Reasons and Strategies to Leverage Blockchain Technology for Anti-Money Laundering (AML)


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Legacy AML tools that have become obsolete cannot offer adequate measures to prevent money laundering. Many business leaders are exploring opportunities to leverage Blockchain technology in their FinTech stack for efficient anti-money laundering strategies.

The current legacy transaction tracking tools cannot keep up with the evolution of new digital financial services. Criminals are on the prowl to look out for businesses with traditional channels and leverage them to accomplish their money laundering activities. These criminals have become more sophisticated, which makes it challenging for the authorities to detect them.

Moreover, the majority of AML strategies that are currently enforced are very isolated. Every financial organization implements a unique solution and has different compliance regulations to adhere to based on location, resulting in a lack of standardization. As a result, it becomes difficult for financial institutions to identify and mitigate money laundering efforts. With the advent of globalization, there has been an exponential surge in cross-border financial transactions. Financial institutions must have effective automation, end-to-end data analytics tools, and transaction monitoring solutions to reduce money laundering incidents. Blockchain and its applications offer quick and encrypted transactions that do not require any intermediaries. The current AML tools cannot yet investigate such highly encrypted and Peer-to-Peer (P2P) types of financial transactions.

Reasons for leveraging Blockchain in financial institutions for anti-money laundering strategies

Blockchain Offers Immutable Ledger

One of the significant reasons businesses need Blockchain technology is because it utilizes a decentralized network that needs every participant or node on that network to validate changes; this characteristic of Blockchain strengthens its security and will minimize money laundering incidents. As a result, for criminals to accomplish their money laundering goals, they need to gain access to most of the nodes or participants on the network, which is not practically possible. Because all the other nodes or participants will automatically resist unauthorized edits, every node will have a record of the entire transaction, which will help them evaluate the entire record and helps them to identify any unauthorized change. Blockchain is an immutable ledger, making it more trustworthy and transparent. Hence the regulatory bodies will be able to evaluate the records and determine if the information on the network is reliable and accurate.

Businesses can Leverage Blockchain for AML Compliance Adherence

It is a complex process to leverage Blockchain technologies to identify money laundering.

Businesses that want to utilize Blockchain-based anti-money laundering tools must leverage intelligent contracts.

Implementing AML compliance adherence tools built on Blockchain technology will enable organizations to automate processes to identify fraudulent transactions and combat money laundering activities.

This technology automatically highlights or blocks a red flag for suspected fraudulent transactions by emphasizing the need for verified ID. As a result, this approach is one of the most effective ways to get a holistic view of all the digital transactions, including all the participants, without needing a considerable auditing team to validate all the transactions and report suspicious transactions.

Even the government regulatory bodies and other law enforcement bodies will be able to enforce a financial system that offers a holistic view of anti-money laundering regulations. Hence all the financial organizations under these regulatory bodies will be able to enforce a centralized system that detects and notifies all money laundering activities. For such anti-money laundering schemes to succeed, it is crucial to make every participating financial organization a node on the Blockchain network.

Once every transaction is made, it needs to be scrutinized by all the parties involved in the network. All the nodes can flag suspicious activities that do not fit the anti-money laundering parameter. Implementing this approach goes against the concept of Blockchain technology being completely decentralized. However, the prevention of money laundering is necessary to prevent the organization from various legal litigations, hefty fines, and reputational damage. Businesses can leverage Blockchain and its applications to prevent money laundering activities.

Also Read: Westpac adds fraud prevention measures

Ways to Leverage Blockchain Capabilities for AML Transaction Monitoring

Financial institutions that want to leverage Blockchain technology for anti-money laundering can consider the following methodology to get started:

Explore Blockchain and its Application for AML

Before embarking on a journey to embrace Blockchain on their FinTech stack, businesses in the banking industry need to have an in-depth understanding of distributed, decentralized, and immutable ledger technology. Furthermore, it is also crucial to understand how the applications of Blockchain can be utilized to monitor anti-money laundering transactions.

Develop an Implementation Team with a Point of Contact (POC)

It is essential for businesses that want to embrace Blockchain in their tech stack to identify the resources that can ensure successful implementation. Business leaders can develop a core implementation team with experts across all verticals to design a comprehensive strategy. The implementation team should have experts from the IT department, stakeholders, compliance teams, and other operational departments. Businesses that do not have in-house expertise can consult industry veterans to ensure successful Blockchain implementation for anti-money laundering.

Start Small

Organizations do not have to enforce the new approach on all business operations. They can start designing and implementing in phases. The implementation team can start on a few selected use cases with red flags to identify the success rate.

Create Prototypes of these Selected Use Cases and Evaluate Them

Financial institutions can design experimental environments to set up Blockchain technology and design an application that delivers intelligent contracts. Once the anti-money laundering strategy is successful in these selected use cases, they can widely enforce it throughout the operations.

Leveraging Blockchain technology can offer tremendous benefits and help businesses to reduce money laundering instances. Financial institutions must consider Blockchain an effective tool for anti-money laundering strategies.

Nikhil Sonawane
Nikhil Sonawane
Nikhil Sonawane is a Tech Journalist with TalkCMO. He has 4+ years of technical expertise in drafting content strategies for MarTech, Marketing Automation, and Customer Relationship Management (CRM). His Commitment to ongoing learning and improvement helps him to deliver thought-provoking insights and analysis on complex technologies and tools that are revolutionizing modern enterprises. He brings his eye for editorial detail and keen sense of language skills to every article he writes. If he is not working, he will be found on treks, walking in forests, or swimming in the ocean.


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