital assets obtained illegally and used to launder criminal proceeds and finance terrorism. Similarly, Busan onboarded Huobi to develop blockchain infrastructure in the region.

Many countries already regulate centralized exchanges, but there is still a lot of uncertainty about what regimes apply and how they will be enforced. For example, United States-based exchanges operate under licenses from the Financial Crimes Enforcement Network but have been alleged to list tokens and offer financial products (like derivatives, staking and interest-bearing deposits) that fall under the purview of the Securities and Exchange Commission or the Commodity Futures Trading Commission.

The Lummis–Gillibrand bill is considered one of the most comprehensive pieces of legislation proposed on crypto in the United States. South Africa recently classified crypto as a financial product and will be regulating it accordingly. South Korea implemented strict regulations last year that require exchanges to track all transfers to and from their platform, including identifying the owners of wallets. As a result, exchanges there restricted transfers to and from unverified private wallets.

Thus, it is evident from existing regulations that centralized exchanges have become the main point of interaction for not just traders but regulators as well.

Mohammed AlKaff AlHashmi, co-founder of Islamic Coin, told Cointelegraph that regulating centralized exchanges will help in regulating the broader crypto market, explaining:

“Firstly, it’s Know Your Customer and Anti-Money Laundering. I see that most of the exchanges will outsource it to very famous and authentic KYC/AML entities, as it will bring more reliability and trust rather than doing these procedures by exchanges themselves. Secondly, taxation is an important theme when we talk about regulation. Many countries will regulate crypto if they can do the taxation, and I suggest that exchanges will develop the taxation on the crypto transactions and be the one who collects this data and hand it over to the government.”

Habeeb Syed, senior associate attorney at Vicente Sederberg and co-organizer of the Blockchain Technology, Law and Policy Meetup, told Cointelegraph, “Crypto exchanges often determine the winners and losers of the crypto world, as listed on one is an almost surefire way to raise your token price and provide early investors an opportunity for liquidity. Well-thought-out regulation of centralized exchanges could also ripple out into the broader ecosystem.”

He added that regulating crypto exchanges would force legitimate projects to know they can’t engage in certain acts “if they ever want to list a token on say Binance, FTX or Coinbase, which would be a powerful motivating force. With regulated options for trading, staking and lending, actors could choose to forego riskier and unregulated DeFi ecosystems.”

Regulators must proceed with caution

Crypto exchanges play a central role in the vast crypto ecosystem, as they have numerous services and facilities with many trying to become an all-in-one platform. Some experts are of the opinion that, while regulating centralized exchanges can certainly be the first step toward broader crypto market regulations, that is not enough to ensure smooth operations for the whole industry.

Aleksandra Shelepova, head of legal at crypto-backed loan service provider CoinLoan, told Cointelegraph:

“When it comes to imposing regulations to any new and evolving market, everything should be done step-by-step. Moreover, the regulators should have a proper understanding of how this market operates in detail, technological aspects included. Regulation should come from the middle-bottom, meaning the contribution of the market’s participants’ know-how is crucial.”

She added that regulating just the exchanges is not enough since there are many popular and widely used crypto products, including crypto loans, deposits, etc. that must be regulated as well. Expanding regulation to all aspects of the crypto environment ensures a unified understanding of the products themselves.

While monitoring centralized exchanges can definitely pave the way for a better understanding of the crypto market, regulators should refrain from a “one size fits all” formula.

Nicole Valentine, fintech director at Milken Institute, told Cointelegraph that regulators should be more focused on decentralized platforms:

“Just like there is variation in the digital assets themselves, there is variation in the types of exchanges that enable buyers and sellers to trade those digital assets. Although regulating centralized exchanges can be seen as helpful, there are nuances in decentralized exchanges that should be considered, including the use of digital wallets and smart contracts.” 

Centralized exchanges are a key part of the cryptocurrency ecosystem; they are where most new crypto users go to buy their first coins. Many leading centralized exchanges already have strict onboarding and identification procedures in place and would welcome more clarity from regulators on questions such as whether or not digital assets are securities.

