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Anti-Money Laundering

Anti-Money Laundering (AML) is a set of policies, regulations and laws to prevent concealing crimes that produce monetary gain. These crimes include tax evasion, drug and human trafficking, fraud, selling stolen goods, terrorism and corruption.

The international AML watchdog, Financial Action Task Force (FATF), sets standards to prevent these illegal activities, and more than 200 countries and jurisdictions have committed to implementing them.

In the US, laws have been implemented to combat money laundering. Included are the Bank Secrecy Act (BSA), established in 1970, which designated the Financial Crimes Enforcement Network (FinCEN) to "safeguard the financial system from the abuses of financial crime, including terrorist financing, money laundering and other illicit activity." The BSA efforts were followed by the Money Laundering Control Act (1986), the Anti-Drug Abuse Act of 1988, the Annunzio-Wylie Anti-Money Laundering Act (1992), the Money Laundering Suppression Act (1994), the Money Laundering and Financial Crimes Strategy Act (1998), Title III of the USA PATRIOT Act (2001) and the Intelligence Reform & Terrorism Prevention Act (2004).

AML laws and regulations are significantly relevant to the blockchain industry and cryptocurrencies because of the degree to which various cryptocurrency exchanges, layer 2 chains and other technologies make it possible for money launderers to cover their tracks as they practice their tradecraft. Money laundering is, after all, all about hiding the true origins of certain cash flows, especially those related to business activities that are common to organized crime.

The same array of blockchain technologies that legitimately protect the identities of cryptocurrency buyers and sellers is unfortunately also an enabler of money laundering techniques. As a result, the same governments that have created a dragnet of AML laws, regulations and other enforcement activities are now turning their attention to the blockchain industry to prevent it from becoming a safe haven for money laundering practitioners.

The blockchain industry was originally unencumbered by AML laws and regulations. But now, it is becoming more difficult for certain crypto entities such as centralized cryptocurrency exchanges to stay operate in jurisdictions like the United States unless they take the same AML countermeasures required of other financial institutions.

Generally speaking, AML laws and regulations are not viewed as major barriers to enterprise blockchain adoption. Enterprises are already comfortable working within the boundaries of the laws and regulations in whatever jurisdictions they operate and must account for every penny earned or spent using Generally Accepted Accounting Principles (GAAP). In other words, they should have nothing to hide. But, at the same time, history has proven that many of the biggest and most well-known organizations and brands have bad or incompetent actors among their ranks. So, maybe for some organizations, the AML crackdown on the blockchain industry keeps them from being their own worst enemies.

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