Proposal for Customer Identification Service Model Based on Distributed Ledger Technology to Transfer Virtual Assets

Abstract

Recently, cross-border transfers using blockchain-based virtual assets (cryptocurrency) have been increasing. However, due to the anonymity of blockchain, there is a problem related to money laundering because the virtual asset service providers cannot identify the originators and the beneficiaries. In addition, the international anti-money-laundering organization (the Financial Action Task Force, FATF) has placed anti-money-laundering obligations on virtual asset service providers through anti-money-laundering guidance for virtual assets issued in June 2019. This paper proposes a customer identification service model based on distributed ledger technology (DLT) that enables virtual asset service providers to verify the identity of the originators and beneficiaries.

The implications of national blockchain infrastructure for financial crime

“…However, they did emphasise that identification and prosecution was subject to strict adherence to Customer Due Diligence (CDD) and Know Your Customer (KYC) regulations on the part of cryptocurrency exchanges. Effective implementation of this would allow law enforcement agencies to rely upon the information collected to trace transactions, so the importance of collecting and verifying customer information has led to KYC verification systems being proposed, to reduce cost and combat money laundering (Moyano and Ross, 2017; Park and Youm, 2021).…”

“…Trozze et al (2022) focused on fraud-related financial crimes and concluded that Ponzi/high-yield investment programme schemes and ICO scams were the most common cryptocurrency frauds at the present time. Greater efforts are being made by law enforcement agencies to identify and detect financial crimes committed using cryptocurrencies (Farrugia et al , 2020; Gandal et al , 2018; Grobys, 2021; Kamps and Kleinberg, 2018; Park and Youm, 2021; Rognone et al , 2020; Shi et al , 2019; Sureshbhai et al , 2020).…”