How provide a sender address to a Know Your Transaction service

Question

Due to the recent change in regulatory bodies, crypto businesses are now being asked to prevent their customers from facilitating transactions used for money laundering and other illicit activities such a purchasing illegal goods or services. A preventative measure called Know Your Transaction (KYT) has become a necessity to combat this.

KYT services use on-chain analysis to determine if a sender's address is high or low risk.

However I have recently come across the issue that some bitcoin transactions appear to have multiple input addresses (example). I have read some posts here outlining that it is difficult to determine the true sender address from one of these transactions.

I would like to know if providing one of the sender addresses is good enough for the KYT service to determine if the transaction is high risk, or should I attempt to pass each of the sender addresses (for multi-sender transactions) as separate transactions. One drawback of the latter is that we pay per usage for each sender address, so it would result in higher fees.

I would like to point out that:

1. I am using Coinbase Analytics
2. I'm not sure if this is relevant but the transaction occurs on-chain and if it is flagged as high risk we would return the BTC to the customer

Answer 1

I would like to know if providing one of the sender addresses is good enough for the KYT service to determine if the transaction is high risk

I don't see how it could be good enough. If one of the other sender addresses is high risk, your service would give a false result. Wouldn't you knowingly have failed to adequately assess the risk and thereby aided in the processing of criminally obtained funds? At the least it seems negligent.

However I am not a KYT compliance officer, just some random person in the Internet. You should probably instead ask both your KYT service and a lawyer.