Here’s what you need to know about anti-money laundering (AML) regulations and how they pertain to the cryptocurrency sector. Read on for more info.

AML in the Crypto World

Cryptocurrencies are convenient and fast. They’re also anonymous, to an extent, and while that can benefit cautious consumers, it causes problems for financial regulators. After all, if transactions aren’t linked to a user’s name or address, it exposes the markets to criminal activity. According to a report on money laundering, an estimated $8.6 billion was laundered using cryptocurrencies in 2021, and as those figures were 30% higher than the previous year, it suggests that the issue is getting worse.

The Rise of Cryptocurrency

The very first cryptocurrency was released in 2009. The idea of a cryptocurrency or “cryptographic electronic money” had been around for a couple of decades at that point, and we’d also seen some crypto precursors in the form of Digicash and Bit Gold, but bitcoin was the first true cryptocurrency.

The first big moment for bitcoin came on May 22, 2010, when 10,000 bitcoin were used to buy two large pizzas at a value of around $30. It was the first time that the currency had been used to purchase something tangible, and when you consider that bitcoin peaked at around $69,000 per coin in late 2021, it gives you an idea of the swiftness of this currency’s rise.

Today, there are over 20,000 different cryptocurrencies, with all coins except the original bitcoin known as “altcoins”. These currencies are built on the same decentralised concept and offer many of the same benefits, including partial anonymity and fee-free transfers.

The Risks of the Crypto Industry

The cryptocurrency sector is inherently risky, as large sums of money can be transferred from account to account without being subject to regulations. There is no Enhanced Due Diligence (EDD) on many cryptocurrency exchanges or ATMs, and Anti-Money Laundering (AML) laws are easy for criminals to evade.

Some of the concerns surrounding the cryptocurrency industry include:

Pump and Dump Schemes: Influencers promote brand-new coins, wait for the value to surge, and then “dump” their coins for a profit. As there are very few laws preventing these schemes, they only have the court of public opinion to admonish them.

Online Scams: Cryptocurrency payments are requested by scammers, thus ensuring that the money can’t be traced and won’t be subject to a chargeback.

By-Passing Regulations: Residents of countries with strict gambling laws have been known to use VPNs and cryptocurrencies to bypass regional restrictions.

Black Markets: Crypto is regularly used to facilitate black market trades, with reports that cryptocurrencies are being used to buy drugs, guns, and even to fund human trafficking.

Terrorist Financing: One of the biggest risks concerning cryptocurrencies is that they are being used to fund terrorism. Money is funnelled through cryptocurrencies and used to finance terrorist organisations, with those sending the money escaping recrimination.

Why AML is Important

Billions of dollars are laundered every single month, and this money often finds its way into the bank accounts of criminals. It’s used to fund illegal activities around the world, including drug trafficking, human trafficking, terrorism, and counterfeiting.

Anti-Money Laundering (AML) regulations help to control some of this flow and make life difficult for criminals. AML regulations require companies dealing with cryptocurrencies to do their due diligence.

It’s all about knowing who your customers are and where their money comes from.

It’s something that we know all too well at A Data Pro, as we offer due diligence reports that tell you more about your partners and suppliers, keeping you compliant with AML regulations and ensuring nothing untoward happens with those important partnerships and relationships.

What are the AML Regulations for Crypto?

The latest AML laws in the UK come via the Money Laundering and Terrorist Financing (Amendment) Regulations 2019. These laws require companies dealing with cryptocurrencies to abide by guidelines such as:

Risk Assessment and Controls: Appropriate steps must always be taken to reduce the risk of money laundering and the financing of criminal and terrorist activities. All steps taken must be proportionate to the nature of the business and they must apply at all levels of the business.

Simplified Due Diligence (SDD): A level of due diligence used when there is a low risk of money laundering, such as when the customer comes from a region that is not considered to be high risk. Checks must still be conducted, but they are usually not as stringent.

Customer Due Diligence (CDD): Part of CDD includes understanding the customer, a protocol known as Know Your Customer (KYC). It means that the company must know the customer’s real name, age, and address, information that isn’t linked to a person’s cryptocurrency wallet the same as it is to a debit card, bank account, or web wallet.

Enhanced Due Diligence (EDD): EDD is the highest level of due diligence and it is employed in high-risk cases, such as when dealing with customers from high-risk countries, as well as those who are deemed to be politically exposed. The additional checks required with EDD may include a source of funds request, which means the customer is required to prove where their money comes from.

Record Keeping and Reporting: As part of ongoing AML regulations, businesses are required to keep extensive records and to file reports on all suspicious activity. They may also be required to hire someone whose job it is to review suspicious activity.

As the cryptocurrency industry continues to evolve, the regulations will likely change with them. Regulatory authorities are constantly seeking ways to keep a tight rein on this industry, and at the same time, criminals are devising new ways to get around those regulations.

Get Help with AML Regulations from A Data Pro

At A Data Pro, we can help you to stay on top of these ever-changing AML regulations, ensuring you perform the necessary due diligence needed to keep your company safe and the regulators happy.

Check out our due diligence reports for more information. We also offer assistance with sanctions lists, making sure you avoid at-risk organisations and individuals, and provide a host of other data and intelligence services.