Anti-Money Laundering

Bitcoin was founded in 2008, and it has been more than a decade since then. The cryptocurrency industry is made up of over 7500 tokens with a market capitalization of $1.7T. We believe it is safe to say that cryptocurrencies are steadily gaining mainstream acceptance.

In contrast to the other industries of the financial ecosystem, however, the industry is still in its infancy. Although digital currencies have numerous advantages, they are sometimes used for illegal purposes.

AML

Anti-money laundering (AML) refers to a set of laws and regulations put in place by the government to discourage the theft and illicit storage of funds.

Is crypto-currency laundered as well? While cash laundering is still much more popular, hackers have discovered ways to steal money through cryptocurrency transactions.

Stages of Laundering

• Placement

Typically, you buy cryptocurrencies with cash or by exchanging them for other cryptocurrencies. While most exchanges conduct comprehensive identity authentication, there are still some services that aren't fully compliant.

Placing “dirty” money into a legal financial system is what placement is all about. Money launderers achieve this by creating digital currency exchange accounts within structures that accept fiat currencies.

• Layering

Criminals also use anonymizing services to mask the source of illicit funds. Yes, blockchain can be used to track crypto-based transactions, but criminals can break the ties, making it difficult to track both users and funds.

• Integration

This is the last step before criminals can use the money and pass it off as a legitimate transaction. To do so, criminals usually hire fictional workers, exploit various loans, and pay dividends to shareholders as a way to hide the funds. The main aim is to make the stolen cryptocurrency appear to be revenue from a successful company. Criminals may also use an offshore bank that accepts cryptocurrency payments.

AML Risks in Crypto

Unfortunately, cryptography is not impenetrable to offenders. Law enforcement officers are finding it more difficult to monitor and deter anti-money laundering activities as technology evolves.

• Trafficking of Illicit Goods

Some cryptocurrencies make it easier for criminals to pay for illegal goods and services, such as human trafficking, child pornography, methamphetamine, and a wide variety of dark web products and services.

• Abuse of the Market

As previously mentioned, blockchain allows crypto users to track and control their transactions. Market fraud involving unregistered ICOs (initial coin offerings) and VEs (virtual currency exchanges) is, however, still poorly controlled. These services may be used by criminals to exploit markets and perform fraudulent transactions.

• Hacking

If a criminal has access to a crypto wallet account, moving funds to anonymous addresses becomes relatively simple. These funds can also be liquidated easily. It's also virtually impossible to cancel these transactions after they've been completed.