AML (Anti-Money Laundering)

Anti-Money Laundering (AML) refers to the comprehensive set of laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income. In the context of cryptocurrency and blockchain, AML requirements apply to exchanges, wallet providers, and other virtual asset service providers (VASPs).

Core Components

Transaction Monitoring: Continuous surveillance of customer transactions to identify suspicious patterns, unusual activity, or transactions that deviate from expected behavior profiles.

Suspicious Activity Reporting (SAR): Mandatory reporting to financial intelligence units (FIUs) when transactions raise red flags for potential money laundering, fraud, or other financial crimes.

Risk-Based Approach: Institutions must assess and categorize customers based on risk levels, applying enhanced due diligence for higher-risk profiles and simplified procedures for lower-risk customers.

Crypto-Specific Challenges

Traditional AML frameworks struggle with crypto's pseudonymous nature, cross-border frictionless transactions, and rapid settlement speeds. Blockchain analytics firms provide tools to trace cryptocurrency flows, identify mixing services, and flag interactions with sanctioned wallets or darknet markets.

Related Concepts

• KYC (Know Your Customer): Identity verification procedures complementing AML
• Customer Due Diligence: Initial and ongoing customer risk assessment
• Enhanced Due Diligence: Heightened scrutiny for high-risk customers
• Compliance Liability: Legal exposure from AML failures