When your exchange sends a notification about "AML review," "EDD," or a "SAR filing," the terminology can feel like a foreign language. This glossary explains every term you are likely to encounter — in plain English, with practical context for someone whose account is frozen.
The building blocks of exchange compliance. These terms appear in nearly every account freeze notification.
The body of laws, regulations, and procedures designed to prevent criminals from converting illicitly obtained funds into legitimate money. In crypto, AML compliance means exchanges must verify users, monitor transactions, and report suspicious activity. When your account is frozen for "AML review," the exchange is checking whether your funds may be connected to illicit activity.
The process by which a financial institution verifies the identity of its clients. For crypto exchanges, this typically means submitting a government-issued ID, a selfie, and proof of address. KYC is not optional — it is a legal requirement under most jurisdictions' AML laws. Failing KYC (providing inconsistent information, using fake documents, or failing liveness checks) is one of the most common reasons accounts are frozen.
Documentation proving where the money you deposited or transferred came from. Exchanges request SoF when they notice unusual activity, large deposits, or incoming transfers from unknown sources. Acceptable SoF includes bank statements showing salary, sale contracts for property, mining logs, or exchange-to-exchange transfer records. The challenge: for crypto purchased years ago with cash or received as a gift, proving SoF can be nearly impossible without legal assistance.
Broader than SoF, this documents how you accumulated your overall net worth. While SoF explains where a specific deposit came from, SoW explains how you earned the money in the first place. An exchange may ask for SoW when your account balance appears inconsistent with your stated income or occupation.
The baseline level of scrutiny applied to all customers. It includes identity verification, screening against sanctions lists, and assessing risk level. Every new account goes through CDD as standard procedure.
A higher level of scrutiny applied to customers deemed higher risk — those transacting large amounts, operating from high-risk jurisdictions, or whose transaction patterns trigger automated alerts. EDD typically requires additional documentation, more frequent reviews, and sometimes senior compliance approval before the account can be unfrozen.
An individual who holds or has held a prominent public position, or a family member/close associate of such a person. PEPs are subject to enhanced screening because of the higher risk of corruption or bribery. Being classified as a PEP does not mean you have done anything wrong — but it does mean your account will face additional scrutiny and may be frozen while the exchange conducts EDD.
A confidential report filed by a financial institution (including crypto exchanges) with the relevant Financial Intelligence Unit when they detect potentially suspicious transactions. If an exchange files a SAR about your account, you will not be informed — but your account will likely be frozen while the FIU reviews the report. SARs are a legal obligation; exchanges face severe penalties for failing to file them.
Similar to a SAR but focused on a specific transaction rather than ongoing activity. Some jurisdictions use SAR and STR interchangeably; others distinguish between them based on whether the suspicion relates to a single transaction or a pattern.
The regulators, regulations, and frameworks that govern crypto compliance. Understanding which regime applies to your case is critical for building a legal response.
The Financial Action Task Force (FATF) term for any business that deals in crypto: exchanges, custody providers, wallet services, and token issuers. Under FATF guidance, VASPs are subject to the same AML obligations as traditional financial institutions. The EU's MiCA regulation formally adopts this classification.
The intergovernmental body that sets global AML standards. FATF issues recommendations that are implemented by national governments. FATF's "Travel Rule" (Recommendation 16) requires VASPs to share sender and recipient information for transactions above a threshold — currently USD 1,000 (EU/UK) or USD 1,000 (US, via FinCEN).
The obligation for VASPs to collect and transmit information about the parties to a crypto transaction: the sender's name, account number, and physical address; and the recipient's name and account number. If an exchange cannot verify the counterparty of your incoming transfer, it may freeze your account pending verification.
The EU's comprehensive crypto regulatory framework, fully effective from December 2024. MiCA introduces licensing requirements for CASPs (Crypto-Asset Service Providers), consumer protection rules, and AML obligations aligned with FATF standards. If your exchange is EU-licensed, MiCA governs how they handle your account freeze.
The EU MiCA term equivalent to VASP. Any entity providing crypto custody, exchange, trading, or advisory services in the EU must be licensed as a CASP.
Switzerland's financial regulator (Finanzmarktaufsicht). Swiss-based exchanges and those operating in Switzerland fall under FINMA's AML oversight. Switzerland has its own AML framework that is FATF-compliant but separate from the EU's MiCA.
The UK's financial regulator. Post-Brexit, the UK has its own crypto registration regime. Exchanges operating in the UK must register with the FCA for AML compliance.
The US Treasury department that enforces sanctions. OFAC maintains the SDN (Specially Designated Nationals) list. If your wallet address or identity appears on an OFAC list, exchanges worldwide will freeze your account. OFAC sanctions apply extraterritorially — even non-US exchanges comply to maintain dollar access.
