Taiwan recently made its largest money laundering arrest, seizing $320 million in digital assets. The suspect, with ties to gambling and fraud networks, attempted to disguise the origin of the funds through multiple accounts. In response to the challenges of adapting traditional anti-money laundering practices to the evolving crypto regulatory landscape, Gintarė Košubienė, CEO and co-founder of Micapass, emphasizes the need for innovative solutions. Micapass is working on tools to shift the focus from isolated entities to a customer-centric approach, using on-chain KYC and continuous screening of cryptocurrency wallets to prevent sanctioned actors, especially those involved in fraudulent activities, from engaging in crypto transactions.
Korea IT Times interviewed Gintarė Košubienė, CEO and co-founder of Micapass, on how to improve crypto compliance by leveraging on-chain digital identity solutions. Here's the Q&A with Gintarė Košubienė.
ㅡ The recent money laundering case in Taiwan has raised concerns. Can you tell us how this incident highlights the pressing need for more effective AML practices in the crypto world?
The recent money laundering case in Taiwan is one of many in the past and hopefully, one of the few in the future. It highlights that as criminals become more creative, so too must law enforcement.
This case also demonstrates the need not only to detect illegal activities in the crypto space but also to educate crypto asset providers and users about compliance and its importance. Moreover, it underscores the significance of all preventive solutions; preventing bad actors from laundering money is much easier and cheaper than catching them after the fact.
ㅡ What was the main inspiration behind the development of Micapass's on-chain KYC and crypto wallet screening solution? Was there a specific "a-ha" moment that sparked this idea?
The main inspiration behind the development of Micapass's on-chain KYC and crypto wallet screening solution came from the infamous Tornado Cash scandal, which involved a mixer in a massive $500 million money laundering case. Mixers are protocols designed for private investments but can be misused for laundering money.
The team at Micapass analyzed this event and identified a niche, realizing that their solution could merge the best of both worlds without compromises. With Micapass, users can still invest privately, but the protocol can effectively prevent illicit funds from accessing the system, thereby avoiding its use by money launderers.
This realization might have been the "a-ha" moment for the team, sparking the idea for a solution that balances privacy with effective anti-money laundering measures.
ㅡ How does Micapass strike a balance between ensuring robust compliance measures and respecting the privacy of individuals involved in crypto transactions?
This balance is one of our competitive edges. Our innovative solution allows people to undergo KYC/AML processes without disclosing personal data to virtual assets service providers. We achieve this by saving evidence of the AML screening in the user's digital identity, it’s like a stamp on-chain that you are a good actor according to AML screening results. There's no need to retain information about who the person is without sufficient “must to know” request by legal forces.
ㅡ How do you envision the shift from isolated entity-focused AML practices to a compliance-to-the-edge model transforming the current landscape? Could you provide an example of how this would practically play out?
In the traditional approach, financial institutions exclusively handled compliance, resulting in users lacking ownership of their data and having to undergo repetitive KYC/AML procedures for each new platform or bank. This not only posed inconvenience for users but also led to challenges for financial institutions in keeping up with the rising costs of AML policies, prompting some to cut corners. Additionally, regulators faced difficulties tracking traces due to inefficiencies in data exchange among counterparties. The current landscape, therefore, reflects a pressing need for a more collaborative and efficient model that addresses these challenges from various perspectives.
With Micapass, however, users own their data and can "travel" with this data from one protocol or virtual asset service provider to another without needing to repeat KYC/AML or wallet screening processes. Having this data, virtual asset service providers can operate with it, run through its own risk appetite profile and make a decision to allow or disallow users to use the service. Compliance-to-the-edge model is also beneficial for regulators, overseeing digital asset traces attached with AML data; it is their ultimate goal to prevent illegal activities.
This shift will take time, especially in the crypto ecosystem where pseudo anonymity is often viewed as fundamental. But the path to making this space safer and achieving mass adoption hinges on compliance. We are confident that data ownership and mass adoption will be key factors in transitioning compliance responsibilities from businesses to individuals.
ㅡ With the ever-evolving tactics used by money launderers, how can Micapass stay ahead and help prevent illicit funds from entering DeFi protocols?
Micapass operates not as a one-time solution but as a real-time, ongoing AML check. In the event of a change, Micapass adapts and automatically applies new rules.
Additionally, Micapass collaborates closely with various institutions, organizations, and partners, including Chainalysis and Ondato, continually updating and adapting to the ever-changing situation.
ㅡ Collaborations are often crucial in such complex endeavors. Can you share any interesting partnerships or collaborations that Micapass has established to enhance the adoption and effectiveness of its compliance solution?
We are in close cooperation with Chainalysis, a leading blockchain data analysis firm, and Ondato, an innovative KYC provider. Additionally, we are discussing new partnerships with other KYC and wallet screening providers in various regions around the world.
We are also forging partnerships with other digital solutions, such as Digital Social ID, to incorporate social reputation and credit score into our model as additional proofs of legitimacy.
ㅡ Different players in the crypto world have unique needs. How does Micapass cater to the specific requirements of various entities like CASPs, VASPs, and DeFi protocols while ensuring a cohesive approach to compliance?
Regardless of the entity and its status, compliance is essential. From a technical standpoint, for decentralized protocols, we offer easy protocol-to-protocol integration, which helps save costs and time. For entities that are not decentralized, we provide an API-based solution. For those in between, we can act as a gateway between Web2 and Web3.
ㅡ Looking to the future, what exciting developments or changes do you anticipate in the crypto regulatory landscape, and how is Micapass preparing to tackle these upcoming challenges?
We are confident that compliance will be a key element in achieving real mass adoption of blockchain technology, and we are at the forefront of this journey. We are the first to offer not just a one-time, but a real-time ongoing AML compliance solution for instant crypto payments. We are also pioneers in offering the ability to invest privately while remaining compliant. But our innovation doesn’t stop there.
We are currently developing an AI-based model that will help detect and flag suspicious transactions not after they happen, but before. This model will analyze potential threats and inform virtual asset providers to address them.
This development will assist us in tackling upcoming challenges and maintaining our leadership in real-time AML for the crypto asset space.
ㅡ Every solution comes with its own set of limitations. Could you highlight any potential challenges or drawbacks that Micapass has encountered during the development and implementation of the compliance-to-the-edge approach?
Education plays a significant role in this process, and it's neither easy nor quick. However, we are observing a shift in the perspectives of opinion leaders in this space. They are growing weary of the scam-ridden image of cryptocurrency and are keen to elevate its reputation to where it truly belongs.
Cryptocurrency is a remarkable but relatively new technology. Most users are still in the early stages of exploring it, so influencing their behavior now – before they become accustomed to certain practices – is our opportunity to foster a compliant and clean ecosystem.
ㅡ How does Micapass plan to navigate the varying regulatory environments across different jurisdictions while ensuring the consistency and effectiveness of your compliance solution worldwide?
Micapass is a technological solution, capable of adapting to any rules applied to it. The AML risk appetite is determined by the virtual asset provider; they set the rules, and Micapass assists in implementing them. It's a borderless solution designed for a world with and without borders.
