Why is the KYC/AML process so important?

Reading through many ICO telegram groups, it’s quite daunting to see that many self-proclaimed “Real” ICOs aren’t implementing or straight up refuse to implement a KYC or AML process.

One comment I read today was rather deluded and worrisome:

“KYC reduces no. of investors… and there is no need for KYC for an ICO…”

They continued with:

“There are so many scam ICOs that demand KYC and then the documents are forged… so stay alert. Don’t risk ur identity for a few bucks.”

Now, to some with very little knowledge within the crypto space, this would sound like a reasonable reason for an ICO to not implement a KYC or an AML process. However, being in and surrounded by the crypto space this rings alarm bells.

Our advice: Be very wary of any ICOs or projects that do not have and argue against implementing a KYC or AML process.

For those of you that are unaware of what a KYC or AML process is:

KYC — Know Your Customer

This process is implemented by many industries even outside of the crypto space. This allows organisations to know the people they are dealing with, allowing them to filter out malicious individuals.

AML — Anti Money Laundering

A very similar process to the KYC process, allowing organisation to filter out individuals that only intend to use their services or investment for money laundering purposes.

These processes require you to provide your personal information such as your full name, DOB and in many cases your current living address. They will also require you to provide an image of a government issued ID and normally a selfie image for face recognition software.

These questions and information are then normally sent to a 3rd party screening provider for verification.

But why is it so important within the ICO space?

The KYC or AML process is now standard practice for any legitimate ICO looking to raise funds. These processes not only benefit the project implementing them ,but also help to protect those with interests within the project.

These processes are designed to filter out those with no real interest in the project’s success. They are simply interested in cleaning their dirty money by pumping and dumping in ICOs. It’s an easy way for criminals to launder their money, making it hard to trace its true origins.

But how does this affect the project or the contributors?

Well, from an outsider’s perspective, having such a large amount of cash dumped into an ICO sounds like a good thing. However, it’s extremely damaging to the project’s future and success.

Pumping and dumping can be extremely damaging to both the project and its contributors. Dumping affects the price of the project’s token adversely, meaning it could take longer than expected for contributors to gain a return on their initial contribution.

If the project is a utility token (meaning its purpose is to be used within some form of technology to conduct actions or processes) dumping can massively impact the value of the token. This would mean that a large chunk of token supply would have to be used up to complete such tasks or transactions, being detrimental to the token value. Those using the tokens for its intended purpose would use up their supply much faster, meaning further capital would need to be invested to continue using the services or products.

Not to mention, no legitimate organisation or individual for that matter, wants to help fuel a criminal or their criminal enterprise.

Our advice: Be sure any ICO or project you are investing in has implemented a KYC or AML process.

Even though the crypto space is largely unregulated, it doesn’t mean that we can’t behave and conduct ourselves as any normal regulated sector. It’s all of our responsibility to ensure that we protect the ICO and crypto space as stake holders. In order to do that, ICOs and projects need to implement a KYC or AML process.

Due to new technology advances, most KYC or AML processes now take no longer than 5 minutes to verify an application. It’s a short amount of your time which in the long run will help to protect your contribution and the protect you have an invested interest in.