AFC CHALLENGES
4 ) Offshore wiring instructions : Many rug pulls advertise on social media , where customers can wire funds . As with many financial scams , institutions need to understand why a crypto trading platform or new token is widely advertising international wire instructions .
EDD
Financial institutions ( FIs ) and governments should , at minimum , conduct enhanced due diligence ( EDD ) when reviewing any cryptocurrencybased entity .
The questions below are a starting point to consider when creating an EDD checklist or questionnaire :
• Who are the current natural beneficial owners ?
• How are the organizational structures related and do the organizations share addresses ?
• Who are the board of directors and do these directors have an affiliation with negative news ?
• How are funding rails constructed ? Are they offshore or within a high-risk jurisdiction ?
• Is there negative news regarding issues with capital withdrawals or trading functions ?
• Was the project ’ s code reviewed and verified by a developer ?
• Are there legitimate independent audits performed and not Proof of Reserve reports ?
If the crypto-based entity is evading these due diligence questions , investigators should request enhanced documentation before entering or accepting any business relationship . Legitimate cryptocurrency entities that have relationships with any larger institution will understand these reasonable requests and attempt to comply with the above due diligence questionnaire .
Conclusion
As hundreds of rug pulls are created daily , institutions and governments need to conduct more due diligence . With centralized crypto exchanges still having $ 11.2 billion worth of direct and indirect exposure belonging to scam token deployers , these fraudsters will continue to integrate funds through our financial ecosystems . 7 FIs and cryptocurrency entities can help reduce the amount of rug pull fraud by conducting more EDD with the guidance of rug pull typology indicators .
Josh Ortner , CAMS , OH , USA
1
“ The 2022 Rug Pull Report ,” Solidus Labs , https :// www . soliduslabs . com / reports / rug-pull-report
2
Rosie Perper , “ What Is a Rug Pull ? How to Protect Yourself From Getting ‘ Rugged ,’” CoinDesk , August 30 , 2022 , https :// www . coindesk . com / learn / what-is-a-rug-pull-howto-protect-yourself-from-getting-rugged
3
“ The 2022 Rug Pull Report ,” Solidus Labs , 2022 , https :// www . soliduslabs . com / reports / rug-pull-report
4
Ibid .
5
“ The 2023 Crypto Crime Report ,” Chainalysis , February 16 , 2023 , https :// go . chainalysis . com / rs / 503-FAP-074 / images / Crypto _ Crime _ Report _ 2023 . pdf
6
Omar A ., “ What is a Rug Pull in Crypto ? Beginner ’ s Guide ,” Finbold , November 23 , 2022 , https :// finbold . com / guide / rug-pull-definition /
7
Jocelyn Yang , “ Crypto Adds Unsavory Footnote to Dreadful 2022 : Year of the Rug Pull ,” CoinDesk , December 23 , 2022 , https :// www . coindesk . com / markets / 2022 / 12 / 23 / crypto-adds-unsavory-footnote-to-dreadful-2022-year-of-the-rug-pull
16 acamstoday . org