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Anti-money Laundering Methods for Crypto Users. Can this be Controlled?

Anti-money Laundering Methods for Crypto

June 27, 2020 | 

JOHN K MWANIKI |  0 Comments| 



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Cryptocurrency is taking over the world economy. Started as an alternative currency to the government-controlled fiat currency, it is fast becoming a leading form of exchange.

Apart from private forex trading, crypto has grown in recent times, with several top companies accepting it as a method payment. 

One of the reasons for the continued growth of the currency is its fast transactions. It allows for transactions involving large amounts of money over a short period. It has also demonstrated its independence from the traditional economy.

That is after soring even after the economy halting due to Coronavirus. Thus, attracting new investors.

While the crypto world has been a world of good news, it also has its challenges. One of the most prevalent concerns is its involvement in money-laundering.

Money laundering has been so rampant in the crypto world, forcing the government and other regulatory bodies to introduce anti-money laundry methods to curb the menace. 

Follow through the article to learn everything about money laundering through crypto and if the anti-money laundering regulations stand a chance of success; 

Why is Money Laundering Through Cryptos Rampant?

Something that stands out when talking about money laundering is its history. It seems quite absurd that a payment method barely a decade old gets credit for aiding a vice that has been in existence for ages. 
Even though money laundering has been a problem for ages, the government has it under control. There are laws to curb the menace and detect any form of financial crime.

The main reason why crypto is an ideal conduit for money laundering is its anonymity. It allows users to create accounts using pseudonyms and mask locations using a VPN.

Although some quarters have raised the possibility of using the blockchain details, it does not provide any direct links with users. The blockchains only keep transaction digits without personal information. 

The other reason for the viability of crypto as a money-laundering conduit is the lack of intermediaries. Unlike fiat currency controlled by banks, crypto is decentralized among private entities. It implies that there is no single entity to monitor transactions.  

Additionally, the crypto offers the needed speed and ease of transactions for money laundering. Crypto does not have the weight and size limits that come with cash transactions.

Most people are never free to walk around with too much cash. It can quickly raise suspicion and security concerns. Different from crypto, where one can transfer millions within a few seconds. 

What is the Problem with Money Laundering?

Even though money laundering is one of the most common financial crimes, most people don't understand how harmful it is to an economy. A market-driven by money from financial crimes is fragile and will eventually fail with widespread casualties. 

One of the top examples of the effects of money laundering is its role in the 2008 economic crisis. The economy kept rising with ill-gotten money leading to a sham boom in the economy. 

The economy kept on attracting investors with most people looking into the real estate. This added to other financial crimes pushed the economy to unprecedented levels.

The trend kept on until it was not sustainable anymore, leading to one of the worst economic crashes of all time. 

Isn’t it quite ironic that Bitcoin was a result of the 2008 economic crisis? When it is now the leading money laundering enabler. 

Money laundering also affects the government. It denies the government taxes, which makes it hard to deliver for the population. It also makes it hard to implement economic sanctions while promoting other crimes like drug trafficking and arms trade.

The government must, therefore, do everything in its power to eliminate money laundering. 

Anti-Money Laundering Methods 

With the knowledge of how much money laundering is harmful to the economy, the government has placed anti-money laundering methods. These methods seek to detect money laundering and other financial crimes. 

One of the top methods is the one that has been so effective in the traditional economy, Know Your Customer. The method compels all the financial service providers to have the details of their clients.

They must keep all the identification, contact, and address information in case of any mishap. 

Even though most cryptos don't have intermediaries, the government is looking to apply it through the trading platforms. Purchasing from brokers is one of the most common ways to gain cryptos in the world.

The government only has to target all the brokers such that nobody buys or sells crypto coins without providing details. 

With the details, the agencies can follow cases of financial crimes using the crypto coins. The brokers can also raise the alarm earlier on suspicious transactions. 

How Effective is the Method in Controlling Money Laundering Through Crypto?

On the surface level, the anti-money laundering methods seem so compelling, only that it is not quite so useful. The cryptocurrency operates in a complex world that there is no one rule fit for everything. 

One of the possible drawbacks of the method is the possibility of pushback from the crypto world. The main reason most people choose crypto is anonymity, and no crypto users would fancy changes. 

Immediately the users realize that a coin is highly regulated; they abandon it to the other. Already this year has seen a rise in the value of altcoins due to their increase in anonymity.

Almost all the top altcoins are revamping privacy, making them an ideal option in case of control. 

Government involvement in any way is likely to face a backlash from the users. 

The other concern that comes with government involvement in crypto is the cost. It takes a lot of money to create and enforce regulatory laws. Any costly undertaking by the government reverts to the taxpayers.

The citizens are likely to revolt against the costly government's involvement in the sector. 

Wrapping Up

How to manage money laundering through crypto is quite a daunting task for the regulatory bodies. Even though there are anti-money laundering methods in place, there are other ways out.

Ultimately, it all goes down to how the government is willing to cooperate with all the crypto industry players for an amicable solution. 


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