What Is Anti-Money Laundering (AML)?

What Is Anti-Money Laundering (AML)?


  • AML laws attempt to reduce money laundering. The FATF is an example of international money laundering regulation.
  • Money laundering makes “dirty” money look good. This can be accomplished by disguising the source of the money, hiding its usage in authorized operations, or investing it in actual assets.
  • Money laundering is appealing to cryptocurrencies due to their obscurity, difficulty recovering stolen funds, and lack of regulation. Huge crypto investigations show fraudsters launder millions with it.
  • Binance and other cryptocurrency exchanges record and report any suspicious behaviour to the proper authorities as part of their anti-money laundering (AML) regulations.


To reduce the flow of dirty money, governments have enacted Anti-Money Laundering (AML) policies. Centralized cryptocurrency exchanges must implement these to protect their customers and prevent fraud. Cryptocurrency’s privacy makes identity and activity observation essential for regulation.

What is AML?

The goal of anti-money laundering (AML) legislation is to make it more difficult to transfer or launder illegal money. Established in 1989, the Financial Action Task Force (FATF) engages closely with AML to encourage global unity. Anti-money-laundering policies aim to prevent illegal activities, including smuggling and tax fraud. The definition of AML varies by legal authority; however, there is an international push for consistent laws.

The means of money laundering have grown with the development of technology. AML software will often raise red flags for actions that could be considered suspicious. Flags and defenses include massive money transfers, multiple deposits into the same account, and cross-referencing with watchlists. Cryptocurrencies aren’t the only ones that need to be aware of AML. Assets and fiat currencies alike can be subject to anti-money-laundering (AML) scrutiny.

Regulators need to catch up with the development of cryptocurrency. Due to the dynamic nature of blockchain technology, AML and compliance procedures are subject to frequent modification. However, not everyone sees this as a good thing. The decentralization and privacy of cryptocurrencies are two of their selling points. Because of this, some people believe that more control and identification requirements for crypto users go against the spirit of the technology.

What is the distinction between AML and KYC?

Banks and other service providers are required by anti-money laundering rules to conduct Know Your Customer (KYC) checks on their clients. To use KYC, a user’s identification must be confirmed through the submission of personal data. This strategy makes the user accountable for their financial actions. Customer verification, which includes Know Your Customer (KYC), is an anti-money laundering (AML) preventative measure. In contrast, other AML systems investigate suspicious activity only after it has been reported.

What is money laundering?

Money laundering happens when criminals mask the source of their illegal earnings by passing them off as legitimate currencies, investments, or other financial assets. Money obtained from illegal activities such as drug trading, terrorism, and fraud. To combat money laundering, several countries have adopted distinct sets of rules and laws. Increasing rule consistency is a difficulty for the FATF and many other jurisdictions.

Money laundering involves three main stages:

  1. Placement, as in a cash-based business, introduces “dirty” money into the financial system.
  1. They are “layered” from one account to another to cover up the trace of illegal cash. The use of cryptocurrencies is one strategy for laundering “dirty” money.
  1. Reintroduction of “dirty” money into the economy via legitimate investment and other financial channels

How Do People Launder Money?

There are various approaches to completing the three procedures listed above. Businesses regularly manufacture false documents for cash-paid services. Through these organizations, a single firm or network of such individuals launders illegal funds. Criminals acquire products with “dirty” money and express them as their own. Real trade mixes with the inundation, making distinction impossible.

Fraudulent transactions are increasingly using digital currency instead of cash. The difference indicates improvements in money laundering strategies. There are more options than ever before to hide and wash “dirty” money. Without the use of a bank, direct money transactions are possible. PayPal and Venmo provide more options for money launderers and regulators.

VPNs that improve privacy and digital currency complicate problems. Money laundering might be difficult to trace. Encryption “to the edge” aids in the resolution of this issue. A cryptocurrency exchange or bank can trace dirty money back to a user’s account by following the “paper trail” of the blockchain to an exchange. The purchase of cryptocurrency with cash or over peer-to-peer networks makes criminal money flows more difficult to track.

