AML Conversations Exploring Blockchain Hops and Risk in Crypto Compliance
May 15, 2025
David Lutz, Senior Director at AML RightSource, shares his expertise on crypto compliance and blockchain analytics. They unveil the complexities of blockchain hops and how they can affect risk assessment in cryptocurrency transactions. The conversation delves into the impact of transaction monitoring and the challenges posed by blockchain's immutability on compliance. Additionally, Lutz discusses the evolving banking landscape in relation to crypto, highlighting the necessity of adapting compliance frameworks to manage risks effectively.
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Understanding Blockchain Hops
- Blockchain hops count the intermediary wallets between a known illicit source and a subject wallet.
- Risk and traceability dilute as hop count increases beyond two or three steps.
Managing Hop Counts for Risk
- Institutions typically monitor two to three hops from illicit sources for risk assessment.
- Policies must be risk-based and defensible based on context like obfuscation or high-risk jurisdictions.
Evaluating Direct vs Indirect Exposure
- Direct transactions with sanctioned wallets are highest risk and require blocking.
- Indirect exposure risk depends on transaction transparency and intention to hide origins.