Screening an address before you touch it

Graduate · enrolled learners

This lesson opens with Suex, September 2021.

What happened

Suex was a cryptocurrency exchange that in September 2021 became the first such exchange ever sanctioned by the US Treasury's Office of Foreign Assets Control. The case was built on blockchain analytics: Suex's own on-chain activity showed that a large share of its volume, more than 160 million dollars in bitcoin over several years by one analysis, traced to illicit and high-risk sources, including ransomware operators from multiple strains, scam operations and darknet markets. Suex operated as a cash-out point, a place where proceeds from crime were converted, and the reason it could be named was that its role was written into the public ledger for anyone who read it. Nothing about Suex was hidden; its counterparties and flows were visible on-chain the whole time, and the sanction simply acted on what a compliance desk could have seen by screening an address against the public record before dealing with it.

The decision point

A public ledger is a two-edged fact: it records every transfer permanently for the world to trace, which means that before an institution transacts with an address it can look at what that address has done and what it is connected to. Screening an address before you touch it is using that record as a compliance control, asking whether the counterparty's on-chain history ties it to sanctioned entities, stolen funds, ransomware, darknet markets or other illicit sources, and doing so before value moves rather than discovering it afterward. Suex is the demonstration that this information is really there: an entire exchange was named as a cash-out point because its illicit role was legible on-chain to anyone who screened it. The critical discipline is that the check is preventive, made before the transaction, because once you have received or sent funds to a tainted counterparty the exposure already exists, and it is also probabilistic, because an address's history is a set of connections to weigh, not a certified identity. So the decision an institution makes is to screen the counterparty against the public record first and let the result inform whether it transacts at all, because the ledger already holds what Suex's counterparties should have seen.

Recorded loss

$160,000,000

Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.

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