Crypto AML Compliance Explained: Why Does Crypto Need to Be Regulated?


In the financial world, anti-money laundering (AML) regulations play a crucial role in preventing the illegal income generation. AML stands for a set of procedures, laws, and regulations that aim to stop criminals from disguising illegally obtained funds as legitimate income. Though traditionally applied to banks and credit institutions, the explosive growth of digital currencies has extended regulators’ attention to the cryptocurrency sector.

Reasons Why Crypto Needs to Be Regulated

As per the “2022 Crypto Wrongdoing Report” by Chainalysis, $8.6 billion was washed through digital money in 2021 alone — a 30% increment from 2020. The report additionally uncovers that starting around 2017, the total sum washed using crypto trades has reached $33 billion. This critical gamble of digital currency tax evasion requires severe administrative measures.

The Monetary Activity Team (FATF) featured in its 2014 report, “Virtual Monetary Forms Key Definitions and Likely AML/CFT Dangers,” the dangers digital currencies present regarding illegal tax avoidance. The report recognizes three key worries in regard to virtual monetary forms:

  1. Anonymity. Unlike traditional digital or non-cash payment systems, which typically operate through centralized entities requiring user identification, virtual currency transactions can be conducted anonymously without face-to-face verification.
  2. Global operations The worldwide and decentralized nature of virtual monetary standards entangles AML and CTF endeavors. Their tasks length numerous locales without a bound together administrative system, preventing viable checking and oversight.
  3. Lack of focal oversight. The decentralized design of digital currency exchanging keeps any single country from forcing AML/CTF guidelines on them.

How Exchanges Comply with Crypto Anti-Money Laundering Requirements

Reputable exchanges implement AML cryptocurrency checks to combat money laundering efficiently. In addition, some platforms allow users to check their transactions and counterparties’ wallets for involvement in illegal activities. An example is the USDT AML check on WhiteBIT, where users check their USDT coins to ensure they are not involved in money laundering. This check helps monitor and regulate transactions involving Tether (USDT), enhancing crypto AML compliance efforts.

The primary measures of cryptocurrency AML compliance include:

  • Know-you-client (KYC). This involves verifying the identity of customers to prevent anonymity, which is a key challenge in the digital currency space.
  • Monitoring. Continual monitoring of transactions helps in identifying and addressing suspicious activities in real time.
  • Compliance programs. Establishing dedicated compliance teams to monitor operations and ensure they adhere to legal requirements.

Integrating effective AML for crypto exchanges remains crucial to protecting the financial system and combating illicit activities with cryptocurrencies. Crypto exchanges’ measures reflect a proactive approach to aligning with international AML standards, ensuring a safer ecosystem for all users.

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