Crypto Compliance Glossary
Definitions for the terms risk, compliance, and AML teams encounter every day — from AML to VASP.
- Adverse Media
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Negative news or public information about a person or entity that may indicate involvement in financial crime, fraud, corruption, or sanctions. Adverse-media screening is part of customer due diligence under most AML regimes.
- AML
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Anti-Money Laundering — the body of laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income. In crypto it covers wallet screening, transaction monitoring, KYC, and suspicious activity reporting.
- BSA
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Bank Secrecy Act — the primary US AML statute administered by FinCEN. It imposes recordkeeping, reporting, and programme requirements on financial institutions including Money Services Businesses engaged in crypto activity.
- CDD
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Customer Due Diligence — the process of identifying and verifying a customer, understanding the nature and purpose of the relationship, and conducting ongoing monitoring. Higher-risk customers receive Enhanced Due Diligence (EDD).
- CFT
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Combating the Financing of Terrorism — the framework of rules and controls that prevents funds from reaching terrorist organisations. Crypto AML programmes are commonly referred to as AML/CFT controls.
- Clustering (on-chain)
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A heuristic technique that groups blockchain addresses likely controlled by the same entity by analysing common inputs, change outputs, and behavioural patterns. Clustering underpins entity attribution and wallet risk scoring.
- DeFi
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Decentralized Finance — financial applications built on public blockchains that allow users to lend, borrow, trade, and earn yield without a centralised intermediary. DeFi compliance focuses on front-end operators, smart-contract risk, and protocol governance.
- EDD
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Enhanced Due Diligence — a deeper investigation applied to higher-risk customers, transactions, or jurisdictions. Typical triggers include PEP status, high-risk countries, and exposure to mixers or privacy coins.
- FATF
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Financial Action Task Force — the inter-governmental standard-setter for AML/CFT. Its 40 Recommendations shape national laws worldwide; Recommendation 15 covers virtual assets and VASPs, and Recommendation 16 is the Travel Rule.
- FinCEN
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Financial Crimes Enforcement Network — the US Treasury bureau that administers the Bank Secrecy Act, receives Suspicious Activity Reports, and publishes guidance for crypto-asset businesses operating as Money Services Businesses.
- KYB
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Know Your Business — the process of verifying a corporate customer, including registry filings, directors, ultimate beneficial owners, and sanctions/PEP exposure. KYB complements KYC where the customer is an entity rather than a natural person.
- KYC
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Know Your Customer — the process of verifying an individual customer through identity documents, liveness checks, and sanctions/PEP screening at onboarding and at periodic review.
- KYT
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Know Your Transaction — continuous monitoring of customer transactions for AML risk indicators. In crypto, KYT combines on-chain analytics, counterparty screening, and behavioural rules to detect illicit patterns.
- MiCA
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Markets in Crypto-Assets Regulation — the EU's unified framework for issuers of crypto-assets and Crypto-Asset Service Providers (CASPs). It covers authorisation, governance, prudential rules, market-abuse provisions, and consumer protection.
- Mixer
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A service — centralised or smart-contract-based — that obfuscates the origin of crypto funds by pooling and reshuffling transactions. Mixer usage is a high-risk indicator in AML screening and has led to sanctions designations (e.g. Tornado Cash).
- MSB
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Money Services Business — a US regulatory category under the Bank Secrecy Act that captures crypto exchanges, administrators, and issuers. MSBs must register with FinCEN and maintain an AML programme.
- OFAC
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Office of Foreign Assets Control — the US Treasury office that administers and enforces economic and trade sanctions. Its Specially Designated Nationals (SDN) list is a core reference for crypto sanctions screening.
- On-Chain Analytics
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The analysis of public blockchain data — addresses, transactions, and smart-contract events — to attribute entities, trace flows, and detect illicit activity. It powers wallet risk scoring, investigations, and market surveillance.
- PEP
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Politically Exposed Person — an individual entrusted with a prominent public function, together with their close associates and family members. PEPs require enhanced due diligence and ongoing monitoring under FATF standards.
- Sanctions Screening
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The process of checking customers, counterparties, and wallet addresses against sanctions lists (OFAC, UN, EU, HMT, national). Crypto screening also traces fund flows to detect indirect exposure within a defined hop count.
- SAR
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Suspicious Activity Report — a confidential report filed with a Financial Intelligence Unit when a regulated institution detects transactions that may indicate money laundering or terrorist financing. Called STR in some jurisdictions.
- SDN List
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OFAC's Specially Designated Nationals and Blocked Persons List — a US sanctions list identifying individuals, entities, vessels, and wallet addresses blocked from dealing with US persons. It is updated continuously.
- Smart Contract
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Self-executing code deployed on a blockchain that automates transactions based on pre-defined rules. Compliance teams assess smart-contract risk through audits, exploit history, admin-key controls, and upgradeability.
- Stablecoin
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A crypto-asset designed to maintain a stable value, typically pegged to a fiat currency, commodity, or basket via collateralisation or algorithmic controls. Stablecoin issuance is regulated under MiCA (e-money and asset-referenced tokens) and various national regimes.
- STR
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Suspicious Transaction Report — the term used in many jurisdictions (e.g. Singapore, EU) for what US law calls a SAR. STRs are filed confidentially with a Financial Intelligence Unit when suspicion of ML/TF arises.
- Tainted Wallet
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An address that has received value from an illicit or sanctioned source within a defined number of hops. Taint analysis is part of on-chain risk scoring and informs decisions on accepting or blocking transactions.
- Travel Rule
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FATF Recommendation 16 — requires VASPs to collect and transmit originator and beneficiary information for crypto transfers above a jurisdictional threshold. Adopted globally via MiCA/TFR in the EU, MAS in Singapore, FinCEN in the US, and others.
- Tumbler
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Another name for a mixer — a service that obfuscates the origin of crypto by pooling and redistributing funds. Tumbler usage is a significant AML red flag.
- UBO
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Ultimate Beneficial Owner — the natural person who ultimately owns or controls a legal entity. UBO identification is a core KYB obligation and is typically required for any person holding 25% or more of an entity.
- VARA
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Virtual Assets Regulatory Authority of Dubai — established under Law No. 4 of 2022 to license and supervise virtual-asset activities within the Emirate of Dubai. VARA's rulebook covers market conduct, compliance, technology risk, and consumer protection.
- VASP
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Virtual Asset Service Provider — any business conducting exchange between virtual assets and fiat or other virtual assets, transfer, custody, or issuance of virtual assets. FATF Recommendation 15 requires VASPs to be licensed and to meet AML/CFT obligations.
- Wallet Risk Score
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A numerical assessment of how likely a blockchain address is to be linked to illicit activity, derived from on-chain heuristics and off-chain intelligence. Scores typically drive onboarding, EDD, and transaction-blocking decisions.