ANTI-MONEY LAUNDERING, COUNTER-TERRORIST FINANCING, AND KNOW YOUR CLIENT (AML/CTF & KYC) POLICY

1654.exchange

1. INTRODUCTION

1.1 Purpose

This Anti-Money Laundering, Counter-Terrorist Financing, and Know Your Client (AML/CTF & KYC) Policy (hereinafter referred to as the “Policy”) has been established by 1654.exchange (hereinafter referred to as the “Company”) to comply with the regulatory requirements set forth by:

• Regulation (EU) 2023/1114 (MiCA) — which mandates AML/CFT measures for Crypto-Asset Service Providers (CASPs).
• Directive (EU) 2015/849 (4th AMLD) and Directive (EU) 2018/843 (5th AMLD) — European uniоn Anti-Money Laundering Directives.
• Directive (EU) 2019/1153 (6th AMLD) — which enhances enforcement and cross-border cooperation.
• Financial Action Task Force (FATF) Recommendations — international guidelines for AML/CTF compliance.
• European Banking Authority (EBA) Guidelines — outlining risk-based AML approaches for financial institutions.

The objective of this Policy is to prevent and mitigate any potential risks of 1654.exchange being involved in illegal financial activities, including but not limited to:

• Money laundering (ML)
• Terrorist financing (TF)
• Tax evasion
• Fraud and corruption
• Proliferation of weapons of mass destruction (WMDs)
• Human and drug trafficking

This Policy applies to all employees, partners, clients, and third-party service providers engaged with 1654.exchange.

1.2 Regulatory Scope and Applicability

The Company, as a Crypto-Asset Service Provider (CASP), is subject to MiCA, EU AML Directives, and applicable AML legislation. All clients, transactions, and business relationships are subject to risk assessment, identity verification, and ongoing monitoring in compliance with these regulations.

This Policy applies to:

• All clients and users of 1654.exchange’s services, including corporate and individual customers.
• Company personnel, including the Compliance Officer, risk management team, and executives.
• Third-party service providers engaged in financial transactions or related operations.
• Business partners involved in transactions with 1654.exchange.

1.3 AML/CTF Principles

1654.exchange adheres to the following core AML/CTF principles:

• Risk-Based Approach (RBA): We assess clients and transactions based on risk levels, applying enhanced due diligence where required (MiCA Article 64).
• Know Your Client (KYC): We conduct identity verification before allowing transactions, in line with MiCA and FATF recommendations.
• Suspicious Activity Monitoring (SAM): We track transactions and apply behavioral analytics to identify unusual activity (MiCA Article 67).
• Regulatory Reporting: We report suspicious transactions to the competent Financial Intelligence Unit (FIU) within 24 hours.
• Data Retention & Protection: We store AML-relevant records for a minimum of 5 years, as per GDPR and MiCA Article 68.

2. CLIENT IDENTIFICATION & KYC PROCEDURES

2.1 Know Your Client (KYC) Policy

Before establishing any business relationship, 1654.exchange must verify the identity of its clients, ensuring that all necessary KYC checks are conducted. This process includes:

• Client Identification & Verification: Collection of government-issued ID, proof of address, and verification against global watchlists.
• Beneficial Ownership Identification: For corporate clients, identifying Ultimate Beneficial Owners (UBOs) in line with AML Directives.
• Source of Funds & Source of Wealth Checks: Ensuring that all funds involved in transactions have a legal origin.
• Ongoing Monitoring & Periodic Reviews: Continuous monitoring of high-risk customers and re-evaluation of risk profiles.

2.2 Required KYC Documentation

For Individuals:

• Government-issued identification (passport, national ID, or driver’s license).
• Proof of address (utility bill, bank statement, or tax document issued within the last 3 months).
• Selfie verification (real-time facial verification against the provided ID).
• Source of funds documentation (bank statements, salary slips, investment records).

For Legal Entities (Corporate Customers):

• Certificate of Incorporation & Articles of Association.
• Extract from the commercial register confirming business registration.
• Identification of Ultimate Beneficial Owners (UBOs) (holding more than 25% shares).
• List of company directors & authorized representatives.
• Recent financial statements (for EDD cases).

2.3 Enhanced Due Diligence (EDD)

For high-risk clients, 1654.exchange will apply Enhanced Due Diligence (EDD) procedures, including:

• PEP (Politically Exposed Person) Screening: If the client is a government official, special approval is required before onboarding.
• Sanctions & Watchlist Screening: Checking against OFAC, EU, UN, and other regulatory lists.
• High-Risk Jurisdiction Assessment: Transactions involving high-risk countries will require additional verification and approval from the Compliance Officer.
• Transaction Justification: Clients must provide proof of legitimate business operations for large transactions.

3. TRANSACTION MONITORING & REPORTING

3.1 Transaction Monitoring Process

1654.exchange monitors transactions in real-time using a risk-based approach. The systеm flags transactions that exhibit anomalous patterns or match known money laundering typologies.

The Company utilizes third-party blockchain analytics tools to support AML monitoring.

