What Is Wallet Screening? Wallet Risk Checks Explained

Wallet screening is the process of assessing the risk of a crypto wallet by checking its addresses against sanctions lists, known entity labels and on-chain risk indicators. Compliance teams use it to decide whether to onboard a customer, approve a transfer or ask more questions about where funds came from.

Who uses wallet screening

Exchanges and other VASPs, at customer onboarding and on withdrawals.
OTC desks, before settling a trade with a new counterparty.
Banks and payment companies whose customers move funds to and from crypto.
Law firms and accountants doing due diligence on a client's crypto holdings.

What a wallet screen covers

Sanctions exposure, direct and through counterparties.
Identification of the services the wallet uses, such as exchanges, mixers or DeFi protocols.
Counterparty exposure and fund flows.
Behavioral patterns and a risk score that shows what contributed to it.

One check or a program

A single screen answers a question at one point in time. A wallet's risk can change after the check: new sanctions designations, new labels, new counterparties. That is why wallets you keep doing business with are screened again or monitored continuously.

Wallet screening vs address screening

Wallet screening is the broader practice; crypto address screening is the check of one address. In practice, a wallet screen is made of address screens across every address the wallet uses.

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Frequently asked questions

Is wallet screening a legal requirement?

There is no single rule that says "screen every wallet". The requirement usually comes from sanctions and anti-money-laundering rules. For example, the US Treasury's Office of Foreign Assets Control (OFAC) says sanctions obligations are the same for digital currency and fiat, and that a risk-based compliance program generally should include sanctions list screening (OFAC FAQ 560). What applies to your business depends on where you operate and whether you are a regulated entity.

How often should a wallet be screened?

At onboarding, before large or unusual transfers, and again over time for wallets you keep doing business with, because lists and labels change.

What is the difference between wallet screening and KYT?

Wallet screening assesses a wallet at a point in time. KYT (Know Your Transaction) scores individual transactions as they happen. Most programs use both.