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What is AML & What Role It Plays In Crypto Industry?

by Alexander Malygin


4 min read

In recent years, cryptocurrencies have become an important feature of the global financial system. With the emergence of the first decentralized cryptocurrency Bitcoin in 2009, the total value and variety of cryptocurrencies in circulation have increased dramatically. Such demand and popularity of the industry are associated with new security and privacy capabilities without banks and government control and interference.

However, for regulated financial institutions (FIs), the opportunities offered by cryptocurrencies and distributed ledger technology (DLT) pose significant operational and regulatory challenges. The anonymity of transactions gives the green light to fraudsters, criminals, and terrorists. With the features of blockchain technology, criminals can easily dispense with traditional money in settlements among themselves and then freely withdraw funds through exchanges and other exchange services. Ultimately, this factor undermines legal confidence in cryptocurrencies. Regulators and law enforcement agencies are seriously concerned about this issue and are demanding transparency from businesses.

Previously, we have discussed the Know-Your-Customer (KYC and customer identification procedures on which existing anti-money laundering and counter-terrorist financing (AML) regimes depend. Today we will take a look at how criminals use cryptocurrency to launder money, how anti-money laundering measures work, and what it means for the global crypto community.

Anti-money laundering

AML stands for regulations and laws that prevent the movement and laundering of illegal funds. AML is closely associated with the FATF (Financial Action Task Force), created in 1989 to promote international cooperation. For example, anti-money laundering measures target the financing of terrorism, tax fraud, and international smuggling.

AML policy does not allow criminals to legalize proceeds. For example, if a financial institution suspects that a customer is using funds stolen during a hacker attack, it simply freezes the account pending further investigation. Today, there is a sufficient number of software and services on the market that identify the source of funds and have a “blacklist” of bitcoin addresses. This does not always require direct contact with a potential criminal, he may not even know about the investigation, which gives an additional advantage to both business and law enforcement agencies.

Role in Crypto

Cryptocurrency markets are potentially vulnerable to a wide range of criminal activity and financial crimes:

  • Trafficking in illicit goods
  • Hacking and identity theft
  • Market manipulation and fraud
  • Facilitating unlicensed businesses

In addition, the anonymity, liquidity, and borderless nature of cryptocurrencies make them highly attractive to potential money launderers. With crypto, there is the same three-stage process as cash-based money laundering:

At this stage, illegal funds enter the financial system through intermediaries such as financial institutions and exchanges.
At this stage, the structuring of transactions is carried out, which makes it difficult to decipher the traces of illegal funds.
At this stage, illegal money is returned to the economy with a clean status.

In turn, the main activity of a regulator or a cryptocurrency exchange that has introduced the AML procedure takes place in three stages:

Identification of suspicious activities is automatically marked.
It can be, for example, large inflows or outflows of funds, inconsistent behavior, say, an increase in the number of withdrawals from an inactive account.
Suspension of user’s ability to deposit or withdraw funds (during or after the investigation).
This is used to exclude possible money laundering activities. A Suspicious Activity Report (SAR) is then generated.
Reporting of illegal activity to law enforcement and financial regulators.
The stolen funds are returned to their rightful owners if possible.

Regulatory pressure to move away from anonymity and introduce AML measures wherever cryptocurrency markets touch the traditional financial services sector is causing the cryptocurrency market to be at odds. Most cryptocurrency exchanges take a proactive approach to combating money laundering, however, some don’t.

Find the best solution

Whether you are a law-abiding adherent of anonymity or would like to meet all legal requirements, we at Finscanner will make sure to find the most acceptable crypto option for you!

Here are some of the Centralized Crypto Exchanges available at our marketplace:

  • Binance — a crypto exchange founded in 2017 by Changpeng Zhao and registered in the Cayman Islands. It is the largest cryptocurrency exchange in the world in terms of trading volume, with more than 1.4 million transactions per second. The exchange strictly adheres to US regulations, is compatible with multiple devices, and provides safe and convenient trading.
  • Okex — a cryptocurrency exchange created in 2014 by Chinese developer Star Xu. It makes it easy to buy, sell, or trade cryptocurrencies by offering over 400 trading pairs, including pairs with fiat. OKEx offers advanced financial services as well as excellent guides for anyone new to crypto. There are investment programs, a referral program, and additional bonuses.

By contrast, you can also take advantage of the Decentralized Crypto Exchanges:

  • Uniswap — an open-source decentralized exchange protocol built on the Ethereum blockchain and operated by smart contracts. The popularity of the Uniswap decentralized exchange is breaking records as it ranks first in the Ethereum (ETH) network. Full decentralization, anonymity, availability of a large number of coins.
  • PancakeSwap — a decentralized cryptocurrency exchange powered by the Binance blockchain. The exchange was founded in 2020 and has already gained great popularity in DeFi. Today, its daily turnover is over $ 800 million.

The Finscanner marketplace is the right place to find your cryptocurrency exchange, wallet, DeFi project, and more! Feel free to reach out to us today and explore all crypto opportunities!

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