Why do we need AML regulations in the crypto space ?
While the risk is quite low compared to traditional payment methods, such as cash and wire transfers, the AML regulations in the crypto space ensure that cryptocurrency exchanges require users to undergo know-your-customer (KYC) and anti-money laundering (AML) checks, which helps to identify the parties involved in a transaction and aim to minimize the number of illegal uses of cryptocurrency.
What are some examples of money laundering through cryptocurrencies ?
Here are just a few examples of the many cases of money laundering through cryptocurrencies that have been reported in recent years :-
In 2018, the US Department of Justice charged a Russian national named Alexander Vinnik with operating a money laundering scheme that involved the use of bitcoin. Vinnik was accused of operating BTC-e, an unlicensed bitcoin exchange, which was used to launder the proceeds of various criminal activities, including the sale of fake identification documents and stolen credit card information. The DOJ alleged that Vinnik laundered approximately $4 billion through BTC-e.
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Another case in 2018, the U.S. Securities and Exchange Commission (SEC) charged the company Arise Bank and its founders with conducting a fraudulent initial coin offering (ICO) and using the proceeds to conduct a Ponzi scheme. The SEC alleged that the defendants raised $600 million from investors by falsely claiming that they had acquired an FDIC-insured bank and were using the funds to develop a platform for cryptocurrency banking. The defendants allegedly used investor funds to pay for personal expenses and to cover the losses from failed investments. The defendants settled with the SEC, agreeing to pay fines and return funds to investors.
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In 2020, the US Department of Justice charged a Ukrainian national named Andrii Kolpakov with money laundering for his role in a cybercrime scheme that involved the use of cryptocurrency. Kolpakov was accused of using bitcoin to launder the proceeds of a business email compromise (BEC) scheme that targeted US-based companies. The attacks resulted in over $1 billion in losses to various financial institutions, merchant processors, insurance companies, retail companies and individual cardholders. The BEC scheme involved sending fake emails to companies, purporting to be from a legitimate vendor, and requesting payment for invoices.
Who is concerned by AML regulations in the crypto space ?
What are the current AML laws for cryptocurrency ?
Anti-money laundering laws for cryptocurrency vary from country to country. In general, however, regulations for crypto are integrated into AML processes that require exchanges and other financial institutions to implement certain measures to identify and verify the identities of their customers, and to monitor and report suspicious activity.In the United States, the Bank Secrecy Act and its implementing regulations impose AML obligations on financial institutions, including crypto exchanges. The Act requires these institutions to implement a written AML program, establish and maintain internal controls, and report suspicious activity. The Act also requires financial institutions to file Currency Transaction Reports (CTRs) for transactions involving cash or other monetary instruments in excess of $10,000, and to file Suspicious Activity Reports (SARs) for transactions that may involve money laundering or terrorist financing.
In the European Union, the Fifth Anti-Money Laundering Directive (5AMLD) imposes AML obligations on virtual currency exchanges and custodian wallet providers. The Directive requires these entities to identify and verify the identities of their customers, and to report suspicious activity to relevant authorities. The Directive also requires member states to establish national registers of beneficial ownership information for companies and trusts, and to establish centralized bank account registers or equivalent systems. The European Parliament has recently voted to impose a €1,000 limit on crypto transactions where the customer cannot be identified, requiring entities such as banks and crypto asset managers to verify customers' identity, ownership, and control of the company, and subjecting NFTs to anti-money laundering rules.
In Canada, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its regulations impose AML obligations on financial institutions, including virtual currency exchanges and certain other businesses that deal in virtual currencies. These entities are required to implement a compliance program, keep certain records, and report suspicious transactions and large cash transactions to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).
In Australia, the Anti-Money Laundering and Counter-Terrorism Financing Act and its regulations impose AML obligations on financial institutions, including digital currency exchange providers. These entities are required to implement a compliance program, keep certain records, and report suspicious transactions to the Australian Transaction Reports and Analysis Centre (AUSTRAC).
In Africa, the Namibia Virtual Assets Act 2023 became law in July 2023 and is designed to safeguard consumer protection, stop market exploitation, stop money laundering, and set up a regulatory body to control and oversee providers of virtual asset services and related activities.
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