What is AML (Anti-Money Laundering)?
Anti-Money Laundering (AML) refers to a set of laws, regulations, and practices aimed at preventing illegal activities such as fraud, corruption, and organized crime from being funded through the financial system. Specifically, AML requirements target the methods criminals use to “clean” money obtained through illegal means, making it difficult for them to hide or “launder” funds within legitimate transactions.
In the cryptocurrency industry, AML protocols are crucial as digital currencies can be misused for illicit activities due to their potential anonymity and global reach. Regulatory bodies often mandate that cryptocurrency exchanges and other financial institutions implement AML practices, including customer identity verification, transaction monitoring, and reporting suspicious activities. These steps help prevent cryptocurrencies from becoming channels for money laundering, fostering greater security and trust within the market.
For example, an exchange may require users to verify their identities before allowing large transactions. If a transaction appears suspicious, such as a large, unusual transfer to an unknown wallet, the exchange is obligated to report it as part of their AML compliance. This proactive approach aims to limit the financial system’s exploitation by criminal enterprises.
