Codefi Compliance is part of ConsenSys’ existing Codefi product suite, which is focused on Ethereum-based commerce and finance applications. The tool is designed to help companies automatically follow know-your-customer (KYC) guidelines, which are used to ensure anti-money laundering (AML)/countering the finance of terrorism (CFT) compliance.
“We offer multiple risk management and diligence tools, but this is the launch for a core compliance offering and the focus is on KYC, which is the type of analysis most need in Ethereum native finance and commerce,” Codefi Compliance head of business development Sumit Kishore told Decrypt.
(Disclosure: ConsenSys funds an editorially independent Decrypt.)
All this comes after Coinbase Analytics licensed its compliance software to the U.S. Internal Revenue Service and Drug Enforcement Agency and faced intense scrutiny from the cypto community for the move.
Playing by the financial industry’s rules
KYC requirements prevent financial institutions from being used for money laundering or channeling funds for illegal activity. In the United States, the Financial Crimes Enforcement Network is charged with overseeing the Customer Due Diligence Rule.
It applies to any institution dealing in cash, securities, commodities, mutual funds. Such institutions must identify their customers using a driver’s license, passport, or other government-issued photo ID. Financial institutions must also create “customer risk profiles” and “report suspicious transactions.”
Codefi Compliance goes one step beyond into know-your-transaction (KYT), which preserves a degree of anonymity by analyzing address behavior rather than customer behavior.
There are other companies within the cryptocurrency space focusing on compliance, including CipherTrace and Chainalysis. Other blockchain companies manage compliance internally, with varying degrees of success. Still others ignore KYC altogether, though it’s a dwindling group, as companies can face fines and business restrictions for not conducting due diligence.