Anti-Money Laundering is one of the must-know topics in the crypto sphere as a trader but before we dive into the topic, let’s have a quick look at what money laundering is;
Money laundering is a type of financial crime. It involves taking criminally obtained proceeds (dirty money) and disguising their origins so they’ll appear to be from a legitimate source.
Anti-money laundering (AML) refers to the activities financial institutions perform to achieve compliance with legal requirements to actively monitor for and report suspicious activities. That’s not all.. this article will go over how AML works and all other vital information.
What Is Anti-Money Laundering (AML)?
Anti-money laundering (AML) refers to methods used to prevent criminals from converting illegally obtained crypto assets into fiat money. Customer verification and crypto travel rules are two examples of anti-money laundering practices.
Anti-money laundering is a broad term that encompasses many different laws, regulations, and techniques. However, all of the various anti-money-laundering methods have one goal in mind: to combat money laundering.
The Financial Action Task Force(FATF) recommends anti-money-laundering regulations for cryptocurrency. This organization establishes standards for blockchains to follow in order to detect and report suspicious transactions, thereby combating crypto laundering. Though anti-money-laundering regulations aren’t required by law in most countries, they can improve the security of a blockchain and reduce the need for government intervention.
How AML Works
Anti-Money Laundering is all about identifying common methods of money laundering and making these methods more difficult. Because there are so many different types of blockchain, not all anti-money-laundering techniques will be equally effective.
Some AML techniques prioritize preventing frequent transactions, whereas others prioritize user verification. In general, anti-money laundering is intended to ensure that cryptocurrency is used for investing or financial transactions rather than secretly moving money around. AML also helps the government identify criminals and seize illicit crypto assets.
Most anti-money laundering strategies do not aim to completely eliminate money laundering. Instead, their primary goal is to make large amounts of money more difficult to launder. Even with strict anti-money-laundering policies in place, a small-time criminal may be able to launder minor sums.
Major crime lords, on the other hand, can no longer use crypto assets to launder thousands of dollars at once. Anti-money-laundering regulations have proven to be an effective way of catching the worst offenders while still providing legitimate users with some privacy and anonymity in their transactions.
Ways to Ensure Anti-Money-Laundering Compliance
Many different techniques can keep cryptocurrency platforms from becoming money-laundering hubs. Here are a few of the most popular methods.
Know Your Customer (KYC)
Know your customer(KYC), is a set of identity verification procedures that enables any virtual asset service provider to keep track of who is using their services. This may imply recording each cryptocurrency trader’s legal name, passport number, and/or date of birth. It may also entail tracking the purchases of each user account, even if the account’s real-world identity is known.
KYC is useful for preventing money laundering, but users who value privacy tend to oppose this anti-money-laundering practice.
Customer Due Diligence (CDD)
Customer due diligence, or CDD, is the use of research and statistics to prevent money laundering. Customer transaction reviews can be used by cryptocurrency companies to identify risky accounts and closely monitor them. This typically necessitates more complex software and employee labor, but it can be extremely beneficial.
Crypto Travel Rule
The crypto travel rule is a regulation that requires customers to conduct due diligence every time they move crypto assets. Companies can detect red flags by verifying the identities of both the sender and receiver in a transaction. Depending on the policies in place, a provider may choose to stop suspicious transactions before they occur.
History Of AML
Efforts to police illicit gains date back centuries, but the term “money laundering” is only about 100 years old and has been widely used for less than 50.
The 1970 Bank Secrecy Act, passed in part to combat organized crime, was the first major piece of AML legislation in the United States. In addition to requiring banks to report cash deposits of $10,000 or more, the legislation required banks to identify individuals conducting transactions and to keep records of transactions.
In 1974, the United States Supreme Court upheld the constitutionality of the Bank Secrecy Act, the same year that the term “money laundering” became popular during the Watergate scandal.
Additional legislation was enacted in the 1980s to combat drug trafficking, in the 1990s to expand financial monitoring, and in the 2000s to cut off funding for terrorist organizations.
The Financial Action Task Force (FATF) was formed in 1989 by a group of countries and international organizations to combat money laundering. Its mission is to develop and promote international money-laundering prevention standards. Following the 9/11 terrorist attacks, FATF expanded its mandate to include combating terrorist financing in October 2001.
The International Monetary Fund (IMF) is another important organization in the fight against money laundering. The IMF, like the FATF, has pressed its member countries to follow international standards to combat terrorist financing.
The United Nations incorporated anti-money laundering provisions into its 1998 Vienna Convention on drug trafficking, the 2001 Palermo Convention on international organized crime, and the 2005 Merida Convention on corruption.
The Anti-Money Laundering Act of 2020, which was passed in early 2021, was the most comprehensive overhaul of AML regulations in the United States since the Patriot Act of 2001. The Corporate Transparency Act, included in the 2021 legislation, made it more difficult to use shell companies to avoid anti-money laundering and economic sanctions measures.
The legislation also subjected cryptocurrency exchanges as well as arts and antiquities dealers to the same customer due diligence requirements as financial institutions
Conclusion
Criminals used cryptocurrency to launder a whopping $8.6 billion in criminal funds in 2021 alone. While the anonymity of cryptocurrency can be beneficial to the average user, it also makes coins vulnerable to criminal activity.
Fortunately, many cryptocurrency assets are beginning to employ anti-money-laundering measures. These safeguards can help prevent financial crime and keep law enforcement agencies out of the crypto space.
