How Can Blockchain Help Banks Counter Money Laundering?


Money Laundering, Compliance failures, and fines. 

According to UNODC the amount of money laundered globally in one year is between 2% and 5% of global GDP, or roughly $800 billion to $2 trillion in current US dollars. The growing amount of financial crime despite all the checks, measures and compliance continues to be a major global challenge for banks and financial institutions exposing the loopholes and weaknesses of the traditional finance ecosystem. As per media reports globally banks and financial institutions have been fined for policy, procedure, reporting violations under Anti-Money Laundering, Customer Due Diligence, and Counter Terrorist Financing regulations. See infographic below:

Despite all the above fines, warnings and all the efforts put in by the bank authorities, the AML/CTF violations have not stopped. 

AMLD5 and importance of Blockchain AML Compliance for Banks 

It’s mandatory under the AMLD5 directive that banks must manage the AML risk related to the crypto counterparties they work with. Coinfirm CEO Pawel Kuskowski wrote in his Forbes exclusive that “Banks cannot refuse services simply because an entity belongs to a particular sector such as crypto; cases must be assessed individually. So, a bank cannot refuse service just because a counterparty is, for example, a cryptocurrency exchange. This is both a challenge and an opportunity for the crypto asset space”.  

We can already see the impact of this on a global scale and not just with banks in Europe but even in the US where a New York based private bank M.Y. Safra Bank was sanctioned by The U.S. Treasury’s Office of the Comptroller of the Currency (OCC) for its oversight in monitoring and reporting of potentially suspicious activity tied to crypto clients. The order states that the bank opened accounts for Digital asset customers (DACs) consisting of cryptocurrency-related entities but missed to report suspicious activity reports (SARs) and weak AML automated transaction monitoring system.  

Growing adoption of crypto services by Banks  

As we see in the above case that crypto assets are increasingly blending in traditional financial services raising the AML and CTF compliance risks. After initial reluctance Banks have started to consider crypto assets which is a positive sign. Last month over 40 German banks have applied for the new crypto custodian license necessary for the provision of professional custody services. 

According to the recent media reports Swiss private banking and wealth management group Julius Baer launched a digital assets trading and custodial service in partnership with Seba.  In the US there are new-age online banks such as Simple Bank or Ally bank who support cryptocurrency transactions and work with exchanges that enable the customer to buy, sell and invest in cryptocurrencies. The National Bank of Canada allows its customers to purchase cryptocurrencies using their credit cards. These developments are a positive sign for regulators and banks to work together on creating regulations that create opportunities to grow the market for blockchain and cryptocurrency-related services.  

Banks and Blockchain…Use cases and the future  

A great value-add and advantage for banks and FII’s with Blockchain is the traceability and irreversibility of transactional records and customer identities that improve compliance while reducing operational costs such as IT infrastructure, payment and transaction costs etc. According to a Business Insider report many banks are evaluating, piloting or implementing blockchain projects across payments, securities, trade finance, and fraud detection and security. Australia and New Zealand Banking Group (ANZ), Bank of America (BofA), Citi Bank, CME Group, Fidelity Investments, HSBC, IBM, JPMorgan, Marco Polo, Mastercard, Nasdaq, PayPal, Ripple, Royal Bank of Canada (RBC), Santander, SWIFT, and Visa are the banks mentioned in this report. China injected $4.7M into its Central Bank’s Blockchain Trade Finance Platform which will be utilized by over 38 banks. Bank of America, the second-largest US bank, has applied for another blockchain patent on the development of a secure crypto storage system.  

PKO BP, one of the largest banks in Central Europe, integrated Coinfirm’s  trudatum  blockchain solution to successfully deliver documents digitally to over 5 million customers. This is the largest scale blockchain technology use in banking in Europe. 

Conclusion – The way forward 

It’s a wait and watch situation with banks expanding the scope of services around crypto assets but going by the recent introduction of new crypto services, operations around digital asset customers and regulations such as the EU’s AMLD5, this year will be very important for regulatory compliance of the industry overall. To ensure compliance banks must implement robust AML analytics and intelligence tools to fulfill their regulatory requirements and mitigate risks related to cryptocurrency businesses.  

If you are a banking professional or a blockchain-related company and would like to learn more about how Coinfirm’s AML solutions can help you, schedule a free demo today.