Cryptocurrency and Money Laundering

During the last few years, cryptocurrencies have made a great leap towards institutional adoption, with numerous of the world’s biggest companies entering this sector. In the past, the crypto market was a place for retail traders and tech-savvy individuals, but today’s market expansion toward institutional investment unveils the need for stringent regulations and compliance.

The growing number of money laundering and terrorist financing cases with the use of crypto forced governments to take steps in developing regulations that will help detect and prevent financial crimes. Regulatory bodies of different countries are elaborating on laws and standards to be applied to the crypto business.

In this article, we will answer the question, what is AML in crypto, and why is it crucial to comply with it?

Regulatory Framework of the Crypto Industry

Here is the list of regulators working on developing regulations for the crypto sector:

FinCEN (Financial Crimes Enforcement Network, U.S. Treasury) requires crypto service providers to implement and maintain AML cryptocurrency compliance. FinCEN qualifies businesses that provide digital assets transactions as regulated entities.

CFTC (Commodity Futures Trading Commission) adopted the idea that crypto assets fall into the category of commodity and that companies providing crypto swap services should operate within this jurisdiction.

SEC (Securities and Exchange Commission) develops regulations applied to brokers engaged in crypto with a focus on crypto AML compliance. The SEC has concentrated its efforts on enforcing crypto regulations associated with unregistered sales of securities.

Crypto AML Compliance

AML (anti-money laundering) compliance in the cryptocurrency space ensures the integrity and security of digital financial transactions. It involves implementing measures to verify user identities, monitor transactions for suspicious behavior, and adhere to regulatory standards. Today, many crypto businesses hire specialists in banking compliance to oversee their AML crypto compliance and enhance protection for their businesses.

AML mechanism helps prevent “layering”, a process where financial criminals move money between multiple institutions and convert it into multiple assets to disguise their origin. Using crypto wallets, criminals move funds through hundreds of wallets to confuse the trail and eventually cash out via a crypto exchange. Note that when it comes to registering a wallet on a crypto exchange, many services allow you to do it without proof of identity.

Tools like AML crypto checker help identify if funds come from a dark web marketplace and analyze the risks associated with a particular wallet by analyzing the risks associated with other holders who transacted with this wallet.

Conclusion

Increasing cases of money laundering and financial fraud through crypto create a pressing need for cryptocurrency AML compliance. Every crypto company or virtual asset provider must adhere to AML laws to avoid being involved in financial crimes.