SE Asia Consulting Pte Ltd

Merkle Science – Blockchain Transaction Monitoring

On this weeks blog we have deviated away from Gold and have had some chatter with Mriganka Pattnaik, Co-Founder and CEO of Merkle Science. As the world of precious metals collides head on with the crypto space we all need to keep up to date with how to keep track of whats going on out there and so this is some valuable insights into the world of crypto compliance!

1. Can you give us a some background on Merkle Science for those that are not aware of the company?

Merkle Science provides blockchain transaction monitoring and intelligence solutions for virtual asset service providers (VASPs), financial institutions and government agencies to detect, investigate and prevent the use of cryptocurrency for money laundering, terrorist financing and other criminal activities. Merkle Science is headquartered in Singapore with offices in Bangalore, Seoul and Tokyo and backed by Digital Currency Group, Kenetic, SGInnovate and LuneX.

2. With the importance of blockchain in so many areas of business these days what does your product specifically cover in its monitoring and why is it important?

Merkle Science’s flagship product, Block Monitor is a blockchain transaction monitoring tool used by compliance and risk management teams at virtual asset businesses and financial institutions to identify and report suspicious activities based on cryptocurrency transaction behaviour patterns and source of funds analysis. Most cryptoasset businesses are now required by financial regulators to implement robust anti-money laundering policies and procedures and our tool helps to address

transaction monitoring to prevent the receipt and transfer of criminally tainted cryptocurrency funds.

Merkle Science Investigator is our blockchain forensics tool which is used by law enforcement agencies and cyber investigation firms to investigate and analyze criminal incidents involving cryptocurrencies. As hacking incidents, ransomware attacks, crypto jacking and investment scams are on the rise since the start of the COVID-19 pandemic, it is essential that law enforcement agencies and incident responders have a reliable way to trace cryptocurrency funds that are criminally acquired.

3. Without going into a specific case can you give us an example of where Merkle Science has combated a serious crime?

We have actually assisted in the investigation of multiple criminal cases. Recently the Merkle Science team worked on a case in Taiwan which saw a criminal misappropriate funds into a cryptocurrency wallet where they remained untouched for over a year. The criminal then tried to cash out these funds at various cryptocurrency exchanges by transferring small transaction amounts.

4. What other products are in the pipeline as part of your monitoring offerings?

As cryptocurrency technologies and regulations continue to evolve, we will be adapting our existing products to better assist traditional financial institutions monitor their exposure to cryptocurrency related financial crime. We are already seeing lots of demand for our Know Your Blockchain Business (KYBB) Report. This enables blockchain companies, regulators and banks to get a comprehensive macro risk assessment of a particular cryptocurrency entity.

5. Singapore has played an important role in the general acceptance of digital assets with an open minded regulatory body the MAS, how important has that been for Merkle Science to grow its business in Singapore as a start up?

Firstly, all companies that wish to be licensed as a digital payment token service under the MAS’ Payment Services Act are required to specifically implement a blockchain transaction monitoring system. This means we have engaged with almost every company that has or is in the process of applying for this license as we are the only Singapore based provider of such a solution. The MAS is among the few jurisdictions globally to mandate the usage of blockchain transaction monitoring systems, so it is very useful for us to cite this fact when we engage with other regulators and companies based outside of Singapore. It is only a matter of time until this becomes a standard requirement for crypto asset service providers globally.

6. What does Merkle Science do that differentiates itself from its competition?

Our compliance tool provides users with a highly customizable risk rule engine. This means that the compliance or risk officers can configure their own transaction monitoring rules to reflect their own policies and risk appetites at a very granular level. For example they can create a rule which provides an alert for every transaction originating from a list of crypto asset service providers that do not conduct any know-your-customer due diligence, above SG$1,500 to avoid receiving funds from those entities that are likely to be facilitating money laundering. None of our competitors currently provide this level of configurability with regards to transaction risk rules.

Besides the risk rules which focus on source and destination of funds analysis, we have a behaviour monitoring system that helps compliance and risk teams identify suspicious transaction patterns based on predefined behaviour criteria. For example, dormant bitcoin addresses suddenly being used to facilitate transactions or addresses initiating high volume, low transaction amounts. These behaviour rules are based on the standards for payments fraud analysis already conducted by traditional financial institutions. None of our competitors globally have implemented such sophisticated behaviour monitoring capabilities.

7. What can companies out there do to help solutions like Merkle Science when they are handling crypto assets for the betterment of the industry?

The most important solution or priority for any crypto asset service provider is security. Across all levels, from private key management to company systems to user account security, this should be handled first before launching any services to the public. Staff should also undergo continuous security training to stay aware of the latest threats, particularly with working from home and COVID-19 themed campaigns. Having a strong security culture in place is paramount for the crypto asset industry to reduce the number of criminal incidents.

8. With the most recently #TwitterHack what did Merkle Science do in this instance?

Thanks to the transparency of the bitcoin blockchain, Merkle Science’s Data Intelligence team has been tracing the funds sent to and from the known bitcoin addressesassociated with the Twitter Hack scam.

So far we have found that the cluster of bitcoin addresses linked to the #TwitterHack has now received approximately BTC 13 (or US$120K equivalent at the time of the incident). More than 99.99% of the funds from this cluster has been transferred to other addresses. Based on our analysis it seems the hackers have transferred the bitcoin to addresses associated with several exchanges including Binance, Paxful and CoinPayments. The hackers have also used coin mixing services such as Wasabi Wallet and ChipMixer to obfuscate the flow of funds.

Read our article on the incident for more details and future updates: UPDATED: Hack Track: #Twitterhack bitcoin scam Merkle Science Hack Track provides digestible insights on the movement of stolen funds from the latest cryptocurrency heists and scams.

9. Lastly, where can people follow the updates and progress of Merkle Science online?

They can visit our website

Follow us on LinkedIn  and Twitter  

Read our blog:

Or Subscribe to Cryptocrime Digest for a weekly summary of news and commentary about criminal activity related to cryptocurrencies.

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