Cryptocurrency operates on a decentralised network, allowing for seamless cross-border transactions.
Although blockchain technology has often been praised for its ability to maintain anonymity, the truth is that the transparency of public ledgers makes it possible to track crypto transactions all the way from the sender to the recipient.
Despite the small percentage of cryptocurrency usage for illicit purposes, implementing anti-money laundering (AML) regulations is essential. These regulations necessitate that crypto exchanges enforce know-your-customer (KYC) and AML checks.
Real-life Cases of Money Laundering via Crypto
Historically, there have been significant cases highlighting the use of cryptos in money laundering. In 2018, the Russian national Alexander Vinnik was charged by the US Department of Justice for laundering approximately $4 billion through the unlicensed bitcoin exchange BTC-e. This exchange was associated with various criminal activities.
That same year, the SEC exposed Arise Bank’s ICO as a fraudulent Ponzi scheme, deceiving investors out of $600 million. More recently, in 2020, Andrii Kolpakov was indicted for using cryptocurrencies in a BEC (business email compromise) scheme that led to losses exceeding $1 billion to US-based companies. They included financial entities, insurance companies, and other firms. These cases prove the urgent need for stringent regulation in the crypto space. In particular, a robust Bitcoin AML check should be a mandatory tool for every crypto service provider.
What are AML Rules and Who Stands Behind Them?
At the heart of AML efforts in the cryptocurrency sector is the Financial Action Task Force (FATF), which sets the global standard for combating money laundering and terrorist financing. The FATF’s guidelines require crypto businesses, including cryptocurrency exchanges, stablecoin issuers, and DeFi protocols, to implement AML measures. These measures involve customer identification, transaction monitoring, and reporting of suspicious activities to prevent the misuse of digital assets.
Regulations for Crypto in Different Countries
The regulatory bodies and their requirements vary from country to country:
