Anti-Money Laundering (AML)
Anti-Money Laundering (AML) means preventing money laundering. Money laundering is the act of hiding the criminal origin of money or other assets so they appear to be legal.
What is Anti-Money Laundering (AML)?
AML is a general term for rules, checks, and procedures aimed at preventing money laundering. Organizations that must follow these rules assess risks related to customers and transactions.
One part of this is KYC, where a customer has their identity verified. A crypto exchange may also ask where crypto or money came from. It may also check transactions for patterns that warrant further investigation.
An example of AML
Someone usually trades small amounts but suddenly deposits a much larger amount of crypto into a crypto exchange. The exchange may then ask where the funds came from and request supporting documents.
Providing a clear explanation of the source of funds can address concerns. If there are sufficient grounds for suspicion, the exchange may file a report under the rules that apply to that service.
Why is AML important in crypto?
Crypto service providers use AML checks to prevent their services from being used for criminal funds. That’s why crypto news sometimes covers additional customer checks, requests for information, money laundering investigations, or fines for inadequate checks.
Transactions are visible on many public blockchains. This can make it possible to investigate the flow of funds. However, a visible wallet address does not automatically reveal who owns it; additional information is often needed.
An unusual transaction is not immediate proof of money laundering. Checks can also mistakenly flag legitimate activity as suspicious. AML reduces risks, but cannot guarantee that all money laundering will be detected.
