Hidden Road, a brokerage firm supported by Citadel, has officially stopped providing access to the ByBit exchange for its clients. The clients were informed about this change several weeks ago. This decision was made due to disagreements between Hidden Road and ByBit regarding the verification procedures for Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. In response, ByBit has stated that it will conduct an audit of its brokerage business to ensure that regulatory policies are being implemented correctly. The issue of KYC verification and AML regulations has become a contentious topic in the decentralized finance sector, causing a divide within the crypto community.
According to a report published in the academic journal Policy Design and Practice, AML regulations have had a minimal impact on illicit financial activities. The report states that anti-money laundering policies have less than a 0.1% impact on criminal finances, and the costs of compliance exceed the funds recovered from criminal activities by more than a hundred times. It also highlights that total global proceeds from criminal activity accounted for only 3.6% of total GDP in 2018 and have remained relatively stable in previous years.
In an attempt to bypass these regulations, several projects, including Tornado Cash, Samurai Wallet, and the privacy coin Monero, have offered crypto mixer and tumbler services to users. However, these projects have faced legal consequences. In April, the developers of Samurai Wallet were arrested by U.S. federal authorities for allegedly violating money laundering laws. The U.S. Department of Justice charged them with conspiracy to commit money laundering and conspiracy to operate a money transmission service without a license. Similarly, the founders of Tornado Cash were accused of facilitating money laundering and were charged and arrested by U.S. officials and their European allies for allegedly laundering $7 billion in digital assets in 2022.