In the last few years, Know-Your-Customer (KYC) verification procedures have become vivacious to confirm that Anti-Money Laundering (AML) and Combating-Financing-of-Terrorism (CFT) efforts to curb cryptocurrencies-associated crimes are successful.
While AML authorities have focused on “traditional” financial crimes since the 1930s of Prohibition criminal kingpins such as Al Capone, current AML efforts aim to ensure that technological advancements like cryptocurrency don’t outdo the regulatory standards that traditional financial assets are subject to.
The cryptocurrency industry has strained to increase AML efforts by employing KYC and Know-Your-Transaction (KYT) processes to verify the real parties behind digital identities and transaction origins. However, the introduction of new regulations in the year 2018 from leading AML surveillance agencies like the Financial Action Task Force (FATF) and the U.S. Financial Crimes Enforcement Network (FinCEN) indicates that more needs to be done by 2020.
What exactly is AML in cryptocurrency?
The term “anti-money laundering” (AML) can be described as an all-encompassing legal term used to describe the rules and procedures used by institutions to detect and stop illegal transactions as well as terrorist financing. Many money laundering organizations also follow strategies designed to disguise fraudulent transactions so that they appear legitimate. AML regulations and procedures are designed to identify and stop these kinds of activities.
Many millions of dollars are cleaned out each year. In the past, banks are a primary source for laundering funds that are not restricted to boundaries. The authorities are concerned that cryptocurrencies could be the next financial instrument to launder money from anywhere in the world.
Because money laundering typically involves transactions between several countries and countries, there are international AML regulations that can be applied to the issue. It is known as the Financial Action Task Force, also known as FATF is the worldwide AML regulator that defines and regularly updates standards in international countries that are members to tackle terrorist financing and money laundering globally.
Particularly, in the realm of cryptocurrency, AML refers to the following and tracing blockchain transactions, as well as creating cycles of graphs to track the movements of funds. Based on the information they gather the solution providers can determine the location and manner in which money is traveling.
What is the process behind AML function?
Unusual money transfers, like huge inflows or outflows, are detected with the help of AML measures. The irregularity of cash withdrawals and deposits of funds are also tracked.
During an investigation, suspect customers aren’t allowed to conduct the financial transaction. Investigators will issue a Suspicious Activity Report (SAR)
If there is evidence of an illegal act, it’s given to the relevant authorities. Based on the findings the perpetrators are accountable for retribution and money will be transferred to the accounts they were originally in should they be found to have been stolen.
Which are AML guidelines applicable to Crypto Exchanges?
On a national level, Asian regulators are likely to make progress regarding the regulation of virtual assets. While monitoring their own Monetary Authority of Singapore (MAS) intensified their interaction with the industry in 2018.
The EU’s Fifth Anti-Money Laundering Directive (5 AMLD) establishes the requirements of AML for cryptocurrency exchanges that operate in the EU member states, which they are required to meet by the year 2020. The latest developments indicate that major changes are on the cards in the world of cryptocurrency regulation. will force the industry to implement new tools for monitoring and compliance within a short time.
Why do cryptocurrency exchanges require KYC/AML compliance?
The crypto exchange industry is a significant element of the cryptocurrency industry. As of the time of this writing, the total trade volume of the world’s crypto exchanges is more than $122 billion.
Because exchanges that use cryptocurrency facilitate massive amounts of transactions which means there’s a huge chance for criminals and money laundering organizations to hide enormous sums of money with no one noticing. This is possible if the exchange platform doesn’t have the right compliance software built-in in its exchange website.
Cryptocurrency exchanges that are compliant with rules and regulations can quickly detect fraudulent transactions, and track funds back to their customers. They can then trace the clients with the KYC details provided by them.
This will not just help cryptocurrency exchanges to promote more legal transactions using cryptocurrency as well as allow regulators to hold accountable individuals who are involved in illicit transactions. Additionally, being able to comply with the compliance program for crypto exchanges is put in place with greater efficiency, they will have a greater chance of gaining trust on their platform as well as in the cryptocurrency market.
What can you do to understand AML?
Anti-money laundering efforts gained the forefront of global attention around 1989 when a collection of nations and organizations from all over the world established the Financial Action Task Force (FATF). The purpose of FATF is to develop international standards to stop money laundering and to promote the implementation of those standards. In October 2001, in the wake of the terrorist attacks of 9/11, FATF expanded its mandate to include the fight against terrorist financing.
Another major institution in the fight against cash laundering and money laundering can be found in The International Monetary Fund (IMF). Much like the FATF, the IMF has been adamant in urging its members to abide by international standards to stop the threat of terrorist financing.
AML law and regulations are designed to combat the criminal elements that are involved in manipulating markets, the trade of illegal products and corrupting public finances, and tax evasion, as for the strategies employed to hide these crimes as well as the proceeds that are derived from these crimes.
Launderers can also get cash into foreign countries to deposit, place cash into smaller quantities to not arouse suspicion, or make use of illicit cash to purchase other cash instruments. Launderers may also use the funds to invest, employing untruthful brokers who are willing to disregard the law in exchange for huge commissions.