Transaction Monitoring

Transaction monitoring in digital assets means automated surveillance of wallet activity for anti-money laundering and counter-terrorism financing red flags, typologies, or sanctions risks under FATF and FinCEN standards, enabling detection and reporting of suspicious patterns requiring investigation or Suspicious Activity Report filing.

Systems like Chainalysis KYT (Know Your Transaction) score transactions against known-risk addresses including darknet markets, mixing services, sanctioned entities, ransomware wallets, and stolen fund repositories. Common red flags include rapid in-and-out transfers across anonymous wallets, multiple accounts linked to mixers or sanctioned entities, structuring to avoid reporting thresholds, transactions inconsistent with customer business profile, and geographic patterns suggesting sanctions evasion.

Effective programs integrate blockchain analytics tools, FATF money laundering typologies, and machine learning algorithms to flag risk events in real time for analyst review. Transaction monitoring must be calibrated to institution's risk profile, customer base, product offerings, and geographic exposure, with thresholds and rules periodically tested and tuned to balance detection effectiveness against false positive volumes. Regulators expect ongoing monitoring of both individual transactions and behavioral patterns over time, with escalation procedures for confirmed suspicious activity, documentation of investigation outcomes, and timely SAR filing when required. Failures in transaction monitoring have been central to major enforcement actions against crypto exchanges for BSA violations.