Blockchain Integration: A Disruptive Force Against Money Laundering
Anti-money laundering has been a rapidly expanding area of the financial industry for the better part of the last two decades. The World Bank estimates that the volume of money laundering is as much as $3.5 trillion worldwide annually (nearly 5% of global GDP). Given that less than 1% of money laundering activity is actually detected by the banks and financial authorities, the realm of regulatory compliance has grown exponentially in recent years to try to incur better outcomes in this regard. As such, the increasing demands, expectations, and pieces of distinct and
often-complex legislation that accompanies regulatory compliance have created a need for large, dedicated departments catered specifically to handling these tasks. However, advancements made in various forms of financial technology – specifically blockchain – may offer an alternative and arguably a more effective solution than that of even artificial intelligence and machine-learning options that have begun to emerge in recent years. These developments have led many of the world’s most renowned and powerful financial institutions – as well as those hampered by bloated and overburdened regulatory compliance departments – to explore the growing capabilities with respect to keeping their respective enterprises secure and up to par with all of the latest regulatory requirements. Simply put, blockchain is a technology that acts as a digital ledger of transactions that is duplicated and distributed across a chain of computer networks. It is a method of recording information that is particularly difficult to hack or alter in a fraudulent way. Popular cryptocurrency options such as Bitcoin and Ethereum use blockchain technology as the basis for their markets.4 Where does this factor into the realm of regulatory compliance one might ask? Well, the integration of blockchain technology into AML efforts could mean trimming the fat off of a significant amount of work for compliance departments. Since the plight against money laundering and other serious financial crimes gained significant traction with the passing of Title III of the USA PATRIOT Act following the 9/11 terrorist attacks, financial institutions have desperately sought ways to lower rising costs associated with hiring large compliance teams, bringing on consultants, and paying for long hours of laborious work in order to keep up with ever-changing financial regulations. This is for good reason, considering that it is estimated that AML compliance spending totals upwards of $30 billion collectively for American financial firms on an annual basis. Compliance personnel operating under financial institutions whose internal operations are not up to par with growing technological standards can spend significant portions of their workdays manually verifying basic