ACAMS Virtual Assets and Cryptocurrency AML 2 — Questions and Answers
Question 1: Which of the following is a primary red flag indicator of potential money laundering in cryptocurrency transactions?
- A customer who consistently uses the same wallet address for all purchases
- Multiple small cryptocurrency purchases that aggregate just below reporting thresholds (Correct answer)
- A customer who requests a paper statement of their crypto holdings
- Transactions conducted during standard business hours in the customer's time zone
Correct answer: Multiple small cryptocurrency purchases that aggregate just below reporting thresholds
Structuring — breaking transactions into amounts just below reporting thresholds — is a classic red flag whether conducted in fiat or cryptocurrency, as it suggests deliberate avoidance of AML controls.
Question 2: What are 'privacy coins' such as Monero (XMR) and Zcash (ZEC), and why are they of heightened concern for AML compliance?
- Coins backed by physical gold that make transaction values unpredictable
- Cryptocurrencies that use cryptographic techniques to obscure transaction amounts, sender, and receiver addresses (Correct answer)
- Stablecoins that automatically convert to fiat at regulatory thresholds
- Tokens that require multi-signature approval, slowing down transaction monitoring
Correct answer: Cryptocurrencies that use cryptographic techniques to obscure transaction amounts, sender, and receiver addresses
Privacy coins use cryptographic methods (e.g., ring signatures, zk-SNARKs) to shield transaction details, making blockchain analytics extremely difficult and raising the risk that illicit funds cannot be traced.
Question 3: In a decentralized exchange (DEX), what is the primary AML compliance challenge compared to a centralized exchange (CEX)?
- DEXs charge higher transaction fees that complicate fund tracking
- DEXs typically operate without a central operator to collect KYC data or file SARs (Correct answer)
- DEXs are only available in non-sanctioned jurisdictions
- DEX transactions are too slow to be useful for money laundering
Correct answer: DEXs typically operate without a central operator to collect KYC data or file SARs
DEXs facilitate peer-to-peer trading via smart contracts without a central intermediary, meaning there is typically no entity responsible for performing KYC, monitoring transactions, or filing suspicious activity reports.
Question 4: What is 'dusting' in the context of cryptocurrency, and how can it relate to AML concerns?
- Sending microscopic amounts of crypto to multiple wallets to de-anonymize their owners by tracking subsequent transactions (Correct answer)
- Disposing of unwanted cryptocurrency by sending it to a burn address
- Dividing cryptocurrency into tiny amounts to avoid exchange minimum thresholds
- A method of encrypting wallet keys using quantum-resistant algorithms
Correct answer: Sending microscopic amounts of crypto to multiple wallets to de-anonymize their owners by tracking subsequent transactions
Dusting attacks involve sending tiny ('dust') amounts of cryptocurrency to many wallets; when recipients move these funds, their wallet clusters can be linked, potentially de-anonymizing them — a tactic sometimes used by investigators or malicious actors.
Question 5: Which approach do blockchain analytics firms (e.g., Chainalysis, Elliptic) primarily use to link cryptocurrency wallet addresses to real-world entities?
- Accessing private keys stored on cryptocurrency exchanges
- Clustering wallet addresses based on shared inputs and known exchange deposit patterns (Correct answer)
- Monitoring social media for public wallet address disclosures
- Reviewing tax filings submitted by cryptocurrency holders
Correct answer: Clustering wallet addresses based on shared inputs and known exchange deposit patterns
Blockchain analytics firms cluster wallet addresses using heuristics such as common-input-ownership (wallets spending from the same transaction are likely controlled by the same entity) and tagging known exchange deposit addresses to attribute wallets to real-world entities.
Question 6: Non-Fungible Tokens (NFTs) present a money laundering risk primarily through which mechanism?
- NFTs can be secretly converted to fiat currency without triggering reporting
- Wash trading — selling NFTs to oneself at inflated prices to layer illicit funds (Correct answer)
- NFTs are exempt from AML regulations in all jurisdictions
- NFT platforms do not require internet connectivity, avoiding transaction records
Correct answer: Wash trading — selling NFTs to oneself at inflated prices to layer illicit funds
Wash trading in NFTs — where a seller transfers an NFT to themselves or a colluding party at an artificially high price — allows illicit funds to enter the market as 'sale proceeds,' effectively layering and integrating dirty money.
Question 7: What does the term 'unhosted wallet' (also called 'self-hosted' or 'non-custodial wallet') mean in the context of VASP regulation?
- A wallet hosted on a regulated exchange that the user cannot directly access
- A cryptocurrency wallet controlled directly by the user without a third-party custodian (Correct answer)
- A shared wallet used by multiple businesses under a single compliance program
- A wallet that has been frozen by a government authority pending investigation
Correct answer: A cryptocurrency wallet controlled directly by the user without a third-party custodian
An unhosted (non-custodial) wallet is one where the individual holds their own private keys without relying on a third-party VASP, posing AML challenges because regulators cannot easily impose KYC requirements on transfers to or from these wallets.
ACAMS Virtual Assets and Cryptocurrency AML 2
Which of the following is a primary red flag indicator of potential money laundering in cryptocurrency transactions?