What is AML?

Investing in cryptocurrency carries a degree of risk that many investors find unappealing, primarily due to the lack of regulation in this emerging asset class. Legislators are currently working on regulating cryptocurrencies, but they have already attracted the attention of criminals looking for ways to conceal their profits. There are programs capable of continuous monitoring to detect changes in a client's risk profile.

Anti-money laundering (AML) regulations, particularly in DeFi, require innovative approaches from governments that align with the core principles of cryptocurrency. Current regulatory models are based on assumptions and principles that are often inapplicable to cryptocurrencies. While regulators may implement some aspects of these models, they generally recognize the need for new frameworks.

Money laundering is the process of concealing illegal earnings. Individuals and businesses must launder money to convert illicit gains into legitimate income. This involves making the funds appear as though they come from a legal source to pay taxes on them. Money laundering occurs in three stages: placement, layering, and integration.

The placement stage involves transferring "dirty" money into a legitimate repository, such as a financial institution or cryptocurrency exchange.

Layering refers to the process of mixing illegal funds with legitimate ones, making it harder for authorities to trace and identify the original source of the income.

In the integration stage, the laundered money is credited to the beneficiary in such a way that its true source is concealed. Cryptocurrencies are particularly well-suited for money-laundering schemes due to their operation in decentralized networks, making it extremely difficult to track the funds. This is especially true when the funds move across multiple geographic regions. #aml