Overriding Anti-Money Laundering (AML) flagged transactions

7 min

Anti-money Laundering (AML) Compliance

For general information about AML on Custody Infrastructure, see Anti-Money Laundering.

AML enforcement can only be performed by users assigned a role with compliance management permissions. We will call these users "Compliance officers"

The system must be set to use either internal or external AML (see AML preferencesAML preferences) before the compliance managers will be able to oversee AML operations.

Overview of AML protection using Chainalysis

This video shows how Chainalysis is used to block outgoing or incoming transactions, and how these decisions are changed using the Override option.

Internal AML

Internal AML is a manual process for overseeing inbound transactions. The Compliance officer can override any transaction, freezing its assets.

"Override", as an operation, simply toggles a transaction's state between normal and frozen. A transaction, once overridden and frozen, can be overridden again to release the assets.

This allows the compliance officer the ability to freeze suspicious transactions, investigate the source address as required, and then unfreeze the assets if the investigation indicates the assets are acceptable.

Block an incoming transaction

Navigate to the Transaction area by clicking the Transactions button:

The Transactions activity table opens:

Click anywhere on the row of the transaction to open the expanded details view.

Click Override to block the selected transaction. The "Override AML decision" dialog opens.

The Compliance Officer must provide a note when overriding a transaction. This note is saved along with the identity of the compliance officer and the time of the latest override on the transaction.

Override toggles a transaction's "blocked" state.

It will block an accepted transaction.

It will accept a blocked transaction.

Click Override to implement the AML action.

External AML

External AML is an automated process powered by Chainalysis (https://www.chainalysis.com/). To enable it, you must input an API token.

Once external AML is active, Chainalysis becomes part of the transaction flow, checking the external addresses (the source addresses on inbound transactions and the destination address for outbound). Every transaction is put on hold while the AML check is run. If Chainalysis identifies any high- or severe-risk addresses involved, the transaction is blocked and its assets are frozen.

Inbound transactions are checked immediately upon arrival. Outbound transactions are checked before being sent to the blockchain. This AML check can add up to a five-minute delay per transaction. While being checked, the transaction will be marked as "Pending AML".

The notification shows the transaction date, time, and initiator.

A transaction pending AML

The compliance officers can override Chainalysis' decision. Additionally, they can block and freeze any transaction on the system, even those assessed as "low-risk" by Chainalysis.

Override an incoming Chainalysis AML decision

Navigate to the Transaction area by clicking the transactions button:

The Transactions activity table opens:

Click the carat (>) to view a transaction's expanded details:

In the example above, the transaction was automatically blocked because Chainalysis identified one or more high-risk destination addresses.

Click Override to unblock the selected transaction. The "Override AML decision" dialog opens.

The compliance officer must provide a note when overriding a transaction. This note is saved along with the identity of the compliance officer and the time of the latest override on the transaction.