The surge in cryptocurrency adoption has brought unprecedented attention to digital asset platforms—not only due to rising prices and institutional investments but also because of growing concerns around financial crime. With companies like Tesla, PayPal, and Visa embracing Bitcoin, and firms such as Square and Meitu investing millions into crypto reserves, the demand for secure, compliant exchanges has never been higher. However, this rapid growth intensifies the need for robust anti-money laundering (AML) frameworks across virtual asset service providers (VASPs).
As regulatory bodies worldwide tighten oversight, Taiwan’s Executive Yuan recently enforced Article 5 of the Anti-Money Laundering Act, clearly defining the scope of virtual currency platforms and transaction businesses. Under this regulation, all relevant entities—including exchanges, custodians, wallet providers, and those facilitating token sales—must implement strict Know Your Customer (KYC) and AML procedures. These include identity verification, transaction monitoring, risk assessment, and suspicious activity reporting—effective from July 1st.
While XREX primarily serves emerging markets overseas, we welcome this move by Taiwan’s government. It reflects a proactive stance toward regulating blockchain innovation while fostering industry growth within a secure legal framework.
The Critical Role of AML in Exchange Security
For any legitimate crypto platform, ensuring clean inbound and outbound flows is foundational. At XREX, our experience over the past two years has shown that without advanced AML tools, it's nearly impossible to safeguard user funds effectively. Our core principles are simple:
- All outgoing cryptocurrency must be “clean”—free from illicit origins.
- No withdrawals should go to sanctioned or criminal-linked wallets, including those tied to terrorism, fraud, drug trafficking, or weapons trade.
To achieve this, we rely on both third-party blockchain intelligence and in-house technology to analyze the provenance of every transaction. Let’s explore how different platforms compare through real-world case studies using CipherTrace, a leading Silicon Valley-based blockchain AML solution.
👉 Discover how top-tier exchanges maintain compliance with cutting-edge AML tools.
Case Study 1: Coinbase – Compliance in the Spotlight
As the first major cryptocurrency exchange to go public on Nasdaq under the ticker "COIN," Coinbase operates under intense regulatory scrutiny. Using CipherTrace, we can assess its risk profile in depth:
- Top inflow sources: Binance dominates as the largest source of incoming crypto, followed by Huobi and OKEx—indicating strong cross-exchange liquidity and user overlap.
- Institutional presence: Cumberland, a well-known market maker, ranks fifth among inflows. Institutional services collectively account for 11.59% of inflows and 22.16% of outflows—highlighting significant professional trading volume.
- OTC activity: “OTCTrader014” appears as the second-largest outflow destination despite not appearing in top inflows—a potential sign of large off-platform fiat-to-crypto conversions.
- Privacy coin support: Coinbase lists Monero (XMR) and Zcash (Zcash), which pose higher AML risks due to their anonymizing features. While privacy has legitimate use cases, these assets are often exploited in darknet markets.
- Fiat integration: CipherTrace identifies five traditional banking partners with full SWIFT codes and account details—crucial data for fiat-level AML tracking.
- KYC compliance: Rated “green” (low risk), indicating rigorous identity verification.
- Clean transaction graph: Over 99% of fund flows originate from reputable exchanges, miners, and regulated VASPs.
Overall, Coinbase demonstrates strong adherence to U.S. regulatory standards, reflected in its low-risk classification and transparent operations.
Case Study 2: LocalBitcoins – The Risks of P2P Trading
Once a dominant player in peer-to-peer Bitcoin trading, LocalBitcoins presents a stark contrast:
- KYC status: Previously rated red (high risk) due to lack of identity checks; now yellow (moderate risk) after partial improvements.
- Inflow sources: Primarily from major exchanges like Binance, Kraken, and Gemini—suggesting some level of legitimacy.
- Outflow red flags: Top destinations include AgoraMarket and Silk Road—infamous darknet marketplaces. BTC-e, a Russian exchange shut down in 2017 for money laundering, ranks third.
- Sanctioned addresses: Some wallet addresses linked to LocalBitcoins are flagged by OFAC as belonging to North Korea’s Lazarus Group.
Despite cleaner inflows, the platform’s historical lax controls make it a conduit for illicit fund movement—underscoring the dangers of weak KYC in decentralized trading environments.
Case Study 3: MorphToken – A High-Risk Jurisdictional Blind Spot
MorphToken, a Panama-based exchange exposed in an FBI report leaked by BlueLeaks, exemplifies how unregulated platforms enable large-scale laundering:
- No KYC: Red-flagged across systems for zero user verification.
- Inflow origins: HydraMarket (a darknet bazaar) ranks first; Rahakott (a high-risk exchange) second.
