In the modern world, criminal activities have taken the virtual road and fraudsters have developed highly sophisticated ways of executing their evil plans. Unfortunately, money laundering has significantly increased over the years. As of the reports from UNODC, two to five percent of the global GDP is laundered each year. Money launderers have figured out new ways of laundering money. Combating them is becoming an issue for all industries, especially the crypto market. Cryptocurrencies are digital assets without any physical existence. Due to their anonymous nature, money launderers use crypto exchanges for their illicit gains.
With the world taking necessary steps to make payments digital with cryptocurrencies, Bitcoin, Etheruem, XRP, and others have become the targets for concealing the origin of illegally earned money. To combat money laundering in the crypto market, there is a need for Anti-Money Laundering (AML) checks to ensure launderers stay away from crypto exchanges. Let’s take a look at what are AML checks, how do they work, and the benefits it offers to the crypto market.
What are AML Checks?
Anti-Money Laundering checks refer to a set of laws and solutions that help businesses identify fraudsters before they mess up transactions. Money laundering has been terrifying financial institutions or a very long time. With cryptocurrencies being the target of money launderers, crypto exchanges also need Anti-Money Laundering checks to make sure criminals stay away from the business. It also helps in protecting other legitimate investors from trading balck money.
How Does AML Verification Work?
Anti-Money Laundering (AML) system verifies that all the customers are who they claim to be. Without verification, anyone can enter the business and cause troubles for other legitimate users. AML screening works in the following simple steps.
- First, crypto exchanges have to verify the identities of clients during the onboarding process.
- Then, the identities are cross-checked with various sanctions and PEPs lists in the AML system.
- In case of issue, the verification is declined and the customer is informed about the decline.
Benefits of AML Checks in Crypto Market
AML checks offer crypto exchanges several benefits and the most important ones have been discussed below. Keep reading to find out.
Prevent Fraudsters from Causing Issues
Money laundering causes a lot of damage for businesses including crypto exchanges. Money launderers place and layer their money in crypto exchanges. It gets easier for them to hide their illegally earned money. Unfortunately, investigations result in loss for the business. Culprits fly away after fulfilling their malicious intentions and leave your business at risk. Employing anti-money laundering systems ensures that businesses identify fraudsters before they can become a problem for other customers and the business.
Avoid Hefty Non-Compliance Penalties
Recommendations from FATF and other regulatory authorities have made it pretty clear that non-compliance with KYC/AML compliance will result in hefty fines for the business. If a crypto exchange fails to comply with the regulations, hefty penalties come rushing to their doorstep. In order to save crypto exchanges from hefty fines, it is better to add robust anti-money laundering checks for all the customers who apply.
Increase Credibility of the Business
Making your business credible for the customers is what all businesses aim. However, money laundering does not let that happen and losing customers’ trust means bad reputation and dropping sales. Increasing the credibility of your enterprise in the eyes of customers demands robust AML systems. This will help customers trust you with the sensitive information you need during the customer onboarding process.
Conclusion
Money laundering is a rising threat for all the businesses across the world. The primary targets are finance, gambling, real estate, and crypto sectors. However, the majority of the sectors are at risk. Considering the rise in money laundering, regulatory authorities are in action to combat crimes and enforce stringent laws. As per these laws, all countries have to perform identity verification and anti-money laundering checks to ensure fraudsters stay away from the company. AML programs detect money launderers before they can cause any issue. These systems also ensure high credibility of the business for customers. On the other hand, businesses can stay safe from non-compliance penalties by the regulatory authorities.
