Danish electronic payments provider Nets recently announced a collaboration with Chainalysis, a leading provider of anti-money laundering software for bitcoin. With offices in both New York and Copenhagen, Chainalysis works with financial institutions from around the globe to assess the risk of cryptocurrency usage in banks and other financial systems.
Chainalysis works with Europol and other international law enforcement agencies to analyze data associated with bitcoin usage as a way to track, apprehend, and convict money launderers and other cyber criminals. According to a story published by Ars Technica in 2016, Chainalysis made use of academic research derived from FBI investigations surrounding the infamous Silk Road website – the online black market for drugs and other illegal enterprises.
The research allowed Chainalysis to develop software tools capable of tracing the history of bitcoin payments and wallets. Through a process known as mapping, Chainalysis can create a visualization of bitcoin transactions and map wallets into “clusters.” These maps allow investigators to pinpoint addresses of known entities that are associated with popular darknet websites and cryptocurrency exchanges. In the case of the Silk Road investigations, Chainalysis predecessor, Wallet Explorer, was able to use this technology to confirm several bitcoin transactions, which led to the conviction of a DEA agent who extorted and kept money derived from the Silk Road criminal empire.
According to comments provided to Reuters by Chainalysis CEO, Michael Gronager:
“We can make risk assessments and analyze [blockchain] activities…And banks are interested in being able to risk-score customers, so they do not end up being used for money laundering.”
Gronager further added:
“If a bank’s customer is a risk, the financial institution can choose to send a ‘suspicious transfer report’ to the authorities, which can use our tools to trace and identify the customer.”
Nets, who provides processing services for over 200 payment cards and banks in the Nordic and Baltic regions, aims to use Chainalysis’ tools to supply Nordic banks with blockchain-based solutions for KYC and AML regulation compliance.
Kati Rintala, head of Nets’ fraud and dispute services, gave this statement:
“Several of our customers among the Nordic banks have been looking for an effective tool to assist them in complying with legislation. In fact, I believe many banks have held back on facilitating Bitcoin payments because they didn’t have the tool we are now able to offer them.”
In addition to offering blockchain analysis tools to merchants and banks, Chainalysis’ solutions can also help users fight ransomware threats from cyber criminals who seek to extort cryptocurrency payments from individuals and organizations. Further, the company can collect non-criminal statistics, as they did in June 2016, when Chainalysis determined that 42 percent of all bitcoin transactions for the year were derived from Chinese bitcoin exchanges.
For more details on the inner workings of Chainalysis, readers can view a presentation on YouTube from co-founder Jonathan Levin.