Cryptocurrencies have digitised a significant amount of global monetary flow in a matter of years. But unfortunately, this transition has also provided a medium for scammers. Many criminals take advantage of blockchains to launder money. Because of this reason, anti-money laundering (AML) laws have become more relevant today.
Investors are at more risk of fraud from Ponzi scheme-based projects than ever. That’s why introducing such laws in crypto has become crucial to keep investors and the overall industry safe.
In this article, we will learn about the role of AML in crypto and why it has become necessary for the regulatory authorities.
Understanding AML in crypto
Money laundering is defined as an illegal act of cleaning money that is obtained through illicit means. Fraudsters conceal their actual source of earnings and change it to a legal one to escape from laws. To impede such crimes, governments have AML laws.
AML for crypto is the set of similar regulations that applies to the traditional laundering of money. These help stop the fraudulent conversion of illegally gained digital assets into fiat currencies.
In many countries where crypto is regulated, AML is supervised by financial crime authorities. For instance, in the United States, FinCEN handles AML. Likewise, in the United Kingdom, FCA ensures accountability.
How does AML work in crypto?
The Financial Action Task Force (FATF) is a global organisation. It defines the rules each country has to follow to prevent the misuse of finances. In 2014, the organisation also incorporated virtual assets into its code. Following that, the financial authorities of many countries included it in their regulations.
Authorities are working with virtual asset service providers (VASPs) to implement these laws. VASPs include cryptocurrency exchanges, NFT marketplaces, token issuers, and some DeFi firms. These are required to register themselves to the regulatory bodies.
Furthermore, they must follow the know-your-customer (KYC) standard to get user information. This way, regulators can easily track suspicious transactions as they have access to necessary user information.
AML and KYC for crypto
The KYC procedure is one of the most critical parts of identifying illegal transfers. The decentralised distributed ledgers maintain transparency and traceability. That’s why they allow irregularities to be easily spotted. Once the authorities know the public wallet address, they can track down the person or entity behind it through blockchains.
However, digital asset companies have a different KYC standard than traditional firms. Here, face and biometric verification are not required. Instead, you must provide your legal name, authentic address, and ID card. But, these standards differ from one service provider to another. The reason is that not all of them are regulated by one authority.
AML Consulting services for crypto
In the digital assets market, anti-money laundering (AML) measures have become so necessary that now there are consultants in this domain. Various firms have emerged that provide P2P services for compliance with laws. These firms operate to ensure compliance with AML and protection against terrorist financing regulations.
One leading firm among them is the Digital Officer, a team of specialists in the AML domain. The firm can protect you against scams and assist in complying with the set code by the local authorities and FATF. Their services cater for both P2P and B2B, such as VASPs.
Why does AML crypto matter?
Cryptocurrencies have reshaped the entire world economy. But, it has also posed several challenges for financial regulators. Since the dawn of blockchain technology, criminals have relied on it for their illegal activities. Financing terrorism, running Ponzi schemes, and other scams have become prevalent. Definitive measures became mandatory to stop the crime. And so, AML regulations took shape.
Now, the financial authorities in many countries have crypto regulations for penalising criminals. By regulating VASPs, they get information about the investors. Then track the suspicious transactions and withdrawals to prevent crimes.
This has opened up a new area of the market for compliance consulting business. Now many service providers specialise in anti-money laundering laws. They assist clients in complying with local and international laws and protect their funds from scammers. Make sure you’re covered with crypto compliance with firms such as Digital Officer.
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