Legislation aimed at combating money laundering aims to suppress the legalization of illegal funds. These standards are adopted both by individual governments and international organizations, including the FATF.
Money laundering is the process of transforming illegally acquired funds into legal ones. This is achieved by concealing the origin of funds, mixing them with legitimate financial transactions, or investing in legitimate assets.
Due to its confidentiality, difficulty of tracking and lack of clear legal framework, cryptocurrency represents an attractive mechanism for money laundering. Criminals often take advantage of this to launder significant amounts of money.
Anti-money laundering (AML) regulations play a key role in preventing the circulation of illicit funds. These laws oblige representatives of the financial and cryptocurrency market to ensure the safety of clients and combat financial crimes.
WHAT IS AML?
AML is a set of rules and laws that prevent the movement and laundering of illegal funds.
They are closely related to the activities of the FATF (Financial Action Task Force), an international organization created in 1989 to promote cooperation in the field of combating money laundering. The measures taken are aimed at combating the financing of terrorism, tax fraud and international smuggling. Although AML procedures may vary from country to country, many states are seeking to harmonize standards in this area.
With the advent of new technologies, new methods of money laundering appear. AML software is developed to identify behavior that may be suspicious. Examples of this behavior include large money transfers, multiple receipts of funds into an account, and matches of user data with wanted lists. AML rules apply not only to cryptocurrencies, but also to any asset or fiat currency that can be traced and verified in accordance with these rules.
The implementation of AML laws in the cryptocurrency sector took a lot of time to work effectively. The rapid development of blockchain technologies leads to constant changes in AML procedures, in accordance with regulatory measures. However, these changes do not always have a positive impact. Cryptocurrency owners value anonymity and decentralization of their assets, so increased regulation and requirements for documenting the identity of users are perceived as contrary to the ethos of cryptocurrencies.
WHAT IS THE DIFFERENCE BETWEEN AML AND KYC?
Know Your Customer (KYC)* practices are an obligation of financial institutions and service providers to comply with anti-money laundering (AML) regulations. The KYC procedure requires users to provide personal data to verify their identity and makes them responsible for all financial transactions.*
KYC is an active part of AML, including due diligence of clients. This distinguishes it from other AML mechanisms, which focus on identifying suspicious behavior.
WHAT IS MONEY LAUNDERING?
Money laundering is the process of laundering illegally obtained funds, such as proceeds from drug trafficking, terrorism or fraud, through investments or financial schemes.
Anti-money laundering legislation and regulations vary from country to country, but harmonization of these measures is the endeavor of many jurisdictions and the FATF.
There is a legend about the origin of the term “money laundering,” which appeared during the Prohibition period in the United States, when the Chicago mafia made huge profits from the illegal trade in alcohol and other illegal sources of income. According to this legend, criminal groups developed a scheme in which they disguised their illegal income as proceeds from automatic laundries. Because customers of these laundries paid in cash, it was extremely difficult to determine how many people actually used the laundries, allowing criminals to launder their illegal income through these businesses.
