Supporting Coinfirm in the fight against money laundering in the virtual asset world
By: Maximilian Spelmeyer
Tags: Compliance, Cryptocurrency, Regtech, Startup, Venture Capital

Supporting Coinfirm in the fight against money laundering in the virtual asset world Maximilian Spelmeyer 1 day ago·4 min read

I am very excited to announce that SIX Fintech Ventures co-led the 8.0m USD Series A funding round of Coinfirm together with FiveT Fintech. We are joined by our friends and existing investors MiddleGame Ventures, Blockchain Valley Ventures as well as the new joiners Mission Gate Ventures and CoinShares.

The need of anti-money laundering compliance for virtual assets

Unkown Source

Money laundering is a huge global cross-border problem. Money laundering is one of the most significant and long-term negatively impacting factor of economic growth as it destroys legal certainty and trust of market participants. The annual sum of money being laundered globally is estimated by the United Nations Office of Drugs and Crime between 2–5 percent of global GDP, which indicates a range between 843bn USD to 2.2tn USD. In comparison, an estimated of “just” 2.8bn USD in dirty funds were laundered through cryptocurrencies in 2019. The traditional financial system is still the bigger “imposter” but crypto is not innocent. As key money laundering risks include dubious sources of funds, anonymity of beneficiaries and suspicious activity patterns such as high transaction frequencies and size, virtual assets are very much predestined by their traits to hold the risk of money laundry. The rising global adoption of virtual assets (the global number of crypto wallets has grown by 400% in the past four years (191m as of 2020)), and increasing engagement of institutional investors and enterprises will drive the amounts to new spheres.

Regulators around the globe require companies active in the financial sector to have formal processes and policies in place preventing money laundering and financing of terrorism. Those requirements are in place to prevent criminal activity and also to uphold the stability and integrity of financial markets. Across the globe, different AML regulations exist, like the Financial Action Task Force (FATF) recommendations, AMLD5/6 in Europe, FinCEN’s BSA in the US and AMLA in Switzerland. Most of these regulations also apply to any entity active in the virtual asset ecosystem, which provide access to the market and deal with crypto currencies or other type of tokens. Virtual Asset Service Providers (VASPs) must comply with the regulatory anti-money laundering and terrorism financing requirements. In this regard, “Know Your Customer” processes and continuous transaction monitoring are two key measures for regulated players to implement.

Overall VASPs, as well as other market players, must increase their efforts against money laundry.

Fighting money laundering in the digital asset world

In my previous article on our investment in Keyrock, I highlighted the momentum and trend around digital assets. We believe that virtual assets will become an integral part of the financial service industry.

Our main hypothesis for this investment is that a tremendous potential of value lies within the market entry of large institutional investors and enterprises. To join the virtual asset ecosystem and further drive the maturity of the segment, those institutional players require a regulated infrastructure and high-quality services. Of course, the latter embodies a discussion point to the many crypto enthusiasts championing decentralization and trust via open ledgers in place of regulations. But without operationally excellent and trustful infrastructure, institutional participants will be reluctant to enter the industry. A starting point to reduce controversy in the virtual asset space is to reduce AML risks tied to transactions and wallet accounts. This is where the likes of Coinfirm come into play, providing AML and KYC processes to their customers.

Why we believe in Coinfirm

Coinfirm’s clients all share comparable requirements, such as the mitigation of client regulatory risks, insights into counterparties of crypto transactions as well as automated and live detection of suspicious activities.

In this regard, we were very impressed by the company’s products, which include real-time blockchain analytics that automatically evaluate wallet addresses for suspicious behavior and enable enhanced due diligence on asset provenance. Coinfirm’s slick design facilitates the case management and evidence collection for its customers fighting money laundering attempts. Finally, our conviction was further fueled by Coinfirm’s standalone ability to detect stolen funds throughout laundering attempts such as mixing or layering. As roughly 7 bn USD worth of cryptocurrency was either stolen or acquired by scams in 2020, this feature cannot be neglected.

With this product suite coupled to impressive execution skills, it is not surprising that the company achieved two-digit MoM growth. As this year’s projections were already achieved and having a filled pipeline, Coinfirm is set for an exciting end of the year.

During our investment process, we were thrilled to find in Dr. Mircea Mihaescu a seasoned entrepreneur and executive. His previous experience as COO at the digital bank Moven and as innovation director at IBM will be key in accelerating Coinfirm’s global growth. With experts in the topic of AML such as Pawel Aleksander and Jakub Fijolek at his side, we are convinced that the company will be able to continue its exciting growth journey.

Finally, I am excited to join the board as an observer and work along Coinfirm’s team and our co-investors to grow and scale the company.

As always, a big thank you to everyone that helped making this investment happen!