Why anti-money laundering regulations can be a bane for cryptocurrencies and not a boon 

According to Chainalysis, around $8.6 billion was laundered using cryptocurrencies in 2021

In March, 2022, Joe Biden unveiled an Executive Order on Ensuring Responsible Development of Digital Assets
In March, 2022, Joe Biden unveiled an Executive Order on Ensuring Responsible Development of Digital Assets

With India putting cryptocurrencies under Prevention of Money-Laundering Act, 2002, experts seem to explore how the prospect can benefit global decentralised landscape. It’s believed that incorporation of anti-money laundering (AML) laws can help develop relationships between investors and cryptocurrency firms. 

According to Chainalysis, a blockchain analytics company, around $8.6 billion was laundered using cryptocurrencies in 2021, which represented a 30% rise from 2020. The company further clocked a 1,964% increase in cryptocurrency-based laundering through decentralised finance (DeFi) protocols. “By complying with AML laws, national crypto firms can become trustworthy and approachable to potential investors. Knowing that the government has put in place security measures to protect the interests of investors across the country can make investors confident in the industry, which can lead to investment and growth,” Punit Agarwal, founder, KoinX, a cryptocurrency taxation firm, told FE Blockchain.

Market research has shown that global AML laws can enable prevention of terror financing and pump and dump practices. Insights from Alessa, a fraud management software solution, mentioned that a modern cryptocurrency AML approach can ensure reduction in cryptocurrency AML compliance vulnerabilities for Web3.0 and other cryptocurrency platforms. Practices such as real-time transaction monitoring and AML risk scoring can assist mitigation of cryptocurrency-oriented risk factors for businesses.

“I believe the aim of AML laws is to minimise occurrences of money laundering and enhance the safeguarding of user funds. In India, companies offering crypto services should comply with AML laws on their platforms and monitor transactions that exceed Rs 10 lakh,” Edul Patel, co-founder and CEO, Mudrex, a crypto-investing platform, stated. 

Reportedly, global regulators such as Financial Action Task Force (FATF), UK’s Financial Conduct Authority (FCA), European Union’s Anti-Money Laundering Directive (AMLD), among others, have stepped up their efforts to implement global AML regulations. For example, the UK’s FCA emphasises on conformity with AML/CFT reporting and customer safekeeping standards. In March, 2022, Joe Biden, president, United States, unveiled an Executive Order on Ensuring Responsible Development of Digital Assets. 

Moreover, future predictions indicate that cryptocurrency-based AML laws can help with inclusion of decentralised exchanges (DEXs) and peer-to-peer transactions. “The future of AML regulations in crypto landscape is likely to become stringent as cryptocurrencies continue to gain popularity and adoption. We can expect to see more countries and regulatory bodies implement AML regulations specific to the crypto industry,” Rajagopal Menon, vice-president, WazirX, a cryptocurrency exchange, concluded. 

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First published on: 14-03-2023 at 08:00 IST
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