Cryptocurrencies bring many new opportunities, but they also come with risks like money laundering. The regulatory landscape of the crypto industry is still evolving, with not all countries uniformly adopting these measures. It creates a loophole where cryptocurrencies can be exploited to circumvent sanctions and fund terrorism in certain regions, posing a global threat that demands urgent resolution.
To tackle this, many governments develop the procedures of anti-money laundering in crypto (AML) as a crucial step for crypto services providers, wallets, payment processors, and crypto exchanges to mandatory follow.
What is an AML check and what procedures does it include? Let’s find it out in this article.
The Essence of Cryptocurrency AML Checks
AML comprises a set of regulations aimed at the prevention of financial crimes, spanning both traditional currency and cryptocurrencies. Though regulatory frameworks differ across nations, their shared objective is to reduce risks associated with activities like the trading of illegal funds and goods, tax evasion, and the financing of terrorism. AML Bitcoin checks on crypto exchanges help identify illegal activities with bitcoins used for money laundering and hiding the origin of funds.
The know-your-customer (KYC) procedure is often paired with AML cryptocurrency checks. They complement each other to detect and prevent money laundering activities. KYC constitutes the systematic gathering of customer data to identify anomalies. This fundamental requirement places an obligation on financial institutions to perform due diligence and know their customers.
Components of AML
Here’s what a crypto AML check typically involves:
- User identification. Crypto exchanges and other service providers perform identity verification procedures during user onboarding. This involves collecting information such as passport, address, and sometimes additional documents to confirm the user’s identity.
- Risk assessment. Platforms conduct risk assessments to understand the potential risk connected with each user and transaction. This assessment considers factors such as transaction volume, frequency, and the source of money.
- Transaction tracking. Continuous monitoring of transactions is needed to identify and mark suspicious user actions. Unusual patterns, large transactions, or transactions involving high-risk jurisdictions may trigger further scrutiny.
- AML crypto policies and procedures. Crypto businesses establish and enforce AML policies and procedures to guide their operations. These policies often include customer due diligence, reporting suspicious transactions, and maintaining records as required by regulatory authorities.
- Sanctions screening. AML checks often involve screening users and transactions against global sanctions lists. This helps ensure that the platform is not facilitating transactions with individuals or entities subject to international sanctions.
Following AML rules not only keeps digital transactions safe but also builds trust in the crypto world. It’s like a defense system against bad actions, making sure the financial system stays secure and trustworthy.