Increased regulation for centralized exchanges is a double-edged sword where, on one hand, it would lead to more new interactions and greater adoption, but on the other hand, increased regulation may drive the more experienced crypto users toward decentralized exchanges, something that experts believe regulators would have a hard time dealing with.

Institutional crypto adoption requires robust analytics for money laundering

Large financial institutions are getting involved in digital assets by investing capital, time and effort into on-chain analytics solutions.

Institutions have begun to take crypto seriously and have entered the space in numerous ways. As noted in a previous analysis, this has resulted in banks and fintechs looking at custody products and services for their clients. 

However, as custodians of clients’ assets, banks must also ensure they are clean assets and stay compliant.

This is where on-chain analytics solutions have a huge role to play in understanding patterns in transactions to identify money laundering and other spurious activities within the cryptocurrency and digital assets space. According to a report by Chainalysis, over $14 billion of illicit transactions took place in 2021.

Therefore, it is critical to build the foundational infrastructure around Anti-Money Laundering (AML) to support the growing institutional appetite for digital assets. Before getting into various types of money laundering patterns that exist in crypto, let us understand what an on-chain analytics solution is.

What are on-chain analytics?

All transactions on public blockchains are visible to anyone. Analytics tools query these blockchains to help us understand trends in transactions. Platforms like Glassnode, Nansen and Dune analytics offer ways for retail audiences to see the flow of money in the ecosystem.

Using on-chain analytics, it is possible to see the net flow of Bitcoin (BTC) into crypto exchanges from private wallets. This typically happens when someone chooses to sell their Bitcoin on an exchange. The net outflow of BTC from exchanges, on the other hand, represents someone wanting to hold on to their Bitcoin. Both actions have implications on the price of the asset.

However, at an institutional level, on-chain analytics can help with identifying spurious transactions. Firms like Chainalysis, Elliptic and Coinmetric are critical for banks to build digital assets capabilities that are foundational as this asset class grows in significance.

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Banks already have mechanisms in place to check for money laundering and terrorist financing activities. Therefore, any digital assets-related AML solution must ensure alignment with a bank’s existing AML controls.

What are money laundering patterns?

There are patterns that banks must keep an eye on to spot money laundering and other illicit activities. Referred to as “typologies” in traditional AML frameworks, not all of them are unique to the digital assets industry. However, on-chain analytics solutions can proactively track them.

Layering

Layering involves converting one crypto into another or moving assets from one chain to another. It makes AML efforts incredibly harder if there are multiple small-sized transactions that are generally beyond the monitoring radars.

Layering can also involve blending crypto assets across different exchanges and sources, making it harder to trace back to the original source of the assets.

Money mules

A money mule is someone who receives crypto assets from a third party and sends it over to another party. Alternatively, they could withdraw assets as fiat cash and hand it over to someone else and receive a commission for this.

Money mules are typically used when criminal syndicates want to be anonymous yet keep their money flowing through the system.

Dusting

Dusting involves creating many small transactions across several wallets that trigger AML monitoring systems. These small transactions would clog the pipeline of AML support teams whose workload increases and make them overlook the illicit transaction that really needed their attention.

Wallet laundering

Wallets used by crypto users make it hard to trace owners. As a result, a money launderer could just hand over the custody (private keys) of their wallet with assets in it to another party. In turn, they would receive payment in crypto on another wallet, thereby making the two transactions seem completely unrelated.

Darknet transactions and mixers

The darknet is an overlay network on the internet that is accessible through special software and configurations. It has earned a reputation for hosting anonymous illicit activities like drugs and arms sales.

Many platforms have flagged crypto addresses from darknet users and marketplaces and do accept assets that are sent therefrom.

However, some illicit actors have taken to crypto mixing services like Tornado Cash to hide the providence of their crypto.

Tornado Cash scrambles crypto transactions in an attempt to anonymize assets that have entered the platform, hiding their point of origin. It has become so associated with perceived criminality that the United States Treasury’s Office of Foreign Assets Control sanctioned the platform in August, and many trading platforms will not touch coins that came from a mixing service.

How are banks addressing this issue?

The money laundering methods described above are not exhaustive. A recent report from Elliptic covers over 41 typologies (patterns) observed within the digital assets space.

So, given the myriad ways that illicit actors attempt to use digital assets for money laundering, how can banks react?

Robust Know Your Customer (KYC) standards are a good starting point when onboarding digital assets customers. However, proactive screening and transaction monitoring should be in place through on-chain analytics solutions.

These solutions can automate AML and sanction checks, identify address clusters associated with illicit activities, map the flow of digital assets across addresses to perform forensic analysis and monitor how assets are moved through activities related to dark-web markets, smart contract frauds, oracle hacks, cross-chain bridge hacks and more.

Furthermore, banks and fintech firms have ramped up their digital assets AML capabilities through partnerships with on-chain analytics firms, as the below graphic shows. 

Even though Barclays began its journey with Chainalysis in 2015, this space really has taken off only in the last 18 months. Be it investments or partnerships, it is highly critical that before offering custody services, banks must put AML controls in place to ensure they are handling clean assets. 

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More institutional capital has flown into the digital assets space in the last two years. At the same time, more innovative models have emerged in cross-chain bridges, decentralized finance, nonfungible tokens and transaction mixers.

In order to protect assets while innovating at breakneck speed, AML and transaction monitoring controls must be in place. That is essential to keep attracting more institutional capital into digital assets.

Zero-knowledge KYC could solve the privacy vs compliance conundrum — VC partner

Zero-knowledge Know Your Customer (KYC) would allow businesses to adhere to strict AML/CTF rules while ensuring customer privacy.

As the Web3 industry matures, zero-knowledge Know Your Customer (zkKYC) is becoming more widely discussed as a means to comply with strict financial regulations while maintaining user privacy, according to the partner of a venture capital firm.

In an interview with Cointelegraph, John Henderson, partner at Australian-based venture capital firm Airtree Ventures, said the successful implementation of a zkKYC system would be “great news for both regulators and consumers” and could increase cryptocurrency adoption:

“Institutions and retail users are more likely to participate in DeFi if they can be confident that they are complying with their AML/CTF obligations.”

Henderson explained a zkKYC system would allow users to prove certain things about themselves to service providers without having to divulge personally identifying data such as their names or identification documents.

In theory, the sharing of that information would be enough to satisfy Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) regulatory requirements placed on the crypto industry:

“[The system] involves a trusted third party validating my personal information and then issuing a cryptographic proof to my personal wallet, which I could then choose to share, or share attributes of, with financial service providers.”

The benefit of such an approach is that no personally identifying information could be leaked in the event of a security breach of a service provider such as a crypto exchange, Henderson claims, with the identification documents only recoverable when required by authorities.

Many in the crypto community have been critical of the way their personally identifiable information has been handled by some crypto platforms.

Recently, the community shared their concerns after court documents published on Oct. 5 publicly disclosed the personal information and transaction history of thousands of Celsius customers, with some warning they could be used to dox users.

Calls to improve privacy for individuals were also loudly sounded at the September Converge22 conference in San Francisco. 

Jeremy Allaire, CEO of stablecoin issuer Circle, expressed the need for “advancements” in technologies that prove identities and credentials while simultaneously ensuring individuals’ privacy.

Related: Are decentralized digital identities the future or just a niche use case?

Henderson however admitted that “storage of sensitive information is still an unsolved problem,” sharing two ideas on how the management of such information could take place:

“One idea would be to have trusted entities hold identity documents off-chain and port proof of identity on-chain, without the original documents. Another idea is to sign a wallet transaction with a regulatory institution, who would then register that account with an identity.”

Despite the challenge, Henderson was adamant a zkKYC protocol will form the “building blocks of on-chain reputation scores” allowing “more useful” financial products and services.

“My priority is onboarding the next hundred million users to crypto,” he said, “If we want to achieve internet scale, we need a solution for AML/CTF compliance.”

Airtree Ventures led a $4.7 million seed round into ReputationDAO on April 13, a decentralized autonomous organization that aims to provide a financial reputation and identity service for decentralized finance (DeFi).

