Making a crypto safe and private for individuals, while also providing a platform for financial oversight against illicit activity spanning hundreds of countries and involving millions of people, is not a stroll in the park. Let’s face it, no sovereign nation will allow its citizens to freely use a crypto of any sort, without a measure of certainty that its national interests are not jeopardised - rule of law, financial oversight, monitory policies and safeguards against criminal activity. A highly reliable KYC process is a must.
For instance, Binance, though just an exchange, is under fire from the United States Justice Department (DOJ) and the US Internal Revenue Service (IRS). According to a 2019 report from Chainanalysis, Binance was responsible for facilitating 27.5% of global crypto transactions tied to illicit activity. Other exchanges are also facing similar charges. Binance is now increasingly tightening its KYC policy. European regualators such as U.K’s Financial Conduct Authority (FCA) and Germany’s BaFin are also raising dust over the same complaints. If Pi is going to be a broadly accepted currency, you can imagine what standards have to be met. Pi is trying to avoid these pitfalls with a robust KYC policy that will meet global standards.
Proving that a real human being owns a particular account, and is mining or transacting with it on an app is rather straightforward. This is the KYC format used by many apps, which we are all used to. Scanning such identities against dynamic global databases to weed out criminals and thereby prevent illicit activity, is a whole new ball game requiring legal and technological frameworks that frankly don’t yet exist in cryptosphere. Where they exist, they fall short of the growing standards being demanded by government and transnational entities. Usually, only dedicated third party regulatory technology companies can maintain such standards, manage such data, and deploy such processes, and this comes at high costs (not to mention that the data is domiciled with them and in only onboarded to the contracting company).
Added to this, there are some countries that require continuous monitoring of KYCed persons to make sure they don’t go rogue (an otherwise law-abiding citizen today may decide to try making a quick buck from drugs next month, or help a business or political entity launder funds). It is to be expected that 30-100 million users of a platform will draw in its fair share of undesirables. Anti Money Laundering (AML) and counter-terrorist financing (CTF) compliance is increasingly being required of any financial entity.
“Enterprises who choose to manage AML Watchlist Screening and Ongoing Monitoring in-house could have their work cut out for them. Performing the highest caliber of screening and monitoring accurately and across the customer lifecycle is a highly-specialized investigation process that some enterprises may not have the resources for, making continuous monitoring labor-intensive and time-consuming. Financial enterprises with millions of customers need to work with a 3rd party regtech provider or build operational departments and internal back-office systems that are fully dedicated to continuous monitoring.” - Fourthline
The last thing you want is to wake up in 2024 and Pi is tumbling to the ground because the CT is under investigation from the FBI or EU for “weak KYC procedures that allowed the terrorists who attacked xyz to use its platform to finance their terror network.”
We don’t want that, do we?
