AML Solutions – How Identifying Trails Of Money Laundering In The Crypto Industry

As Bitcoin, Dogecoin, and Ethereum are becoming mainstream, cryptocurrency is becoming a prime target for criminals. Due to its volatile nature and anonymity, exchanges are facing a tremendous increase in money laundering cases. Criminals use synthetic identities to create fake accounts and register on crypto exchanges. The lack of regulatory checks and inadequate AML security measures further paves way for fraudsters. 

 

Therefore, to safeguard crypto trading, online exchanges require efficient AML compliance programs. Concerning the increase in financial crimes, regulatory bodies are placing strict regulations in place to monitor the crypto industry. They mandate platforms to perform customer due diligence, assess risk, and keep track of their activities. This blog covers anti money laundering guidelines put forth by FATF to combat criminal activities in the crypto industry.  

AML Systems – Highlighting Money Laundering Through Cryptocurrencies 

Since cryptocurrencies hold the status of financial assets and come under the direct supervision of regulatory bodies, exchanges are obliged to comply with Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations. This further means that online platforms that facilitate buying and selling of tokens need to adhere to their policies as well as overall operations with guidelines put forth by regulatory authorities. 

 

As crypto exchanges are decentralized and involve anonymous transactions, there are significant chances of them becoming a target of criminals. Money launderers invest their ill-gotten funds into tokens which helps them steer clear of the AML verification. Therefore, lack of transaction monitoring not only results in a high risk of money laundering but also exposes crypto exchanges to reputational damages and non-compliance penalties. 

 

After mastering $27 billion worth of market value, Bitcoin becomes the favorite of criminals. Due to its stable capitalization, global recognition, and ever-increasing popularity, fraudsters make high-value investments in Bitcoin. Moreover, lax AML compliance programs restrict crypto exchanges to identify perils of money laundering within this token. Similarly, other tokens are also experiencing high criminal threats as their liquidity levels make them more vulnerable. 

 

Keeping all this in view, the Financial Action and Task Force (FATF) is taking several steps to mitigate money laundering in the crypto industry. The global regulatory watchdog highlighted red flags and outlined requirements for online exchanges to place necessary anti money laundering mechanisms in place. 

AML Verification – Guidelines by FATF to Combat Money Laundering 

Cryptocurrencies are virtual assets that entered the market with increased opportunities for global consumers. With solutions like e-payments, easy trading, availability of thousands of tokens, and touchless operations, this industry is changing the landscape of financial systems. However, with these innovative measures comes high risks of money laundering. In order to identify criminal activities, FATF highlighted red flags that further help crypto exchanges detect illegal transactions and flow of black money within the system.  

 

Furthermore, FATF issued anti-money laundering guidelines for the crypto industry to combat chances of financial crimes. For providing a secure trading environment to global buyers and sellers, online exchanges need to perform authentic identity verification during digital onboarding. Moreover, efficient AML compliance solutions are becoming a must-have for the crypto industry. The next section entails red flags and requirements put forth by FATF regarding anti-money laundering checks.   

• Structured Transactions

Criminals are sophisticated enough and use various techniques to dodge AML security checks. While trading in crypto assets, they perform multiple transactions to stay in line with the threshold limit. This helps criminals limit chances of creating suspiciousness. Furthermore, detecting these transactions become challenging for crypto exchanges as they lack AML compliance checks.

• Customers Belonging to High-Risk Countries

Due to lax AML systems and failure to combat money laundering, FATF places countries on grey or blacklist to highlight them as high-risk regions. Customers belonging to these jurisdictions pose increased chances of flowing their illicit funds through crypto trading. Similarly, criminals often target exchanges operating within these countries to escape anti-money laundering regulatory checks. 

• Inefficient Customer Due Diligence (CDD) Measure 

Criminals register on crypto exchanges that have inadequate CDD measures to escape the identification checks. They use synthetic identities to launder money, and fraudsters avoid inquiries regarding their backgrounds and sources of funds. 

 

As per FATF’s identification, inefficient CDD measures are a major red flag of money laundering. This requires crypto exchanges to build robust AML compliance programs for carrying out adequate risk assessments of customers. 

• Suspicious and Anonymous Transactions

Suspicious transactions involve quick withdrawals, fund transfers in a short period of time, and movement of big sums of money. This helps criminals escape AML screening and launder their ill-gotten funds across various financial systems. 

In the End

 

In order to address money laundering within the crypto industry, online exchanges need to establish better AML compliance programs. Due to anonymity, high liquidity, and lax regulatory checks, these digital currencies are becoming a massive target of criminals. Therefore, AI-powered AML solutions are providing advanced services like real-time identification, transaction monitoring, and customer due diligence to assure a safe crypto trading landscape.