Cryptocurrencies operate outside traditional financial systems, making them attractive to criminals looking to move money under the radar. But when effective compliance is in place, it becomes much harder for bad actors to exploit the system. For example, AML practices help spot and stop attempts to launder illicit funds, shield crypto platforms from illegal activity, and keep companies on the right side of the law, avoiding hefty fines and sanctions.

The world of crypto doesn’t exist in a regulatory vacuum. At the forefront of international oversight is the Financial Action Task Force (FATF), a global watchdog that creates guidelines to combat money laundering and terrorist financing. FATF’s influence extends across more than 200 jurisdictions, from the United States and the European Union to Russia and China, shaping the rules of the game for cryptocurrency services. One of its key directives, the Travel Rule, requires crypto platforms to share specific customer details for transactions above $1,000. This includes the sender’s name, address, and identification information, as well as data about the recipient. While FATF’s recommendations aren’t legally binding, ignoring them can land a country on the FATF’s “gray” or “black” lists—labels that come with significant economic consequences, such as restricted access to global financial markets and a tarnished reputation.

Countries on the gray list, such as Algeria, Bulgaria, and South Africa (as of October 2024), are under heightened monitoring but have pledged to address their regulatory shortcomings. The black list, however, is reserved for high-risk nations like North Korea and Iran that fail to cooperate with FATF standards. These nations face severe sanctions and financial isolation.

Beyond FATF, other international frameworks also play critical roles. In the EU, the Anti-Money Laundering Directive (AMLD) and Markets in Crypto-Assets Regulation (MiCA) provide stringent guidelines for cryptocurrency services, aiming to create a harmonized legal environment. In the U.S., FinCEN (Financial Crimes Enforcement Network) enforces anti-money laundering rules tailored to the crypto space. Meanwhile, in the Commonwealth of Independent States (CIS), crypto regulation remains fragmented, with countries often focusing on partial controls like banning cryptocurrencies as payment tools or taxing mining activities.

Cryptocurrency markup plays a vital role in ensuring robust AML compliance by classifying blockchain addresses and transactions based on their connections to specific activities, sources of funds, or risk levels. This process provides a deeper understanding of the behavior within the crypto ecosystem, helping to identify legitimate, suspicious, or illegal activities. By categorizing transactions—for instance, as originating from exchanges, mixers, or high-risk addresses—markup offers essential insights into the origins of digital assets, enabling a proactive approach to risk management and regulatory adherence.

Markup serves several crucial purposes. It enables a deeper understanding of asset origins, separating lawful transactions from those linked to money laundering or other illicit activities. It also simplifies AML compliance by minimizing exposure to unknown or high-risk entities. For crypto companies, this can mean meeting regulatory requirements more efficiently and avoiding penalties.

“Dirty crypto”—digital assets tied to illicit activities—is identified through various reliable data sources, including sanctions lists like those maintained by OFAC, law enforcement investigations, public reports, and darknet marketplaces such as Silk Road and Hydra. Analytical platforms aggregate these data points, enabling crypto companies to monitor risky addresses and streamline compliance workflows. Among the categories identified through cryptocurrency markup, some stand out as globally recognized high-risk areas that demand special attention. These include sanctions, terrorism, narcotics, human trafficking, ransomware, and child exploitation. Transactions linked to these activities pose severe threats and are considered priorities in the fight against crypto-related crime. Engaging with such addresses is strictly prohibited and can lead to serious consequences, including account blockages, legal sanctions, and criminal liability.

In addition to these high-risk areas, certain borderline categories also require heightened scrutiny. Mixers, such as Tornado Cash and Blender.io, are tools used to obscure the origins of cryptocurrency. While they are not inherently illegal, their frequent use in laundering illicit funds makes any transactions involving mixers highly risky. Cross-chain bridges, including Across Protocol, Stargate Finance, Transit Swap, and Defiway Bridge, enable transfers between blockchains. However, they are often exploited by malicious actors to hide transaction trails, creating compliance challenges. Gambling-related transactions also present significant risks, as their legality varies by jurisdiction. In countries like North Korea and Iran, gambling is strictly prohibited, making such transactions inherently risky for compliance.

These categories require meticulous monitoring, as their misuse can lead to involvement in illegal activities and expose companies to regulatory and operational risks. By addressing these challenges effectively through comprehensive markup and AML frameworks, companies can ensure safer and more transparent participation in the evolving cryptocurrency ecosystem.

It is important to note that while there are many data providers offering cryptocurrency markup services, the reliability of their data is critical. Companies must carefully evaluate where these providers source their information. Data must be accurate, up-to-date, and refreshed frequently to remain useful. In this regard, it’s beneficial to rely on providers who are not only analysts but also active investigators. Providers who work daily on uncovering illegal blockchain activity and maintain a strong network of reliable data sources are best positioned to deliver actionable insights.