The appeal of Crypto lies in their privacy and financial independence, but their decentralized and anonymous features also enable illegal activities. Cryptocurrencies are used for money laundering, turning illegal money into seemingly legitimate assets. They’re also used in ransomware attacks, demanding payments in digital currency to unlock stolen data. Also, they are used for terrorism financing and international crimes like human trafficking and drug trade, offering a discreet way to transfer funds globally.
The dual nature of cryptocurrencies highlights the need for strong regulations to address their misuse while preserving their benefits. Large and regulated crypto exchanges implement anti-money laundering tools and checks (such as Bitcoin AML on WhiteBIT). It helps them maintain compliance with regulations and prevent illicit activities such as money laundering and terrorist financing.
Cryptocurrency and Money Laundering
Crypto money laundering is the process of converting illegally obtained money into “clean” assets with the use of digital assets. Money launderers use different techniques to do so, with the main goal of hiding the funds’ origin and withdrawing them as legal money.
Money laundering usually follows three steps:
- Placement (putting illegal money into the financial system)
- Layering (hiding where the money came from through many transactions)
- Integration (using the money in normal ways, like buying property or using it in a business).
Crypto exchanges that don’t comply with regulations can facilitate these money laundering steps. Launderers turn cash into crypto on exchanges and move from illegal wallets to exchange wallets.
Cryptocurrency AML Regulations
The Financial Action Task Force (FATF) released recommendations that touch upon any crypto-related businesses. It includes VASPs (virtual asset services providers), token issuers, wallets, and market-making services on crypto platforms (such as crypto market making services on WhiteBIT exchange). Those recommendations include compliance with AML for crypto businesses that provide exchanging services (including crypto/fiat), safekeeping digital assets, and other related operations.
Here are the main statements:
- KYC procedures. Exchanges conduct thorough identity verification (know your customer) processes for all users. This step is crucial for understanding who their customers are and for preventing identity theft and financial fraud.
- Transaction monitoring. Continuously monitor transactions on crypto platforms for any suspicious patterns or activities. It helps identify and investigate potentially illegal transactions, such as money laundering or terrorism financing.
- Reporting. VASPs are required to report any suspicious transactions to the relevant authorities. Reporting ensures that any potential risks are communicated to law enforcement agencies.
AML cryptocurrency compliance is an important aspect of cryptocurrency transactions to prevent money laundering and other illegal activities. With proper regulations and measures in place, the industry can continue to grow and evolve while maintaining the trust and security of its users.
