What is Anti-Money Laundering? Well, Anti-Money Laundering (AML) rules help stop people from washing illegal money. To help keep customers safe and fight financial crime, centralized cryptocurrency exchanges have to have them. Because cryptocurrency is anonymous, a lot of the supervision that goes into it depends on keeping an eye on customer behavior and identities.
AML and KYC
Know Your Customer (KYC) checks are an obligation for financial institutions and service providers as part of AML laws. KYC requires users to give personal information that proves they are who they say they are. This process makes the user responsible for all financial transactions they make. Know Your Customer (KYC) is an active part of anti-money laundering (AML) and is part of customer due diligence. This is different from other AML practices that look into suspicious behavior after the fact.
Why do we need AML in crypto?
Criminals use cryptocurrency to hide their real names and launder money they shouldn’t have to pay taxes on. Putting limits on cryptocurrency improves its image and makes sure that the right taxes are collected. While it takes more work and time from everyone, improvements to AML help people who are using crypto legally.
Reuters says that in 2022, criminals used crypto to wash about $23.8 billion (US dollars) of “dirty” money. Crypto is good for laundering money for a number of reasons:
- You can’t undo a transaction. You can’t get your money back once you’ve sent it through the blockchain unless the new owner says so. The police and regulatory bodies can’t help you get your money back.
- Cryptocurrency lets you stay anonymous. Some coins, like Monero, put transaction privacy first. “Tumbler” services also make it hard to follow the path of crypto by putting it through multiple wallets.
- Its rules and taxes are still not clear. Criminals take advantage of the fact that tax authorities around the world are still having trouble taxing crypto efficiently.
Conclusion
It takes longer to trade cryptocurrencies because of AML, but it’s important to keep everyone safe. It’s true that governments and organizations can’t stop all cases of money laundering, but putting rules in place does help. It is getting easier to spot people who might be laundering money, and trustworthy cryptocurrency exchanges are doing their part to fight crime.