OFAC's consolidated sanctions list. Includes individuals, entities, and — since 2022 — specific crypto wallet addresses. If funds are sent to or received from an SDN-listed address, the exchange is legally required to freeze them.
The tools and concepts exchanges use to monitor transactions and flag accounts. Understanding these helps you understand why your account was frozen — and what evidence you need to provide.
Blockchain analysis tools (e.g., Chainalysis, TRM Labs, Elliptic) that trace crypto transactions across the blockchain. Exchanges use these tools to assess the risk score of incoming funds. If your deposit is flagged as having passed through a mixer, darknet market, or sanctioned address, the exchange will likely freeze your account pending review.
A numerical assessment assigned by chain analytics tools to a transaction or wallet. Scores range from 0 (clean) to 100 (high risk). Exchanges set internal thresholds — if your incoming transfer exceeds the threshold, it triggers an automatic hold. You will not be told your score or what triggered it.
Cryptocurrency that has passed through addresses associated with illicit activity (hacks, darknet markets, mixers). Because Bitcoin and most cryptocurrencies are traceable, tainted coins carry their history on the blockchain. If you receive tainted coins through a legitimate P2P transaction, the exchange may still freeze your account — you are not accused of wrongdoing, but the coins themselves are flagged.
A service that mixes multiple users' crypto to obscure the trail of ownership. Tornado Cash, Blender.io, and ChipMixer are examples. Using a mixer — even unintentionally, as when the person who sent you crypto previously used one — will significantly raise your risk score and can trigger an account freeze. OFAC has sanctioned several mixer smart contracts.
A biometric verification step during KYC where you are asked to turn your head, blink, or follow a dot on the screen. This proves you are a real person, not a photo or deepfake. Failed liveness checks are a common reason for KYC rejection and account suspension.
A restriction that allows you to view your balance and even deposit, but prevents withdrawals. This is the most common form of partial freeze. It gives the exchange time to conduct AML review while preventing funds from leaving.
An internal marker on your account indicating that it requires compliance review. Flags can be triggered by transaction patterns, chain analytics alerts, regulatory requests, or manual review. You will typically not know you have been flagged until you attempt a withdrawal and it fails.
A function in stablecoin smart contracts (Tether's addBlackList, Circle's Blacklistable.sol) that prevents a specific wallet address from sending or receiving the token. Once blacklisted, the frozen funds cannot move on-chain — only the stablecoin issuer's compliance team can remove the blacklist, typically through OFAC delisting or legal action.
These concepts directly affect how we resolve exchange account freezes and crypto fraud cases. For jurisdiction-specific AML frameworks, see our AML laws by country reference. For a side-by-side comparison of exchange compliance policies, see our AML policy comparison. For unusual situations — inherited crypto, unprovable source of funds, ownership disputes — see our complex cases practice.
It means the exchange's compliance team is investigating your account activity to determine whether your funds may be connected to money laundering, sanctions violations, or other illicit activity. During the review, your withdrawals will typically be frozen. The review can take anywhere from a few days to several months. You have the right to ask what documentation they need, though they are not obligated to share investigation details.
Source of Funds (SoF) documents where a specific deposit or transfer came from — for example, a bank statement showing you sold a car and used the proceeds to buy crypto. Source of Wealth (SoW) documents how you accumulated your overall net worth — for example, years of salary, business income, or investments. Exchanges may request either or both.
Yes. If the person who sent you crypto previously used a mixer (even if you had no knowledge of it), chain analytics tools will assign a high risk score to those funds. When they arrive at your exchange account, the compliance system may automatically flag them. This is one of the most unfair — but common — reasons for account freezes. We help clients prove they had no involvement with the mixer and that the funds were received legitimately.
A Politically Exposed Person (PEP) is someone who holds or has held a prominent public position. Exchanges are required to screen all customers against PEP databases. If your name matches — or is similar to — a PEP, your account may be automatically frozen pending Enhanced Due Diligence. This does not mean you are accused of corruption; it means the exchange must verify that you are not the flagged individual and assess whether your activity is consistent with your public role.
A Suspicious Activity Report (SAR) is filed confidentially with the national Financial Intelligence Unit. You will not be notified. The FIU reviews the report and may forward it to law enforcement if warranted. Meanwhile, the exchange will likely keep your account frozen. SARs are not accusations — they are reports of activity that might be suspicious. Having a SAR filed does not mean you have been charged with a crime.
The Travel Rule requires exchanges to collect and share sender and recipient information for crypto transfers above a threshold (typically USD 1,000 in the EU/UK). If you receive crypto from another exchange and the sender information is missing or incomplete, your exchange may freeze the incoming funds until the counterparty's exchange provides the required data. This is increasingly common as more jurisdictions enforce the Travel Rule.
If your exchange is using these terms in correspondence with you, it usually means your account is under review. The sooner you have legal counsel who understands the compliance framework, the better your chances of a swift resolution.
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