The cryptocurrency industry is still relatively young, but institutional adoption has already begun. As the number of cryptocurrency traders and investors grows, so does the need to protect them from financial crime. It refers to both cryptocurrency service providers and investors.
The term “anti-money laundering” is not new in the financial sector and does not seem to have much relevance in the cryptocurrency industry either. What is anti-money laundering and why is it an important aspect of regulating this industry? Today we will discuss these topics.
Cryptocurrency Money Laundering: Some Examples
In 2022, blockchain analytics company Chainalytic produced a cryptocurrency crime report and revealed that the total amount of funds laundered in 2021 was $8.6 billion, a 30% increase from 2020. Since 2017, the amount laundered through cryptocurrency exchanges amounts to $33 billion.
It is no secret that the Iranian government is using cryptocurrencies to circumvent sanctions. The U.S. Department of Justice uncovered illegal activities by Iranian companies using cryptocurrencies to circumvent U.S. sanctions by processing transactions through Bianance totaling $8 billion. For example, Hamas terrorists were funded through Russian cryptocurrency exchanges. The need for robust cryptographic AML rules is self-explanatory.
What is AML for Cryptocurrencies?
AML check encryption refers to a range of policies and guidelines developed by regulators and designed to identify and deter financial criminals attempting to convert illegally obtained funds into cash. The Financial Action Task Force (FATF) has published a report on the risks that cryptocurrencies may pose and highlighted aspects that need to be considered.
- anonymous. Unlike financial transactions in banks, where user identification is required, cryptocurrency asset transactions are based on decentralization and anonymity. Therefore, we may not have the opportunity to identify users with whom they are transacting.
- Reach beyond borders. Unlike cross-border bank transfers, where the sender and recipient are identified and entered into the system, global cryptocurrency transactions are not locked in by a central authority.
- Due to its decentralized nature, it is not possible for many states to impose AML cryptocurrency laws on cryptocurrency transactions. They are completely digital and not anchored anywhere but the blockchain.
Cryptocurrency AML checks are mandatory for centralized cryptocurrency trading platforms, stablecoin issuers, and Dome DeFi projects. AML means continuously monitoring customer transactions for suspicious behavior and forwarding such cases to the relevant regulators.
final thoughts
Terrorist states and financial fraud are actively using cryptocurrencies for disguised transactions and money laundering. Therefore, the importance of AML screening should not be underestimated. All businesses engaged in cryptocurrency services must comply with AML laws if they do not wish to become involved in criminal schemes.