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Anti-Money Laundering (AML)

Anti-money laundering (AML) for cryptocurrencies is a set of rules and regulations established by entities to hinder money laundering through cryptocurrency exchanges and custodian services. It involves taking measures to prevent from being used to facilitate money laundering and other illicit activities. [1][2]


Money laundering is a way criminals convert illegally obtained cryptocurrency into cash. Exchanges and other cryptocurrency industries often comply with AML policies and procedures, like monitoring transactions for suspicious activity and verifying customers' identities, to prevent money laundering. Likewise, countries that have implemented AML regulations require crypto companies to comply with these laws and report any suspicious activities to the regulatory authorities. [1][2]

Overview

Money laundering affects both fiat and . Therefore, to reduce the risk and fight against financial criminal activity, anti-money laundering (AML) policies, rules, and laws were put in place. [1][3]

History

The Financial Action Task Force (FATF) is an intergovernmental body that sets global standards for anti-money laundering (AML) regulations, known as FATF recommendations. In 2014, FATF enacted AML guidelines specific to , prompting immediate action from policymakers in its member jurisdictions. Regulatory authorities such as the United States Financial Crimes Enforcement Network (FinCEN) and the European Commission were among those that took action based on FATF's AML regulations for cryptocurrency. [1][4]

The AML guidance's target is virtual asset service providers (VASPs), which include cryptocurrency exchanges, issuers, some protocols, and marketplaces. In addition, FATF directed VASPs' compliance officers to make checks compulsory and regularly monitor suspicious activity to hinder criminal transactions linked to money laundering and terrorist financing. Furthermore, VASPs were encouraged to report suspicious activity to the relevant regulators and agencies responsible for tracing unlawful activities to individuals. [1]

FATF recommendations focused only on money laundering, terrorist financing, and to some extent, purchasing weapons of mass destruction. However, FATF's recommendations extended into virtual assets (VAs) in response to their unregulated space, when cryptocurrency gained popularity. In October 2018, FATF expanded its focus on fiat, clarifying that its recommendations also apply to VAs and VASPs. In June 2019, VAs were listed under FATF's key issues and threats to financial system integrity. On the same day, FATF published its first guidance on a risk-based approach to VAs and VASPs. As of October 2021, the guidance was updated, and it will be revised every two years. [1]

AML Policy Compliance

Complying with AML regulations is a way of hindering financial criminal activity and other illicit activities. Crypto organizations can effectively comply with AML regulatory requirements by implementing a risk-based approach, monitoring and adapting to jurisdiction-specific regulations, employing AML screening procedures, seeking compliance expertise, staying informed about regulatory changes, embracing technological solutions, etc. [2]

Implementing a risk-based approach

Compliance with AML policies under a risk-based approach requires thorough risk assessments. This will help identify and prioritize potential risks associated with money laundering and other financial crimes. Also, regular reassessment of money laundering risks will help stay up-to-date with the ever-evolving regulatory landscape. [2]

Monitoring and adapting to jurisdiction-specific regulations

Staying informed about the specific nuances and considerations applicable to operations in various regions where organizations' businesses are located is crucial. This is because different jurisdictions have varying perspectives on cryptocurrency regulations. [2]

Employing AML screening procedures

Tools such as and CDD (customer due diligence), when utilized, verify users' identities and detect suspicious activities. Also, screening services for sanctions and politically exposed persons (PEPS) are effective in AML screening procedures. [2]

Seeking compliance expertise

Hiring compliance specialists with experience in regulatory, banking, and financial technology (FinTech) backgrounds can help crypto organizations ensure they adhere to compliance requirements. These professionals can also help them navigate the complex regulatory landscape. [2]

Staying informed about regulatory changes

Being updated on the latest regulatory developments by engaging in horizon scanning to anticipate upcoming changes is a way of implementing AML. [2]

Embracing technological solutions

When advanced industry technical tools like Sanction Scanner, an -supported compliance tool, are leveraged, it will amount to a streamlined compliance process that enhances effectiveness in detecting and preventing financial crimes. [2]

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Anti-Money Laundering (AML)

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