- Illicit flow concentration: 23.6% of incoming funds trace back to black markets; 9.52% from other high-risk exchanges.
- Privacy coin acceptance: Supports Monero (XMR), further obscuring transaction trails.
- CipherTrace rating: Classified as high-risk.
This case highlights how criminals exploit jurisdictional gaps and anonymity tools to convert traceable Bitcoin into untraceable privacy coins—a process known as “chain-hopping.”
Case Study 4: XREX – Building Trust Through Transparency
How does XREX stack up?
- KYC rating: Green—same as Coinbase—thanks to certified AML specialists and integrated global identity solutions.
- Transaction cleanliness: Nearly 100% of inflows and outflows come from mainstream exchanges and personal wallets.
- Risk isolation: Zero connections to darknet markets or sanctioned entities.
We don’t just rely on external tools—we build our own defenses.
👉 See how innovative platforms are integrating real-time risk detection at the product level.
Introducing XREX Risk Level Detector: Real-Time Wallet Screening
Beyond using CipherTrace, XREX developed the Risk Level Detector, a proprietary tool that scans deposit and withdrawal addresses in real time. Within our app, each wallet is color-coded:
- 🔴 Red: High risk – linked to scams, darknet markets, or sanctions.
- 🟠 Orange: Moderate risk – associated with high-risk exchanges or mixed services.
- 🟢 Green: Low risk – typical of regulated platforms and individual users.
This transparency empowers users to make informed decisions while enabling our threat analysis team to act swiftly on suspicious activity. Whether users engage in spot trading, OTC deals, or DeFi interactions, they’re protected by proactive risk controls built directly into the product layer.
Why Taiwan Must Prioritize Virtual Asset Regulation
Since 2018, the Financial Action Task Force (FATF) has emphasized global cooperation in regulating virtual assets. Its guidelines require member countries—including G20 nations—to treat VASPs like traditional financial institutions when it comes to AML obligations. This includes enforcing the Travel Rule, which mandates the sharing of sender and recipient information during crypto transfers.
By aligning with FATF standards, Taiwan strengthens its international standing and protects local businesses from becoming pariahs in the global financial system. Non-compliant platforms risk being labeled high-risk by intelligence databases like CipherTrace—leading to frozen assets, rejected transactions, and loss of banking relationships.
How Should Taiwanese VASPs Respond?
At XREX, we’ve taken a multi-layered approach:
- Employing a CAMS-certified AML expert and three CipherTrace-certified investigators.
- Integrating Sum&Substance for identity verification.
- Leveraging CipherTrace and Cybavo for blacklist monitoring.
- Joining the Crypto Defenders Alliance to share threat intelligence.
- Participating in TRISA.io for Travel Rule compliance.
- Publishing public investigation reports on detected fraud cases.
- Undergoing annual audits by Big Four accounting firms—including specific reviews of KYC/AML practices.
- Publishing our Financial Crime Prevention Principles online.
- Embedding AML features like Risk Level Detector into user-facing products.
These steps ensure XREX meets international standards—even before local regulations were formalized.
Frequently Asked Questions
Q: What is the Travel Rule in crypto?
A: The FATF Travel Rule requires VASPs to collect and share sender and recipient information during cryptocurrency transfers—similar to traditional wire transfers—to prevent anonymous money movement.
Q: Why are privacy coins risky?
A: Privacy coins like Monero and Zcash obscure transaction details, making them attractive for illegal activities despite legitimate privacy needs.
Q: Can individuals check if a wallet is linked to crime?
A: Yes—tools like XREX’s Risk Level Detector allow users to assess wallet risk before transacting.
Q: What happens if an exchange doesn’t comply with AML laws?
A: Non-compliant platforms may be blacklisted by regulators and other exchanges, face asset freezes, lose banking partners, or even be shut down.
Q: Is P2P trading inherently risky?
A: Not necessarily—but without proper KYC enforcement, P2P platforms can become conduits for illicit finance.
Q: How can I protect myself when sending crypto?
A: Always verify recipient addresses using trusted tools, avoid high-risk wallets, and use platforms with built-in AML screening.
Final Thoughts: Balancing Innovation and Security
Blockchain technology is reshaping global finance—but with great innovation comes great responsibility. As seen with Coinbase’s compliance success versus MorphToken’s exploitation by criminals, the difference lies in robust AML infrastructure.
Taiwan has a unique opportunity to lead in regulatory clarity and technological advancement. By supporting secure platforms like XREX—and demanding accountability from all VASPs—it can foster a thriving, trustworthy digital asset ecosystem.
👉 Stay ahead of crypto risks with platforms that prioritize security and compliance.