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Anti-Money Laundering for Crypto Exchanges

by asu tosh
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Money laundering ventures around the world have increased immensely. financial regulators are concerned about it. They have rolled out the anti-money laundering regulations as a measure to curb such financial crimes. However, a more robust solution is required. That can assist different sectors in fighting financial crimes. A report by UNODC reports that up to 205% of. The global GDP is spent on money laundering and terrorist activities. It is increasing even more. If the proper measure is not taken. The businesses will have to face such losses. 

Most of the countries are focusing on the crypto industry as the development of digital tokens increases. French regulators have recently enforced regulations for removing. The anonymity factor from crypto transactions. With this move, digital currency transactions will become more secure. Unfortunately, criminals are involved in misusing cryptocurrencies for money laundering ad terrorism financing activities. A review by MIT Technology has disclosed that up to 2.8 billion USD has been laundered by criminals in 2019. This has moved FATF to enforce strict AML laws to combat money laundering activities. Anti-money laundering program has also become compulsory for the crypto exchanges. 

Continue with the blog to find out more about it. What 2021 entails for crypt exchanges. The significance of anti-money laundering regarding that. 

What is Anti-Money Laundering Compliance 

AML or anti-money laundering is the process of checking the background of the customers. Carrying ongoing monitoring of the customers. The purpose of AML is to identify. Eradicate financial crime including money laundering and terrorism funding. The customer’s identity is verified to ensure that. He really is who he says he is. Then performs it against the global watchlists, PEPs, and adverse media. There are global regulatory authorities to watch over if the measures for anti-money laundering are taken properly or not. These regulations became stringent after the 9/11 attack through the US Patriot Act. Initially, only financial institutions and money service businesses were required to comply with such measures. After the major terrorism attack, all other businesses became regulated as well. 

AML Compliance for Cryptocurrencies 

Technological advancements have made everything digital including the mode of currency. Which has also become digitized. Virtual currencies have become an easily accessible option for transactions. They are not limited to the crypto exchanges anymore. Countries around the world are increasingly adopting digital currency for day-to-day transactions.

A research paper by the University of Technology in Sydney states that the crypto market accounts for up to $76 billion worth of illegal activities yearly. At the start of 2020, the fifth anti-money laundering directive was enforced. The 6th anti-money laundering directive was enforced at the end of the year. The 6th AMLD contains guidelines for the crypto exchanges as well. 2021 mandates all cryptocurrency exchanges to follow the 6th AMLD. 

EU’s AMLD and Crypto Industry 

The 5th AMLD required all crypto exchanges to implement KYC and AML checks on their customers. Customer due diligence and enhanced customer due diligence also became mandatory for customers that belong to countries with high risk. A threshold was set up on prepaid cards. And online transactions and it was reduced to €150 from €25. 

However, criminal activities did not cease to exist and in turn. They increased during the pandemic which pushed the EU member states to comply with the 6th AMLD. Non-compliance with any regulation will result in heavy fines. This means if crypto exchanges do not comply.They will have to face double penalties. The regulatory authorities could also enforce sanctions according to the 6th AMLD. The 6th AMLD requires the crypto firms to strictly implement KYC and AML compliance

FATF and Crypto Industry

The Financial Action Task Force or FATF has set out regulations. They have rolled out certain measures to secure the crypto sector. The anonymity factor of the cryptocurrency makes them vulnerable to financial crime and FATF’s regulations are there to amend that. It required the crypto exchanges to perform an enhanced customer due diligence process to comply with AML/CFT threats. Transactions over USD 1000 to EUR 1000 must be scrutinized. There should be an ongoing due diligence process. That must be carried out on customers. The customer record must be kept to carry out an investigation in case of illicit activity. 

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