Blockchain analytics refers to the process of analysing transaction data recorded on public blockchains to detect suspicious activity, trace flows of value, and identify potential money laundering or sanctions evasion. It is widely used by regulators, law enforcement, and specialized vendors to follow the movement of cryptocurrencies such as Bitcoin and Ethereum.
In AML compliance, blockchain analytics provides visibility into pseudonymous wallets and helps identify risks associated with illicit finance, ransomware, and sanctioned digital asset addresses. However, not all compliance providers offer blockchain analytics, many, like Facctum, focus on the fiat side of compliance, ensuring that when customers on-ramp funds into the regulated financial system, proper screening controls are applied.
Blockchain Analytics
Blockchain analytics is the application of advanced tools and algorithms to decode blockchain transaction patterns, cluster related wallets, and flag suspicious flows of value. It helps investigators determine whether assets passing through an exchange or payment gateway are linked to known illicit activity.
According to the Financial Action Task Force, blockchain analytics is important for identifying risks in the virtual asset sector, particularly in relation to virtual asset service providers (VASPs).
Why Blockchain Analytics Matters In AML
Blockchain analytics matters because digital assets can be exploited for money laundering, sanctions evasion, or terrorist financing. Without visibility into blockchain transaction flows, regulators and financial institutions would struggle to address these risks.
However, blockchain analytics is only one part of the compliance puzzle. For financial institutions operating in fiat currency, compliance obligations are primarily met through:
Customer Screening during onboarding to identify sanctioned or high-risk individuals
Payment Screening when customers on-ramp fiat currency into financial systems
Transaction Monitoring to detect suspicious behavior across traditional payments
This ensures that risks are mitigated at the point where crypto assets intersect with the regulated fiat economy.
How Blockchain Analytics Works
Blockchain analytics uses a combination of:
Transaction Graphs: Mapping wallet-to-wallet flows to uncover hidden relationships
Wallet Clustering: Grouping pseudonymous wallets under common ownership
Attribution Databases: Linking wallets to known exchanges, darknet markets, or illicit services
Machine Learning Models: Detecting suspicious patterns and anomalies in crypto flows
While these methods are powerful for analysing crypto activity, they do not replace traditional fiat compliance controls. Institutions still need to enforce sanctions and AML obligations through fiat-side screening.
Blockchain Analytics And Fiat-Side Compliance
Financial institutions handling fiat transactions intersect with blockchain only during on-ramping or off-ramping, when customers convert between fiat and crypto.
At these points, compliance responsibilities include:
Screening customer names against sanctions and PEP lists
Screening fiat payments for prohibited entities
Applying enhanced due diligence for higher-risk crypto-related activity
This approach ensures compliance obligations are met without requiring full blockchain analytics capabilities.
The Future Of Blockchain Analytics In Compliance
The future of blockchain analytics will likely involve deeper integration with traditional compliance frameworks.
Key trends include:
Stronger regulatory expectations for VASPs to use blockchain analytics
Collaboration between regulators and analytics providers to improve transparency
Hybrid systems where blockchain risk signals inform fiat-side Transaction Monitoring
Greater alignment between blockchain analytics and traditional AML frameworks, ensuring consistency across both crypto and fiat ecosystems
Strengthen Your Fiat AML Compliance With Effective Screening
While blockchain analytics helps address risks in the digital asset sector, financial institutions remain responsible for robust fiat-side compliance. By combining name screening, payment screening, and transaction monitoring, firms can ensure they meet AML and sanctions obligations when customers on-ramp into fiat systems.
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