1inch DeFi Screening Uncovers Terrorism, Money Laundering

1inch Network’s findings expose terrorism financing, money laundering, and other illicit activities within the DeFi sector.

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  • 1inch Screened millions of wallets, identifying numerous high-risk activities.
  • This includes terrorism financing, child exploitation, scams, ransomware, and trafficking.
  • The platform focuses on restrictions for wallets associated with these activities.

The spotlight of crypto regulation has so far been on centralized entities, and for good reason. Entities like FTX and Celsius have shown the risks of too much power within centralized services. However, as the crypto space becomes more decentralized, new risks emerge. 

1inch has undertaken a substantial wallet screening initiative, examining millions of wallets within the DeFi ecosystem. This initiative uncovered several types of high-risk activities, including money laundering, terrorist financing, and other illicit activities facilitated by DeFi. 

Detailed Outcomes of 1inch Screening in DeFi

In August 2022, 1inch integrated the TRM Wallet Screening tool into its operations, embarking on an extensive wallet screening initiative. This program was designed to identify wallets involved in a spectrum of high-risk activities, a critical step in fortifying the security of the DeFi sector.

The 1inch screening process involved analyzing millions of wallets, leading to the identification of hundreds of high-risk addresses. The findings, published on Friday, January 25, revealed that these addresses were linked to various illicit activities.

In an exclusive comment to DailyCoin Orest Gavryliak, Chief Legal Officer at 1inch Network highlighted that “TRM Labs uses more than 150 risk categories, which can be prioritized in the dashboard and assigned with severity criteria.”

“1inch has enabled most of these categories (relative to the nature of 1inch products), prioritizing money laundering, terrorist financing, sanctions, child sexual abuse materials (CSAM), illegitimately obtained funds, scams, hackers, trafficking, and other illicit activities.” Gavryliak further explained.

Upon identification, 1inch took action by systematically restricting the identified high-risk wallets from accessing its services. This measure is part of 1inch’s strategy to prevent its platform from being used as a conduit for illicit funds and activities, ensuring adherence to AML regulations and maintaining the integrity of its operations.

1inch and Taking Action

Orest Gavryliak stated that in the event of concerns 1inch employs a two-pronged approach to handle blocked wallets: proactive and responsive. Understanding the difference between these methods can help users better navigate situations where their wallets might be flagged. 

In serious cases, 1inch may take a proactive approach, searching for signs of irregularity through one of several methods:

  • The 1inch Compliance Back Office periodically analyzes the list of blocked wallets. 
  • If unusual patterns are detected, such as large amounts, frequent blocking/unblocking, or other criteria, the team delves deeper. 
  • 1inch utilizes blockchain forensics to assess the source of the irregularity and identify potential false positives. 
  • Depending on the situation, increased monitoring may be implemented manually or automatically. 
  • If a false positive is confirmed, the blocked address is promptly unblocked. 

Proactive investigations can also be initiated upon user requests under specific circumstances.

However they are also prepared in the event that they are required to respond to a situation, in which case: 

  • Any user who believes their wallet has been incorrectly flagged can directly contact the 1inch compliance team as outlined in the platform’s user agreements. 
  • Upon receiving a user appeal, the Compliance Back Office conducts a thorough manual investigation of the specific case. 
  • If the investigation confirms a false positive, the blocked address is promptly unblocked.

This approach is made possible by TRM’s built in API’s, as Gavryliak explained.

“TRM’s API allows 1inch to query data about an address or transaction’s on-chain exposure to illicit or illegal activity, including sanctions and terrorist financing.”

Though 1Inch’s findings highlight the concerns that are often repeated by lawmakers worldwide, the question remains: is crypto the main enabler?

Fiat Still Prefered by Criminals

Despite the risks of criminal activities in DeFi, research suggests that criminals still prefer fiat currency. According to the U.S. Treasury Department and reports by organizations like SWIFT and Chainalysis, fiat currency remains the medium predominantly preferred for most financial crimes. 

These reports highlight that while the use of virtual currencies for illicit activities is on the rise, it still falls significantly short compared to traditional methods involving fiat currency.

On the Flipside

Cryptocurrencies are being increasingly scrutinized for their potential role in financial crimes. However, the inherent transparency of blockchain technology makes tracking and tracing illicit activities more straightforward than fiat-based transactions. 

Despite the transparent nature of blockchain tech, some criminals are still using crypto assets like Tether in financial crimes. 

Why This Matters

The efforts of platforms like 1inch Network in implementing wallet screening are crucial for securing DeFi compliance with financial regulations. As the availability of DeFi goes up. regulatory pressure will undoubtedly rise. 

Read more about fiat vs crypto when it comes to crime:
Fiat vs. Crypto: Which Is More Popular for Criminal Activities?

Read more about Solana’s latest initiative to boost devs in India:
Solana & CoinDCX Inject $3M Into Blockchain Talent in India 

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

David Marsanic

David Marsanic is a journalist for DailyCoin who covers the intersection of crypto, traditional finance, and government. He focuses on institutionalized crypto entities like major cryptocurrency exchanges and Solana, breaking down complex topics into easy-to-understand writing. David's prior experience as a business journalist at various crypto and traditional news sites has enabled him to maintain a critical approach to news while adhering to high journalistic integrity standards.