There are many ways to
launder money, but
cryptocurrencies make it easier than ever. AML and
KYC on crypto exchanges can be a way of fighting back against the problem.
Quick Overview on AML and KYC
AML stands for Anti-
Money Laundering and
KYC is
Know Your Customer.
AML is about making sure that financial institutions identify their customers and know who they're doing business with so they don't get involved in
money laundering or terrorist financing activities.
KYC means that these financial institutions "know" their
customer by verifying the
identity of those seeking to open accounts or conduct transactions."
Money Laundering and Crypto Stats
- In 2019, criminals laundered around $2.8 billion in Bitcoin through cryptocurrency exchanges, an increase of around $1.8 billion from 2018. (Source)
- Bitcoin accounts for only $2.5 billion of money laundering since its inception in 2009. (Source)
- A third of cross-border Bitcoin volume is sent to exchanges with demonstrably weak KYC. (Source)
- US Exchanges Sent $41.2 Million Directly to Criminals (Source)
Why Crypto is Being Used for Money Laundering
Cryptocurrencies have a number of benefits and drawbacks when compared to traditional money. Criminals are exploiting these flaws for their fraudulent activities and
profit-making in general.
Here are some key factors that make
cryptocurrencies attractive to
money laundering.
- Lack of regulation: Traditional financial channels are tightly controlled and legally protected across the world. Cryptocurrencies, on the other hand, are largely unregulated or lightly regulated in many nations, with governments often opposing their usage of any kind. This lack of worldwide protection and regulation makes them appealing to criminals as a powerful instrument for laundering unlawful money.
- Anonymity or pseudonymity: The anonymity of cryptocurrency transactions makes many money-laundering operations possible. There are numerous wallet providers and crypto exchanges that provide services with little to no AML or KYC safeguards in place.
- Payment option for crime: Cryptocurrencies are already being utilized by criminals to facilitate such activities as ransomware and unlawful online gambling.
Fighting Money Laundering on Crypto Exchanges
There are AML and
KYC regulations on traditional financial institutions, but there is no such regulation for
cryptocurrency exchanges. Both AML and
KYC are important in the fight against
money laundering on crypto exchanges. By implementing AML and
KYC procedures, exchanges can help ensure that they aren't being used to launder money or finance terrorism.
In addition, by verifying the identities of their customers, exchanges can help protect their customers from identity theft and other financial crimes.
Crypto exchanges that implement AML in their processes will be able to quickly and easily achieve compliance with global
AML regulations. In addition, they'll be better protected against
money laundering and other financial crimes.
