Why Anti-Money Laundering (AML) Measures Are Necessary in Crypto

If you have attempted to register on a centralized crypto exchange, you may have seen the acronym “AML” thrown around. AML or Anti-Money Laundering guidelines prevent illegal money from re-entering the financial system.

Most centralized exchanges demand them because they improve user security and stem wrongdoing in the financial space. The level of anonymity provided by digital currencies somewhat encourages money laundering. This is why AML regulations in the virtual currency industry depend on observing user behavior.

Uncovering money laundering has proven to be difficult as it could be facilitated with companies that appear legitimate. For example, an illegitimate money maker could reside in a US state like Maryland. Distinguishing the person’s business from legitimate ones like laundromats, bookmakers like FanDuel Sportsbook Maryland, or restaurants could get tricky.

What is the LMA?

Anti-money laundering regulations focus on preventing the transfer of illegal funds. Each country has its AML guidelines which are slightly different from each other. Nevertheless, the Financial Action Task Force (FATF) ensures that the difference in AML regulation remains without consequence at the international level.

Technological development forced further change in AML procedures because money laundering became more sophisticated. Programs built using AML metrics attempt to flag user behavior that seems suspicious.

For example, a sudden huge inflow of money into an account or activity on an account placed on a watchlist can trigger AML’s sensors. Anti-Money Laundering covers digital currencies to include the full range of financial securities, whether precious metals or commodities.

AML regulatory measures for the crypto industry began years after the inception of blockchain technology. Nonetheless, these metrics have evolved to adequately cover certain aspects of the crypto industry.

However, there is an opposing reaction from crypto devotees against the AML measures. As Satoshi Nakamoto pointed out in his Bitcoin whitepaper, one of the appealing elements of digital currencies was the anonymity provided to users. AML measures eliminate any level of privacy and introduce scrutiny to crypto wallet users.

Explain the money laundering process

If you are unfamiliar with the financial system, the money laundering process may be foreign to you. The objective of money laundering is to turn illegal money into legal tender. It doesn’t matter whether the final form is fiat money or financial securities like stocks or bonds.

The source of this illegal money is shady businesses like drug trafficking, human trafficking, cyber crime etc. Each nation has its different rules on preventing money laundering. Nevertheless, the FATF is responsible for merging these different rules to promote international cooperation.

The first step for criminals to launder money is to place the illegal money into the financial system. Suppose you have watched movies where drug dealers open businesses, restaurants or cash shops. In this case, money laundering is the cause.

The second step is to bounce off the illegal money, so that it becomes harder to track. Digital currencies are one of the best ways for criminals to bounce illegal funds. The final step is to wash the money back into the economy.

Cyber ​​criminals use many methods to launder money using the steps mentioned above. The long-standing approach is to fabricate fake receipts for business services that require cash payments. The real receipts are then mixed with the fakes, and the illegal money becomes legitimate.

This method is difficult to expose, especially when the company has a large customer base. However, with the introduction of electronic money, money laundering has become easier. Banks are effective intermediaries for spotting money laundering. With electronic payment measures like PayPal, money laundering has become easier due to the elimination of banks.

Technology that guarantees privacy, such as VPNs and digital currencies, has made it harder to track money laundering. When an Internet user surfs the Internet with a VPN, traffic entering and leaving the device remains encrypted. Therefore, it becomes more difficult to track the activities of a money launderer.

Reasons Why We Need AML Metrics in Cryptocurrency

Cryptocurrency has become the go-to park for money launderers to hold cash due to its anonymous nature. In 2020, a Reuters study found that $1.3 billion was laundered through crypto.

Digital currency is paramount to these launderers because transactions on the blockchain cannot be undone, which protects the laundered funds. Some private blockchains like Monero also ensure that transactions are hidden, making it difficult to track money laundering.

Regulating the cryptocurrency industry with AML measures will ensure that digital currencies become more credible. AML measures have been used to catch ransomware and hackers like the CL0p group.


Anti-Money Laundering is a term that several crypto users have spotted but still have no idea. AML regulations prevent criminals from laundering illegal money into the financial system. Most of the times, the method used by these criminals is to set up cash businesses and create fake receipts.

However, with the advent of technology, sophisticated measures like PayPal and digital currencies are increasingly being used to launder money. AML measures are needed in the virtual currency industry as they lend much needed credibility to the industry and help stop criminals.

Category: Local News, NEWS