Same way entrepreneurs and investors look up to new financial technologies to advance their investments, criminals also depend on these technologies to commit crimes. Introducing blockchain technology through cryptocurrency has been welcome news for entrepreneurs and criminals in different capacities. Cybercriminals have capitalized on blockchain’s gray areas to commit fraud and money laundering activities over the years. Below, we’ll discuss four reliable ways to curb money laundering in cryptocurrency.
The cryptocurrency market is now full of many ill-willed players taking advantage of the cheap, non-governed payment structures that crypto allows. Money launderers can now use cryptocurrencies to funnel illegal funds and keep their dirty businesses afloat through this loophole. Some of these transactions can go unnoticed, making it difficult for authorities to trace illegal funding.
While the whole idea behind anonymity is to help uphold user privacy and security, some ill-intentioned users might get on board and harm others. The best way to curb this is to choose a reliable seller where you can sell and buy BTC or any other crypto from not-so-anonymous players. Some sellers accept traditional payments from bank transfers, debit or credit cards, etc. Through these payment options, user information can be traced back to respective users in case of suspicious activities.
AML is the accumulation of various concepts to monitor and prevent financial crime in cryptocurrency and fiat. These regulations vary from region to region, but all focus on combating the same risks, such as:
The main challenge with AML application in cryptocurrency is that it was originally designed for traditional centralized financial institutions and not the decentralized crypto ecosystem. However, governments and other stakeholders can use blockchain monitoring and analysis tools to investigate and identify suspicious crypto transactions. They can then flag crypto wallets, transactions, or exchanges linked to political groups, terrorist organizations, and other organized crimes to curb illicit operations and minimize crimes.
Closely linked to AML, know your customer (KYC) policies are equally geared towards detecting and preventing money laundering activities. Crypto sellers can use this strategy to collect customer information, which can help identify outstandingly suspicious data that could help track criminals if needed.
In traditional financial operations, KYC policies were enforced to ensure financial institutions conduct due diligence to understand their customers’ nature. The same principle is applied in crypto transactions, where trading platforms are required to do due diligence on their customers to acquire accurate and reliable information. In doing so, all users can have trust in the platform they’re using.
Combating the Financing of Terrorism (CFT) is another important subset of AML that mainly focuses on terrorist activities. Terrorist groups are among the main beneficiaries of the loopholes in blockchain technology and would use any chance available to advance their illicit transactions. That’s why it’s important to give their case special attention with the help of CFT policies.
Governments are now asking crypto assets service providers to seriously consider CFT practices to help mitigate terrorism in the crypto industry. While CFT policies sometimes invade financial privacy when information about all major transactions is collected, it’s a great way to clean up dirty transactions linked to terrorism.
Curbing money laundering in cryptocurrency is a tall order that may not be fully achieved soon. However, with the increasing adoption of centralization policies governing cryptocurrency, governments will soon come to a consensus on policies and structures to be followed. For now, it’s important to stick to the available policies in your region, especially the ones covered here that apply to you.