Cryptocurrencies are known for their decentralized nature, which attracts users with ease, allowing money to be transferred across the globe and low transaction fees. In addition, the crypto market is highly volatile, allowing for capitalizing on price swings. This industry is developing at a rapid pace, launching new products and services and attracting institutional investors to the space. However, not everything is so rosy in the crypto sector. Decentralization stands as the biggest advantage and disadvantage, allowing for lower fees and faster money transfers worldwide on the one hand and money laundering on the other.
In this article, we will discuss anti-money laundering in the crypto sector, specifically for crypto exchanges, and explain how they can implement check AML compliance.
What is AML for Crypto?
AML (anti-money laundering) is a range of procedures that allow the detection of and prevention of financial criminals from disguising illegally obtained assets via crypto transactions.
Criminals who aim to obscure their financial sources use crypto platforms for multiple funds, moving from wallet to wallet, converting them into other crypto assets, and finally cashing out laundered money.
To control such illegal activities (which often finance terrorists and allow countries like Iran to bypass sanctions), governments introduced regulations that touch on crypto trading exchanges. For the USA, it is the Financial Crimes Enforcement Network (FinCEN), for the United Kingdom – the Financial Conduct Authority (FCA); for the European Union – the Financial Intelligence Unit (FIU). So, what’s the procedure for a crypto AML check?
How Crypto Exchanges Follow AML Cryptocurrency Compliance
Here are the steps crypto exchanges follow to meet the requirements of AML regulations:
- Registration of an entity that provides services with virtual assets.
- Implementation of KYC (know-your-customer) procedure for newly registered customers.
- In some cases, a crypto business has to conduct enhanced due diligence (EDD) on their clients, where there is a need for scrutiny of clients’ activities.
- Monitoring of transactions and identifying patterns that signal illegal activities.
- Report on any shady activities that occur on a trading platform by passing the information about the client to relevant regulation bodies.
- Training and learning updates in regulations. Crypto companies must provide regular training for personnel on the AML aspects, explain their role in meeting AML crypto regulations, and update knowledge about new regulations.
The crypto industry brings enormous earning opportunities, attracting more and more investors to the sector and introducing advanced tools and products. Financial entities engaged in digital assets should implement crypto AML tools to comply with existing regulations and avoid getting involved in financial crimes.