Sancharini Panda
The crypto industry is witnessing rapid growth in recent years across the globe. As of 2024, the global crypto market capitalization is 2.15 trillion. With such explosive growth prospects, the crypto industry attracts the attention of businesses, investors, and talents globally. However, unlike traditional finance, the crypto industry operates in a largely unregulated landscape as the acceptance of this is still limited to specific countries. This creates a vulnerability to risks like pseudonymous transactions, security breaches, and insider trading & frauds. Fortunately, these risks can be mitigated through employee background screening.
Crypto Industry Faces Growing Threat of Employee Fraud
Woman Found with £2bn in Bitcoin Convicted of Money Laundering Arrangement Offence. Source: BBC | 20 March 2024
Hong Kong Police Arrest Crypto Exchange Shop Employees on Suspicion of Fraud. Source: CryptoPotato | 18 May 2024
Ex-takeaway Worker Guilty of Money Laundering in £2bn Bitcoin Operation. Source: The Guardian | 20 March 2024
Such recent news headlines illustrate the alarming rise of employee fraud within the crypto industry. From money laundering to theft of cryptocurrency and potential manipulation of markets, these cases highlight the threats from insiders exploiting the industry’s unique vulnerabilities. In order to combat these internal threats and protect crypto businesses, implementing robust employee background screening becomes imperative.
What Makes the Crypto Industry Different?
The crypto industry stands out from other industries due to several factors. Some of these factors are the decentralized nature, cross-border operations, rapidly evolving regulations, and innovation-driven landscape. This makes it susceptible to illicit activities, cybercrime, and data breaches.
Therefore, information security and responsible handling of digital assets are paramount in the crypto industry. Rather than relying solely on resumes and interviews, thorough employee background screening can be utilized to uncover crucial insights into a candidate’s personality, sense of responsibility, and work ethic. This makes sure that an organization’s digital assets and information security are safeguarded.
Who Should be Screened? Everybody
In a trust-sensitive industry like crypto, every potential hire should undergo a thorough background screening. This includes:
Core team members:
- Executive leadership: CEOs, CFOs, CTOs, and other C-suite executives.
- Financial roles: Accountants, financial analysts, treasury managers.
- Legal and compliance: Lawyers, compliance officers, AML/KYC specialists.
- Technology and security: Developers, security engineers, network administrators.
- Customer support: Individuals handling customer inquiries and sensitive data.
Contractors and third-party vendors:
- Auditors: External auditors who handle financial data.
- Security consultants: Firms or individuals assessing security posture.
- Legal counsel: Legal counsel who deals with complex legal issues and ensures compliance with laws and regulations.
- Custodial service providers: Entities holding digital assets. manage the storage and security of digital assets.
Other relevant personnel:
- Sales and marketing: Individuals handling customer data.
- Human resources: Personnel involved in hiring and employee data management.
- Operations: Staff managing day-to-day operations, including those with access to sensitive information.
Importance of Employee Background Screening in the Crypto Industry
In the fast-paced and anonymous world of crypto, background screening is not just a good practice, in fact, it’s a critical line of defense. Here is why:
Prevents security breaches: Background screening protects an organization from internal threats. Internal security breaches can be catastrophic in an industry with large amounts of virtual assets. Thus, background checks help employers ensure only trustworthy employees get past the screening and have access to sensitive internal data and systems.
Maintains reputation: Earning the trust of customers and investors is important for any business. In the crypto industry, a company’s reputation can be tarnished if individuals with a history of fraud or unethical practices become a part of the system. Given these points, comprehensive employee background screening helps maintain a positive public image and confidence.
Ensures regulatory compliance: The global nature of cryptocurrency transactions creates a complex regulatory landscape with varying requirements across jurisdictions. Adherence to Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations is essential to avoid legal repercussions. Therefore, employee background screening plays a crucial role in demonstrating compliance with these regulations and mitigating risks.
