{"id":2248,"date":"2020-01-02T00:00:08","date_gmt":"2020-01-02T00:00:08","guid":{"rendered":"http:\/\/sygna.io\/?p=2248"},"modified":"2023-03-16T03:40:03","modified_gmt":"2023-03-16T03:40:03","slug":"what-is-aml-kyc-in-crypto","status":"publish","type":"post","link":"https:\/\/www.sygna.io\/zh-hant\/blog\/what-is-aml-kyc-in-crypto\/","title":{"rendered":"What is AML\/KYC in Crypto?"},"content":{"rendered":"\n

Table of Contents<\/h3>\n\n\n\n
  1. Introduction<\/a><\/li>
  2. AML vs KYC: How are they different?<\/a><\/li>
  3. What is Anti-Money Laundering?<\/a><\/li>
  4. What is Know-Your-Customer (KYC)?<\/a><\/li>
  5. Inside Know-Your-Customer<\/a><\/li>
  6. Who Needs to Comply with KYC?<\/a><\/li>
  7. Why is AML\/KYC important?<\/a><\/li>
  8. Limitations of current KYC<\/a><\/li>
  9. KYC in crypto in 2020<\/a><\/li><\/ol>\n\n\n\n

     1. Introduction<\/strong><\/h2>\n\n\n\n

    In the last few years, Know-Your-Customer (KYC) identity verification procedures have become vital to ensure that Anti-Money Laundering (AML) and Combating-Financing-of-Terrorism (CFT) efforts to curb cryptocurrencies-associated crimes are successful. <\/p>\n\n\n\n

    While AML regulators have targeted \u201ctraditional\u201d money laundering since the 1930\u2019s era of Prohibition crime bosses like Al Capone, current AML operations aim to ensure that technological innovations such as cryptocurrencies do not outpace the regulatory requirements that traditional financial assets are subjected to. Until now, the cryptocurrency industry has tried to boost AML efforts by employing KYC and Know-Your-Transaction (KYT) processes to verify the real parties behind digital identities and transaction origins. However, new regulations since 2018 by leading AML watchdogs such as the Financial Action Task Force (FATF)<\/a> and the U.S.\u2019 Financial Crimes Enforcement Network (FinCEN) shows that more is needed in 2020.<\/p>\n\n\n\n

    This article takes a closer look at what is meant with AML\/KYC, how KYC fits in AML efforts, AML\/KYC’s history, who needs to adhere to it, current KYC limitations and how the crypto industry is impacted.<\/p>\n\n\n\n

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    A Brief History of AML Regulations<\/h2>\n\n\n\n

    Global AML regulation is heavily influenced by the policies that shape the United States\u2019 approach to money laundering. The cornerstones of the U.S\u2019 fight against money laundering are two legislative acts, the foundational Bank Secrecy Act (1970) and Title III of the Patriot Act (2001) that were created to respectively combat money laundering and terrorism funding.<\/p>\n\n\n\n

    The BSA was a landmark law<\/a> that forced financial institutions to join the government in the fight against money laundering and created the foundation for a subsequent wave of AML regulations, most notably the Money Laundering Control Act (1986), Anti-Drug Abuse Act (1988). It is still at the forefront of AML legislation today and requires financial institutions to keep track of funds exceeding $10,0000 that flow in and out of the U.S.<\/p>\n\n\n\n

    However, it wasn\u2019t until the release of the Title III of the USA Patriot Act<\/a>, (also known as the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001) that the implementation of Know Your Customer (KYC), which forces financial institutions to comprehensively vet who they do business with, really took off.<\/p>\n\n\n\n

    The Patriot Act aimed to eradicate the funding of terrorism through the financial sector. embedded KYC, also known as the Customer Identification Program (CIP) into the BSA as part of the U.S. AML policy.<\/p>\n\n\n\n

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    \"FinCEN
    FinCEN logo source: Wikipedia<\/a><\/figcaption><\/figure><\/div>\n\n\n
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    Due to the United States’ influence as the world’s leading economic powerhouse, its KYC measures soon spread globally, leading to sweeping reforms in the world\u2019s most eminent financial jurisdictions.<\/p>\n\n\n\n

    \u00a0In 2018, FinCEN\u2019s Customer Due Diligence Requirements for Financial Institutions (CDD Rule (2018)<\/a> changed BSA regulations (which mandates the Patriot Act\u2019s KYC role) to make CDD clearer to understand, allowing financial institutions to adhere to 4 principles, namely identify and verify the identity of 1) customers and 2) beneficial owners, 3) develop risk profiles by investigating customer relationships, and 4) monitoring suspicious accounts with a risk-based approach on an ongoing basis to maintain customer records.<\/p>\n\n\n\n

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    2.AML vs KYC<\/strong>: How are they different?<\/h2>\n\n\n\n
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    The terms \u201cAML\u201d and \u201cKYC\u201d are often combined together or used interchangeably in finance, however, this is not totally accurate. <\/p>\n\n\n\n

    Both are risk-based approaches to money laundering, but while AML and KYC software often work in tandem to whitelist customers, manage risk and monitor transactions, there is significant separation in the scope of their objectives. <\/p>\n\n\n\n

    The confusion between what constitutes AML and KYC is a minefield for financial institutions, often resulting in fines and penalties. Companies have to ensure they incorporate a comprehensive AML program, not only KYC.\u00a0
    Anti-Money Laundering (AML) is a complex framework of strategies, rules, and regulations to combat money laundering, while     Know-Your-Customer (KYC) is a process<\/a> that only identifies and authenticates the customers of financial institutions based on their perceived risk profile.\u00a0<\/p>\n\n\n\n

    KYC is essentially a small cog in the big AML wheel, helping financial institutions verify the real identities of their customers. AML regulations require companies to submit risk reports, perform diligence processes before accepting new customers and report suspicious activities. Regulated entities that fail to comply with AML regulations face severe penalties and possible criminal prosecution. <\/p>\n\n\n\n

    Combating the Financing of Terrorism (CFT)<\/h3>\n\n\n\n

    Combating the Financing of Terrorism (CFT) is a procedural set that investigates, analyzes and deters the funding of terrorism activities, helping authorities to bring terrorists to justice and isolate terror-promoting countries. CFT came to prominence after September 11 (2001) and is so closely intertwined with AML efforts, the G20 watchdog the Financial Action Task Force (FATF) refers to its policy as AML\/CFT, as covered by its 40+9 Recommendations<\/a>.\u00a0<\/p>\n\n\n\n

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    3. What is Anti-Money Laundering (AML)?<\/h2>\n\n\n\n
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    Anti-Money Laundering (AML) is a comprehensive set of processes, regulations and rules that together cohesively combat money laundering, terrorism funding and other financial crimes such as identity fraud.<\/p>\n\n\n\n

    AML aims to detect and disrupt money laundering activities, which normally happen in 3 stages: Placement, layering and integration.<\/p>\n\n\n\n

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    \"A
    A Typical Money Laundering Scheme<\/a><\/figcaption><\/figure><\/div>\n\n\n
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    Led by AML watchdogs like the Financial Action Task Force (FATF), countries develop their own measures to combat domestic money laundering, and policies can differ greatly from country to country. <\/p>\n\n\n\n

    A financial institution\u2019s AML policy should adhere to its domestic AML regulations and usually include these processes:<\/a><\/p>\n\n\n\n