Japan preparing amendment to enforce FATF travel rules on crypto by May 2023: Report

Meeting international Anti-Money Laundering standards is the latest in a series of measures Japan has taken in recent months to improve its cryptocurrency regulation.

Japan is expected to enact new rules on money transfers to prevent the use of crypto for money laundering, according to local news agency Nikkei. The changes will bring Japan up-to-date with Financial Action Task Force (FATF) recommendations.

An amendment to the Act on Prevention of Transfer of Criminal Proceeds will be introduced in the National Diet on Oct. 3 that will add crypto to the so-called travel rules on money transfers, Nikkei reported. The rules will be amended to require exchange operators to collect customer information in transactions involving cryptocurrency and stablecoins — as they already do for cash transactions.

The Foreign Exchange and Foreign Trade Act and the International Terrorist Asset-Freezing Act will be updated to reflect the same changes, which will go into effect in May 2023. The amendment foresees the issuance of “administrative guidance and corrective orders” to exchanges that break the new rules, with criminal penalties for violations of thecorrective orders.

The amendment will incorporate into Japanese law recommendations the FATF introduced in 2019 and updated in 2021 for virtual asset service providers. The FATF is an intergovernmental money laundering and terrorist financing watchdog. The agency has had limited success with the adoption of its Travel Rule. According to a report released in April, hardly more than half of the countries surveyed by the FATF had adequate Combating the Financing of Terrorism (CFT) and Anti-Money Laundering (AML) laws and regulations.

Related: After four years, Japan brings back its first crypto ATM

Japan has taken important steps to regulate crypto in recent months. The parliament passed a law to limit the issuance of stablecoins by non-bank institutions in June. In July, the Ministry of Economy, Trade and Industry opened a Web3 Policy Office to foster the Web3 business environment. In addition, there are reports that the Financial Services Agency, the Japanese tax authority, is considering easing the punishing capital gains rates on crypto assets after extensive outcry within the industry.

Israeli crypto exchange receives capital markets license in country first

Earlier this week, the Israeli crypto exchange became the first crypto firm in the country to receive a license enabling it to work with local banks.

Israeli-based crypto exchange Bits of Gold became the first crypto firm in the country to receive a license from the Capital Markets Authority, according to social media posts from the company on Sunday.

As a result of attaining the license, Bits of Gold will be able to store digital currencies through secured custody in a “Bits of Gold Wallet” they have been working on for some time. It will also start providing a service that enables banks and other financial institutions to connect to its digital asset services.

In a public statement, Bits of Gold said that the license is the next step in its mission to make the world of digital currencies more accessible to the Israeli public “in a simple and secure manner.”

Authorities in Israel have been putting restrictions on cash payments in the country as it tries to combat illegal activity and drive a transition to digital payments within the country.

Despite that, institutional adoption in the country has been slow with Israeli banks having been very unfriendly toward crypto and blocking services until recently, citing Anti-Money Laundering (AML) issues.

In 2017, the Israeli Supreme court ruled that local bank Leumi was legally allowed to refuse service to Bits of Gold, with the bank claiming that Bitcoin’s (BTC) nature made it impossible for them to follow AML requirements.

The Supreme Court’s position had changed by 2019, however, when it ruled that Leumi could not block Bits of Gold’s account based on regulatory concerns, and in doing so set a precedent for other cryptocurrency firms.

The enforcement of new AML regulations by the government in Israel further opened the path to cooperation between banks and the crypto industry. The development also set a requirement that crypto companies must be licensed, although companies that applied for one were given a permit to temporarily continue their operations.

Related: Coinbase enters the Netherlands with central bank approval

Another barrier to institutional adoption in Israel is its taxation laws. The country was recently ranked as the third worst country for crypto taxation, according to a report released by crypto analytics firm Coincub on Sept. 8.

According to Coincub, sales of crypto are generally subject to a capital gains tax of up to 33% in Israel and if the investing activity is deemed to be business related, it is subject to income tax of up to 50%.

While the Capital Market, Insurance and Savings Authority had already granted the first Israeli crypto license to infrastructure firm Hybrid Bridge Holdings earlier this month, the license that Bits of Gold received represents the first one given to an active broker.

ePayments shutters as FCA Anti-Money Laundering regulations tighten

The electronic payment provider is permanently closing operations due to the inability to satisfactorily meet the standards of the FCA after suspending operations for three years.

