Digital financial crimes are on the rise with more money laundering, costing banks up to $1.3 billion annually. These statistics are comparable to the Italian economy as a whole and almost twice that of one of the wealthiest countries in Europe.
A lot of banks are spending a large amount of time and money (estimates run from $900 million to $1.3 billion) on simply making sure that they are doing things correctly, just in case someone does something wrong.
KYC/AML compliance can be expensive, and even if it is automated, it takes a long time. This can give your client major frustration, and the end of your partnership.
There are a few ways to make large amounts of money illegally, but the most common of these is called money laundering. Money laundering refers to the illegal turning of dirty money into clean, or in other words legal profits. One way that you can do this is by pretending that your illegal earnings are just sales from a real business, but there are many other methods as well:
● Heavy Cash Smuggling
● Illegal Gambling
● Trade Laundering
● Fake Salaries and many more.
With cryptocurrencies into the system, it’s easier to prevent money laundering. This can happen because of the technology Blockchain, which is the building block for cryptocurrencies.
Each transaction done on blockchain leaves a permanent record that is impossible to alter, so authorities can track the money’s original source. This makes it easier to prevent money laundering.
Blockchain can be used to validate and monitor every transaction, ensuring that if any of the transaction information is left unchecked, the transaction will get blocked. Blockchain also allows for laundering risk analysis, which lets you monitor your system based on a whole rather than part of it.
- Overseeing regulatory activity
Blockchain ensures that all information entered is valid and authentic. The decentralized network makes it nearly impossible for any single entity to infiltrate the system; every node has a comprehensive history of the ledger and can easily detect unauthorized changes. Blockchain delivers integrity, making any information within the system immutable.
- Trust Establishment
Blockchain is a fully verifiable, immutable ledger that integrates the trust of all users automatically. The blockchain instantly establishes trust for any transaction, allowing the secure movement of money or sensitive data worldwide.
- Monitoring and tracking transaction data
If fraud is detected, the system automatically generates an alert and blocks the transaction. Smart contracts alone, without blockchain as a separate technology, can meet this need. However, they can be more secure by using blockchain because it cannot be corrupted or tampered with due to its decentralized infrastructure.
Blockchain can minimize regulatory risk through various technologies, such as fraud detection and KYC due diligence. Blockchain assists in risk classification and Smart Contracts.