In today's technological era, money laundering remains a concern, particularly in the crypto space. Therefore, anti-money laundering (AML) is deemed unnecessary by many. Why is AML important? Let's explore the issues surrounding AML in the article below.
1. What is AML?
AML stands for 'Anti-Money Laundering', which means preventing illegal proceeds from becoming clean, legitimate funds. This involves adhering to laws, regulations, and monitoring activities to prevent drug trafficking, tax evasion, or criminal funds from becoming clean money from legitimate sources.
For instance, anti-money laundering ensures that customer identities are verified before account openings to prevent criminals from using bank accounts for money laundering.
2. Money laundering in the cryptocurrency market
What is money laundering?
Buying and selling in the cryptocurrency field is achieved through competitive trading, which is conducted across multiple countries or different financial institutions, resulting in unclear sources of funds.
For users of e-commerce platforms, managing bank account balances is an important aspect of credit risk prevention for business operators ...
For financial regulatory bodies and governments, preventing money laundering is critical to curtailing money laundering activities in the financial sector. To avoid financial abuse related to money laundering or funding issues, we need to ensure the quality of money laundering activities.
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Trade practices
: E-commerce platforms typically involve a range of e-commerce processes.
Creating anonymous accounts: Criminals can create cryptocurrency wallet accounts or accounts on anonymous exchanges without verifying their identity.
Converting money obtained from criminal activities into cryptocurrency: Money obtained from criminal activities can be converted into cryptocurrency through intermediary services or cryptocurrency exchanges.
Using money laundering services or mixers: Some money laundering services or mixers can blend cryptocurrency transactions to obscure suspicion, making the source of funds difficult to identify.
2. Cash transfers: Criminal suspects can raise suspicion through cash transfers.
Transferring funds across different countries or financial systems: Transferring funds across different countries or financial systems obscures the source of funds and makes it difficult to trace.
Withdrawing funds from the cryptocurrency system: Once the money has been laundered, criminals can withdraw funds from the cryptocurrency system and use cash or other currencies without having to explain the source of the funds.
: Currently, over 1 million people globally use Bitcoin (BTC) wallets, while the balances of Bitcoin (BTC) wallets are only half that of 1 million people.
3. The history of anti-money laundering
Anti-money laundering legislation has a long developmental history but can be summarized into major phases.
Initial stage
Early development: In the 1970s and 1980s, developed countries began implementing measures to combat money laundering as drug trafficking and organized crime rampant. These criminal activities prompted governments to take international measures to prevent the use of the financial system for money laundering.
Wallet: Several significant events have drawn attention to the issue of slavery, including the discovery of criminals using banks and financial systems to hide illegal funds. This has prompted countries to mobilize organizations (such as the United Nations and the Organisation for Economic Co-operation and Development (OECD)) to collaborate in developing international standards to combat financial terrorism.
Subsequent development phase
International regulations: In the 1990s, countries began developing laws and regulations to address climate change issues. These regulations typically require security for reporting and internal control systems at the national level.
Strengthening international cooperation: During this period, international cooperation mechanisms were strengthened, including countries establishing dedicated anti-money laundering agencies, signing bilateral and multilateral agreements, and supporting information exchange and judicial cooperation among countries.
Modern stage
Technological development: Creating conditions to combat illegal proceeds. Information facilitates the transfer and improvement of this technology, aiding law enforcement efforts.
Updating laws and regulations: Due to technological advances and changes in organizational methods, anti-money laundering laws and regulations must be continuously updated to address new challenges.
: The formation of anti-money laundering laws is a long process that continuously adjusts and develops with changes in historical progress, economic, and political environments.
4. Anti-money laundering in Crypto
Measures and legal actions taken against money laundering or funding cryptocurrency activities.
Did you know? The answer is:
Identity verification (KYC – Know Your Customer): Cryptocurrency exchanges typically require users to provide personal information and undergo identity verification before conducting transactions. Some reputable exchanges you might consider include: Binance, MEXC, Coinbase, etc.
Regulation: Exchanges provide services to users based on regulatory requirements to detect suspicious activities, large transfer amounts, or indications of fraud or money laundering behavior. Regulatory services often have similar oversight measures.
Credit report: Credit reports of individuals or entities engaged in cryptocurrency trading, indicating payment or funding activities.
International cooperation: Due to the global nature of the issue, cooperation between countries and organizations is crucial for ensuring effective anti-money laundering efforts.
Information analysis: Utilizing technology and software to analyze transaction data, entities, and account relationships for improper activities or criteria.
Given the above circumstances, appropriate measures should be taken to prevent the generation of illegal proceeds and to conduct investigations legally to prevent the generation of illegal proceeds.
5. The four crucial reasons for anti-money laundering in the crypto market
The four main reasons for anti-money laundering in the cryptocurrency market
Protecting users: Anti-money laundering helps to protect users from the harm of fraudulent activities and scams. When transactions are regulated, efforts are made to ensure that transactions are safe and responsible.
Ensuring legal compliance: Regulatory authorities in the industry should strictly adhere to laws and regulations to ensure that companies operate in compliance with the law.
Enhancing the industry's prospects: Effective anti-money laundering can enhance the prospects of the cryptocurrency industry. Every year, a large number of investors and traditional investors profit from the use and acceptance of cryptocurrencies.
Preventing illegal activities: Anti-money laundering utilizes cryptocurrencies for illegal activities, including money laundering, tax evasion, and criminal organizations.
6. Excellence in KYC and AML
Some people may misunderstand KYC and AML as similar or the same. The main reason is that both are related to network and risk control and protecting financial service institutions from criminal activities, and are usually implemented by the same organizations.
However, despite the close relationship between KYC and AML, they remain two distinct concepts in terms of purpose and method:
KYC (Know Your Customer) KYC follows procedures for verifying identities to ensure they are who they claim to be. KYC necessarily collects personal data such as ID cards, addresses, and other forms of financial crime. KYC aims to prevent and combat money laundering and ensures that every criminal can obtain legitimate identity.
AML (Anti-Money Laundering): AML focuses on preventing money laundering activities and the use of the financial system for illegal purposes. AML includes KYC as a fundamental aspect, involving regulation, reporting suspicious activities, and implementing internal controls to prevent money laundering.
Overall, while KYC and AML are related concepts and are usually implemented together, they have different objectives in combating financial crime and ensuring regulatory oversight of the financial system.
7. Conclusion
Most importantly, anti-money laundering (AML) regulations play a crucial role in preventing illegal activities such as money laundering, tax evasion, and organized crime using cryptocurrencies. By implementing anti-money laundering measures, organizations operating in the cryptocurrency space can protect users, ensure legal compliance, enhance industry regulation, and prevent illegal activities.
Additionally, understanding the differences between KYC and AML is crucial for criminal litigation and comprehensive law enforcement in the field of financial crime.