How Should Crypto Businesses Build an AML Compliance Program?

How should crypto businesses build an AML compliance program? It can be done in five steps: start with a business risk assessment, apply KYC tiered by risk, screen every on-chain transaction with KYT, exchange originator and beneficiary information with other virtual asset service providers under the Travel Rule, and keep complete records while reporting suspicious transactions as required. Specific requirements vary by jurisdiction and license type, but this framework applies in most places.

Why Should an AML Program Start With a Risk Assessment?

Regulators generally require a risk-based approach, which means putting limited compliance resources where the risk is highest. A business should first map out its operations: which countries its customers come from, which chains and assets it supports, whether it allows withdrawals to self-custody addresses, and how large individual transactions are. It then assesses the money laundering and sanctions risk each factor brings. Every rule that follows, from what KYC documents to collect to how high KYT alert thresholds should be, should flow from this assessment and be updated as the business changes.

How Should KYC Be Tiered?

Not every customer needs the same depth of review. Low-risk retail customers with small volumes can go through a simplified process that verifies identity only. High-volume customers and business customers need standard due diligence, including source of funds and beneficial owners. Politically exposed persons and customers from high-risk regions require enhanced due diligence and approval at a higher level. A customer’s risk rating is not fixed either; it should be reviewed periodically and adjusted promptly when anomalies appear.

How Do KYC and KYT Work Together in the Program?

KYC and KYT work in both directions. A customer’s KYC risk rating sets how strict KYT should be: high-risk customers get lower alert thresholds and more manual review, while institutional customers with a long record of normal activity can be given more room. In the other direction, when KYT finds a customer repeatedly depositing high-risk funds or withdrawing to suspicious addresses, it should trigger a KYC review, with enhanced due diligence or termination of service if needed. These rules are best enforced before signing, together with the limits and approvals in a policy engine, because an on-chain transfer cannot be reversed once sent.

What Is the Travel Rule?

The Travel Rule comes from the recommendations of the Financial Action Task Force (FATF). It requires virtual asset service providers to pass the originator’s and beneficiary’s identity information to the counterparty institution when they transfer funds between them, much like a bank wire carries sender and recipient details. Businesses need to be able to tell whether an address belongs to another service provider or a self-custody wallet, verify the counterparty provider’s regulatory status, and exchange and store this information securely. Effective dates and amount thresholds differ by region, so they should be checked against local rules.

What Should You Know About AML Records and Suspicious Transaction Reporting?

Every KYC review, KYT screening result, manual review conclusion and approver should be stored alongside the related transaction, for as long as local rules require. During a regulatory examination, the business needs to explain who initiated a transaction and why it was approved or blocked. When a suspicious transaction is found, it must be reported to the local financial intelligence unit as required, without tipping off the customer that a report was filed. The whole program should also have a dedicated compliance officer, regular staff training and independent audits.

Conclusion

An AML program for crypto businesses starts with a risk assessment, uses tiered KYC to cover people, KYT to cover money and the Travel Rule to cover information passed between institutions, and closes the loop with complete records and reporting. Safeheron has partnered with Regtank to bring KYT and VASP regulatory status checks to self-custody.

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