The need for strict regulations and combating money laundering has become evident. A crucial strategy in this battle is enforcing robust anti-money laundering (AML) protocols in the crypto space. What does AML stand for? Let’s find out in this article.
The surge in crypto transactions throughout 2021 was both impressive and concerning. That year witnessed an overall crypto transaction volume reaching an astonishing $15.8 trillion, marking a significant 56% jump compared to the previous year’s figures. This exponential growth in the crypto market, however, has not been without its shadows. In 2021, illicit transactions involving crypto doubled from $7.8 billion in 2020 to a staggering $14 billion.
The need for strict regulations and combating money laundering has become evident. A crucial strategy in this battle is enforcing robust anti-money laundering (AML) protocols in the crypto space. What does AML stand for? Let’s find out in this article.
What Does Crypto AML Mean?
Crypto AML involves a set of regulations and practices aimed at deterring and detecting the illicit conversion of cryptocurrency into traditional currency or fiat. This framework is critical in combating the misuse of digital assets for illegal gains.
The Financial Action Task Force (FATF), an influential body that formulates global AML guidelines, is central to the establishment of international AML compliance standards. Starting in 2014, the FATF expanded its purview to include digital assets, offering directives to help shape AML legislation in its member countries.
At the forefront of enforcing AML measures are the Virtual Asset Service Providers (VASPs). Defined by the FATF, VASPs include a variety of entities such as crypto exchanges, custodians of digital assets, and platforms for the exchange or transfer of virtual assets, including those involved in the sale and management of stablecoins, and, depending on their usage, some DeFi platforms and NFT marketplaces. Large crypto exchanges that strive to comply with regulations implement AML checks, especially for user onboarding. An example is the WhiteBIT crypto AML check tool.
Key Pillars of Cryptocurrency AML Compliance
AML for crypto companies encompasses the following actions:
- Customer due diligence (CDD) and know-your-customer (KYC). It requires VASPs to identify and verify the identities of their customers.
- Monitoring. This involves the use of sophisticated technology to analyze patterns of transactions that deviate from a customer’s typical behavior.
- Record-keeping. VASPs are required to maintain records of customer identities, transaction histories, and all due diligence documents.
- Reporting. A critical component of AML in crypto is the obligation to report suspicious activities to the relevant authorities.
- Risk assessment. VASPs need to assess their exposure to money laundering and terrorist financing risks and adapt their AML policies and controls accordingly.
The rise of cryptocurrencies has brought a new level of financial innovation and convenience. However, it is crucial to maintain a robust AML framework to ensure that the benefits of digital currencies are not overshadowed by their potential misuse for illegal activities.