Popular online gaming sites are increasing in popularity. Online gaming accounts obtain laundered funds. They trade in order to keep the account active. They pay and end up with clean funds. Many people use many accounts to avoid suspicion. A large bank account could set off an AML investigation.

How Does AML Measure Work?

There are essentially three things that a cryptocurrency exchange does:

  1. Automatic detection and reporting of suspicious activity, such as unusually large cash deposits or withdrawals. An increase in withdrawals from an account that has low activity levels indicates inconsistent behaviour.
  1. Users can’t add or remove money while an inquiry is ongoing or has concluded. This measure removes the possibility of further money laundering. The next step is for the detective to file a SAR, or Suspicious Activity Report.
  1. If there is evidence of wrongdoing, the proper authorities are notified and given the evidence. It would be a priority to refund any recovered stolen money to its rightful owners.

To prevent money laundering, cryptocurrency exchanges often adopt a preventative strategy. Due to the extreme compliance attention in the cryptocurrency industry, it is business as usual for exchanges like Binance to take extra precautions. The primary weapons in the war against money laundering are the tracking of financial transactions and increased due diligence.

Why Do We Need The FATF?

The Group of Seven (G7) established the Financial Action Task Force (FATF) to deal with money laundering and the financing of terrorism. By establishing a set of norms that countries around the world should follow, we make it impossible for money launderers to find secure locations. 

When countries work together, it’s easier to exchange data and catch money launderers. More than 200 countries have declared their intention to implement the FATF Standards. The FATF conducts routine peer evaluations to ensure that all participants are following the rules.

AML In Cryptography: Why Do We Need It?

Criminals take advantage of cryptocurrency’s privacy features to conceal their transactions and avoid paying taxes. Better income taxes and a more positive public perception are both benefits of Bitcoin regulation. Legitimate crypto buyers benefit from AML enhancements, however, these enhancements do involve additional work and time investment from all parties.

In 2020, criminals used cryptocurrency to wash an estimated $1.3 billion (USD) in “dirty” money, per Reuters. There are a number of advantages to using cryptocurrency for money laundering:

  • It is not possible to undo a transaction. Once If you transmit money on the blockchain and the recipient changes their mind, you will lose it forever. Law enforcement and governing bodies cannot help you regain lost money.
  • Two reasons why people use cryptocurrency are: Transaction privacy is a key feature of some cryptocurrencies, such as Monero. To further hide the path of cryptocurrency, “tumbler” services layer it over many wallets.
  • The taxation and regulation of it remain unclear. Criminals take advantage of the fact that tax authorities throughout the world are still unable to effectively tax crypto. 

Examples of Cryptocurrency Money Laundering

In some cases, law enforcement has been able to catch and arrest criminals who launder money via cryptocurrency. British authorities stopped $250 million worth of illegally laundered cryptocurrency in July 2021. The previous UK record for a cryptocurrency arrest was $158 million, but this one was far larger. 

Brazilian investigators uncovered a complex money-laundering enterprise in the same month, recovering $33 million. Two people and seventeen businesses bought cryptocurrency to conceal the origin of illegal payments. The criminal organization in question created the businesses with this express aim. In addition, Bitcoin exchanges intentionally assist criminal organizations while ignoring proper AML protocols.

How Does Binance Support AML?

To prevent money laundering, Binance has taken many preventative measures, including increasing its AML detection and analysis capabilities. Its anti-money laundering program encompasses several initiatives. When it comes to bringing down major cybercriminal organizations, Binance also collaborates extensively with international agencies.

Binance, for instance, was instrumental in the arrest of several individuals associated with the Cl0p ransomware organization by presenting evidence against them. Binance alerted authorities to fraudulent behavior and suspicious trades. To combat money laundering in the wake of ransomware attacks like Petya, authorities used the findings of this study in conjunction with international agencies.

Final Thoughts

AML slows down the process of exchanging bitcoins, but it’s necessary to ensure everyone’s safety. Although the introduction of regulations helps, governments and organizations will never be able to completely eliminate money laundering. There is better technology to detect money laundering, and legitimate cryptocurrency exchanges are taking their responsibility for preventing criminality seriously.

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