Facilitates quality hiring: The rapidly evolving nature of the crypto industry requires a skilled and knowledgeable workforce. Thus, verifying educational and professional credentials ensures that new hires are duly qualified and capable of handling their job responsibilities. After all an organization’s workforce is the asset that strengthens its vision.
Therefore, by conducting thorough background screenings, businesses can significantly lower the risk of fraud, and financial loss, protect their reputation, and ensure compliance in an industry already under heightened scrutiny.
Types of Checks Conducted in the Crypto Industry
In order to ensure a comprehensive background screening, it is essential to cover all aspects of a candidate’s profile. Different types of checks provide a birds-eye view of the potential hires’ background, helping employers make the right hiring decisions. Here are the key checks that should be part of a robust background screening process in the crypto industry:
| Type of Check | Significance |
|---|---|
| Identity Check | Foundational step to verify a candidate's true identity and prevent incidents like identity theft and fraud. |
| Education Check | Ensures the legitimacy of academic credentials and professional certifications of the candidates to make sure they possess the necessary skills to work in a technology-driven field. |
| Reference Check | Verifies candidates' professional conduct, work ethic, skills, etc by contacting their previous colleagues, managers, or supervisors. Hence it allows the employers to evaluate if the candidate is the right fit for their organization. |
| Employment Check | Confirms past employment and checks for discrepancies. Also, it ensures they have the experience they claim, preventing exaggeration or falsification on resumes. |
| Credit Check | Assesses financial responsibility and identifies potential fraud risks. Since poor financial history can be a red flag in an industry dealing with valuable digital assets. |
| Global Sanction Check | Checks against international sanctions databases for any connections to illicit activities or money laundering. |
| Politically Exposed Persons (PEP) Check | Checks if candidates are politically exposed persons (PEPs) based on their role in governments or other public agencies. It serves as a preventive measure, allowing businesses to assess the risk associated with engaging with individuals linked to PEPs. Since such candidates can misuse their influence for financial gain. |
Each type of check uniquely verifies a candidate’s suitability and trustworthiness. As a result, it ultimately contributes to a secure and resilient workforce in the ever-evolving crypto industry.
Legal Considerations for Conducting Background Screening in the Crypto Industry
The crypto industry operates in a dynamic environment with limited regulations. This lack of a clear legal framework, coupled with cross-border operations and anonymous transactions, creates unique challenges for employers conducting background screening. Here are some specific legal considerations to look after:
Data protection and privacy Laws: Complying with data privacy laws, and obtaining explicit consent from candidates are inevitable parts of employee background screening. While vetting candidates, employers must comply with the data protection and privacy laws of a country. Different countries have different laws and regulations in terms of collection, storage, and disposal of personal data. (e.g.,- the Personal Data Protection Act (PDPA) in Singapore, the Personal Data Privacy Ordinance (PDPO) in Hong Kong, etc.)
Cross-border regulations: Regulations governing the crypto industry differ worldwide. Given that the industry is global in nature, employees and transactions often cross international borders. Therefore, employers must ensure that the screening practices adhere to the specific laws of the regions where their potential hires reside and work.
Regulatory compliance (AML/KYC): The Crypto industry’s susceptibility to money laundering necessitates compliance with anti-money laundering (AML) and know-your-customer (KYC) regulations. Whereas with background screenings, businesses can avoid hefty fines and other penalties from regulators.
Key Takeaways
- Employee background screening is crucial since challenges like limited regulations, pseudonymous transactions, etc make the crypto industry vulnerable to employee fraud.
- In a trust-sensitive industry like crypto, every potential hire, from executives to contractors, should undergo thorough background screening.
- Common types of background checks in the crypto industry include identity check, education check, employment check, reference check, credit check, global sanctions check, PEP check, etc. However, the depth of the screenings depends on the job roles and compliance requirements.
- Compliance and reputation go hand-in-hand. Compliant background checks not only help employers secure quality hires but also protect an organization’s reputation.