AMLbot.com is used as the primary AML analyzer. The Risk-Score model is based on data provided by AMLbot, and its results are used for decision-making regarding transaction approval, blocking, or further investigation.

Indicators of Suspicious Transactions:

• Rapid movement of large funds between multiple wallets/accounts.
• Structuring transactions to avoid reporting thresholds (€10,000+).
• Use of privacy-focused cryptocurrencies (Monero, Zcash) without legitimate justification.
• Deposits followed by immediate withdrawals with no logical purpose.
• Transactions involving sanctioned entities, high-risk jurisdictions, or politically exposed persons.

3.2 Reporting of Suspicious Transactions (SAR/STR)

If suspicious activity is detected, 1654.exchange will:

• Escalate the case to the Compliance Officer.
• Report to the competent FIU (Financial Intelligence Unit) within 24 hours.
• Freeze the account if necessary, pending regulatory review.

AML Review Timeframes

AML checks, including KYC/SoF procedures, may take up to 90 (ninety) days from the date of the transaction, depending on the complexity of the case. The Company will notify the client of the ongoing review and any additional documentation required. During this period, the relevant funds or transactions remain suspended pending the outcome of the review.

Provide transaction details, supporting documents, and risk assessment data to authorities.

3.3 Prohibited Transactions

1654.exchange strictly prohibits transactions involving:

• Anonymous cryptocurrency mixers (Tornado Cash, Wasabi Wallet, etc.).
• Clients from high-risk jurisdictions (as defined by the FATF).
• Shell companies without clear business justification.
• Cryptocurrencies with no traceability or compliance framework.

4. RISK MANAGEMENT & GOVERNANCE

4.1 Risk-Based Approach (RBA)

1654.exchange follows a risk-based approach (MiCA Article 64) by classifying clients into Low, Medium, and High Risk categories. Risk factors inсlude:

Risk-Score Model & Thresholds

The Company applies an automated Risk-Score model based on blockchain analytics (powered by AMLbot) to assess the risk level of each transaction and source of funds.

Each transaction is assigned a Risk-Score categorized as:

• Low Risk — transaction proceeds normally.
• Medium Risk — transaction is temporarily blocked pending AML review; the client is required to undergo KYC and Source of Funds (SoF) verification.
• High Risk — transaction is blocked; the client is subject to full Enhanced Due Diligence (EDD), KYC, and SoF procedures. The case is escalated to the Compliance Officer.

Transactions associated with Medium or High Risk levels are subject to temporary blocking for AML review purposes. In such cases, the Company reserves the right to initiate KYC and SoF verification procedures before releasing or rejecting the transaction.

• Customer risk (PEPs, sanctioned individuals, high-risk businesses).
• Transaction risk (large-value, frequent, or cross-border transactions).
• Geographical risk (involvement of high-risk countries or offshore jurisdictions).

4.2 Role of the Compliance Officer

The Compliance Officer is responsible for:

• Ensuring full AML/CTF compliance.
• Reviewing suspicious transactions and escalating SAR reports.
• Conducting annual risk assessments and audits.
• Liaising with regulatory bodies (FIU, ESMA, EBA).

5. DATA RETENTION & PRIVACY PROTECTION

5.1 Data Retention Requirements

1654.exchange ensures that all AML/CTF-related data is collected, stored, and protected in compliance with:

• MiCA (Regulation (EU) 2023/1114), Article 68 — Data retention requirements for crypto-asset service providers (CASPs).
• General Data Protection Regulation (GDPR) (EU) 2016/679 — Data privacy and protection rules within the EU.
• Directive (EU) 2015/849 (4th AMLD) and Directive (EU) 2018/843 (5th AMLD) — Mandating record-keeping requirements.

All KYC and transaction records must be maintained for at least five (5) years after the termination of the business relationship or the completion of a transaction, in line with AML regulations.

5.2 Categories of Retained Data

1654.exchange will retain and protect the following data:

• Client Identification Data — Copies of passports, national IDs, proof of address, and beneficial ownership details.
• Transaction Records — Wallet addresses, transaction hashes, bank transfer details, and invoices.
• AML Monitoring Reports — Risk assessment results, suspicious activity reports (SARs), and audit logs.
• Correspondence with Regulators & Law Enforcement — Requests for information, legal notices, and regulatory communications.

5.3 Secure Storage & Data Protection

1654.exchange implements robust data protection measures to safeguard client information:

• Data encryption using AES-256 encryption.
• Secure access control & role-based data permissions.
• Regular security audits and penetration testing.
• GDPR-compliant right to access, rectification, and erasure.

5.4 Data Sharing & Disclosure

1654.exchange will only share client information under the following conditions:

• Law enforcement requests from regulatory bodies (e.g., FIU, ESMA, EBA).
• AML cooperation with partner institutions (e.g., banks, payment providers).
• Court orders requiring disclosure of financial data.

No data will be shared without legal justification or the client’s explicit consent, except in cases required by AML laws and regulations.

