There is a growing need for AML procedures within Blockchain

Blockchain is one of the most innovative pieces of technology to have come out of the last decade. In 2021, the global blockchain market was valued at $5.92billion, and, despite falls in the value of crypto – and the dramatic fall of crypto exchange FTX, is expected to grow at a rate of 85.9% from 2022 to 2030.

This is largely because crypto - which relies on blockchain - is expected to continue to grow and become more and more mainstream, but also because it is ultimately a way of offering secure access to identifying information it has potential applications far beyond cryptocurrency.

But for now, blockchain is primarily used with crypto – a growing and increasingly volatile market – which, thanks to its digital and anonymous nature, is at huge risk of being targeted by money launderers.

While fiat currency is still a huge target, regulators have been fighting it for some time meaning traditional banking it subject to a huge number of AML and compliance rules and regulations. The more stringent these have become, the harder it is for criminals to hide their illegal activity, forcing a shift towards crypto.

In 2021-22 The National Crime Agency seized £27million in cryptocurrency suspected of being derived from criminal activity compared to £0 in 2020. And, of the £59.8m in third-party assets confiscated over the report period, more virtual currency was seized than physical assets (£7m) or fiat currency (£26m), highlighting how - as crypto use continues to increase - money launderers are increasingly exploiting it in order to clean their dirty cash.

In response to the growing issue of criminal transactions within the crypto market, regulatory bodies have enacted stringent AML legislation, bringing crypto service providers under AML regulations, meaning they must:

  1. Register with the FCA for the purposes of AML supervision and enforcement

  2. Carry out a money laundering risk assessment of the business’ products, services and customers

  3. Create an AML policy outlining all internal AML procedures

  4. Ensure all their staff have undergone AML training and keep a record of this training for audit

  5. Establish a risk-based Know Your Customer due diligence procedure, which should consist of:

  • Identification and verification of all customers. This requires a full understanding of the ownership and control structure of companies and trusts – including identifying the beneficial ownership - before establishing a business relationship.

  • Screening for sanctions and PEPs, with enhanced due diligence where any risk is identified

  • Ongoing monitoring of the entire customer database

  • Reporting anything suspicious to the relevant regulatory bodies

James Langrick, Enterprise Business Development Manager at anti-money laundering specialist SmartSearch said; “Over the last few years, crypto has exploded in popularity, and while regulators are catching up, the clandestine nature of the sector means it is still far too easy for criminals to manipulate crypto for their own gains.

“It is therefore vital that crypto firms - and any other financial institutions and professional services firms that manage crypto assets - put robust AML procedures in place to ensure they are not becoming enablers of financial crime.

“The most reliable and robust way for firms handling crypto to prevent money laundering and ensure they are meeting their legal obligations is to adopt a third-party AML solution.

“SmartSearch has been helping regulated firms meet their AML obligations for more than a decade continually enhancing and developing its solutions to ensure not only, that it meets the latest rules and regulations, but also, that it is incorporating the latest technology to do so in the most effective and reliable way.

“We now also provide tailored AML, KYC, compliance, and anti-fraud services for the cryptocurrency industry, enabling firms to prevent money laundering, meet their legal requirements, and protect their firms’ reputation.”

To find out more about the importance of AML within crypto, James Langrick will be at the Block Chain Expo on 1-2nd December – book a chat with him here


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