The electronic payments provider ePayments is putting the final nail in the coffin of its operations. ePayments issued email notices to clients on Tuesday, stating that it is officially closing its business operations in light of local regulations.

The financial services provider was one of the largest electronic payment providers in the United Kingdom. However, almost three years ago, it was ordered to cease operations by the U.K.’s Financial Conduct Authority (FCA) due to alleged weaknesses in its “financial crime controls.”

At the time of the initial suspension, it was estimated that ePayments held $149 million, or 127.5 million Great British pounds, in customer funds, which were temporarily inaccessible.

After years of restructuring efforts, the company attributes the final closure to “extremely challenging and unprecedented global economic conditions,” years of halted operations and being unable to satisfactorily meet the FCA’s requirements.

It says funds are safe and encourages former customers to withdraw funds in eWallets and stand by for refund information. Users on Twitter responded to the update with a mixture of relief and frustration, with one user saying he had funds stuck in ePayments since 2020:

While another tweeted to the company that his funds were still inaccessible.

This development comes as the U.K.’s financial regulators have been tightening the reins on the industry. The FCA recruited nearly 500 new employees over the last year in accordance with its new three-year strategy.

One of the positions filled included the newly created director of payments and digital assets which will oversee matters such as e-money, payment and crypto-asset markets. The position was filled by former director at the National Economic Crime Command.

Related: FCA highlights limited role as unregistered businesses continue to operate

While some regulators in the country believe the U.K. cannot afford to send mixed signals as to its stance on digital assets and payment services, it still appears to be the case.

The newly appointed finance minister, Kwasi Kwarteng, has not addressed the issue of crypto regulations and advertising watchdogs recently cracked down on crypto-related ad content on Instagram.

On the other hand, the economic secretary made a statement on Sept. 7 in which he said he wants to make the U.K. a crypto hub and top choice for innovators under the new prime minister.

Indian authorities unfreeze millions in locked WazirX bank accounts

The Indian crypto exchange was under investigation by local authorities for money laundering allegations which caused a freeze on over $8.1 million in bank account funds.

The Enforcement Directorate of India (ED) unfroze the bank accounts of the Indian crypto exchange WazirX, according to a statement from the exchange released on Monda.

WazirX says it has been cooperating with local authorities during their Anti-Money Laundering (AML) investigation by providing all of the necessary documents and details requested. The investigation targeted 16 fintech companies and instant loan apps, some of which solicited services from the exchange.

The exchange, however, said it has a no-tolerance stance toward any illegal activities on the platform. Additionally, it said that most of the targeted users in the ED investigation had already been flagged as suspicious by WazirX and blocked in 2020-2021.

WazirX told Cointelegraph the case is still under investigation, but funds have been unfrozen due to no suspicious activity found, with “no further comment as of now.”

Funds in WazirX bank accounts had been frozen since Aug. 5, when the ED initially announced the investigation. The locked funds amounted to over $8.1 million in total.

The ED’s accusations against WazirX claimed it had processed $130 million in transfers of funds to wallets under investigation for illegal activities. In light of the accusations, Binance, which once tried to acquire the company in 2019, distanced itself from the exchange via a public statement from CZ on Twitter.

Related: Binance sides with Indian regulators in WazirX fallout to cease support for off-chain transfers

Prior to the recent activity, the exchange was under ED investigation in 2021 for money laundering charges related to illegal online gambling proceeds tied to Chinese entities.

This time around, the crackdown on crypto exchanges in the country did not stop with WazirX. On Aug. 12, the ED froze a total of $46.4 million in Yellow Tune’s bank balances and balances from crypto exchange Flipvolt. The allegations were also money laundering related, and the company was accused of being a shell for Chinese entities.

Authorities said the funds would remain unavailable until the exchange can account for the criminal proceeds that it transferred out of the country.

These investigations began to pile up after the Indian government announced crushing new crypto tax regulations, which came into effect earlier this year.