6. SANCTIONS, RESTRICTED COUNTRIES, & PROHIBITED ACTIVITIES

6.1 Sanctions Screening & Restricted Countries

1654.exchange strictly complies with global sanctions regimes, including:

• EU Sanctions List
• OFAC (U.S. Office of Foreign Assets Control) Sanctions List
• UN Security Council Sanctions List
• UK HM Treasury Sanctions List

Clients from the following high-risk jurisdictions (as defined by FATF & EU Directives) are restricted from using 1654.exchange’s services:

• North Korea (DPRK)
• Iran
• Syria
• Cuba
• Crimea, Donetsk, Luhansk (Sanctioned regions)
• Other FATF-designated high-risk jurisdictions

1654.exchange automatically screens all clients against sanctions databases to ensure full compliance.

6.2 Prohibited Activities

1654.exchange strictly prohibits engagement in illegal, unethical, or high-risk financial activities, including but not limited to:

• Money laundering & terrorist financing.
• Use of privacy coins (Monero, Zcash) for anonymous transactions.
• Use of cryptocurrency tumblers/mixers (e.g., Tornado Cash, Blender.io).
• Transactions involving darknet markets or illicit services.
• Fraud, tax evasion, or financial crime facilitation.
• Use of high-risk payment methods without verification (e.g., prepaid cards, cash-based vouchers).

6.3 Account Termination for AML Violations

1654.exchange reserves the right to immediately suspend or terminate accounts found to be engaging in prohibited activities.

In case of AML violations, accounts will be reported to the competent FIU and further action will be taken.

Funds linked to illicit activity may be seized and transferred to regulatory authorities as per EU AML laws.

7. COMPLIANCE GOVERNANCE & AUDIT FRAMEWORK

7.1 Internal AML Compliance Framework

1654.exchange has implemented a multi-layered AML compliance framework, consisting of:

• Compliance Officer: Responsible for overall AML policy enforcement.
• Risk Management Team: Conducts risk profiling, KYC reviews, and transaction monitoring.
• Independent Auditors: Conduct annual AML compliance audits (as per MiCA & AMLD requirements).
• Board Oversight: Ensures executive accountability for AML/CFT obligations.

7.2 Third-Party AML Audits

To comply with applicable crypto exchange and banking AML policies, 1654.exchange will:

• Engage external AML auditors to perform independent compliance assessments.
• Submit periodic AML reports to financial institutions, as required under MiCA Article 66.
• Ensure AML audits meet FATF & EU compliance standards to maintain banking and exchange relationships.

7.3 Annual Risk-Based Assessments

1654.exchange conducts an annual AML risk assessment, which includes:

• Identification of evolving financial crime threats.
• Review of risk mitigation controls & transaction monitoring effectiveness.
• Evaluation of high-risk clients & transactions.
• Policy updates to align with new AML regulations.

8. REPORTING, TRAINING & POLICY UPDATES

8.1 Reporting Obligations

1654.exchange will submit Suspicious Activity Reports (SARs) & Suspicious Transaction Reports (STRs) to:

• The competent Financial Intelligence Unit (FIU).
• European Securities and Markets Authority (ESMA) for crypto-related cases.
• Other competent national regulators, as required.

Reports will be submitted within 24 hours upon detection of high-risk or suspicious transactions.

8.2 Employee Training & AML Awareness

All employees must undergo mandatory AML training covering:

• AML/CTF legal framework & regulatory obligations.
• Identifying & reporting suspicious transactions.
• Use of blockchain analytics tools for compliance monitoring.
• Sanctions screening & high-risk customer profiling.

Annual refresher courses will be conducted to ensure staff remain up to date with evolving AML regulations.

8.3 Policy Review & Updates

This AML/CTF & KYC Policy will be reviewed and updated annually to:

• Ensure compliance with evolving EU & FATF AML standards.
• Reflect changes in regulatory expectations (MiCA, AMLD, GDPR).
• Integrate new risk assessment methodologies & monitoring tools.

9. FINAL PROVISIONS

9.1 Policy Acknowledgment

All clients, employees, and third parties must acknowledge and comply with this AML/CTF & KYC Policy.

9.2 Legal Disclaimer

This document is intended to ensure compliance with applicable AML/CTF laws and is subject to regulatory updates and jurisdictional requirements.

10. REFUND POLICY FOR AML-RELATED CASES

In cases where a transaction is blocked due to AML concerns, the Company may process a refund under the following conditions:

Refund Conditions:

• Funds will be returned to the original sending cryptocurrency address from which the transaction was initiated.
• Alternatively, funds may be returned to an alternative address provided by the client, provided that the request is submitted exclusively from the same email address used during account registration and the original transaction request.
• The Company reserves the right to request additional identity verification before processing the refund.

Refund Timeframes:

Refund requests are processed after the completion of the AML review. As noted in Section 3.2, AML checks may take up to 90 (ninety) days. Clients will be notified once the review is concluded and the refund has been initiated.

Refund Fees:

The refund fee is limited strictly to the applicable blockchain network fee. No additional service or processing fees are charged by 1654.exchange.

CONTACT INFORMATION

For AML-related inquiries or reports of suspicious activity, please contact:

Compliance Department: compliance@1654.exchange