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Anti-money laundering (AML) is a term that describes laws, processes, and regulations that are intended to prevent illegally obtained funds from being disguised as income gained through legitimate means.
The fundamental purpose of the AML laws is to help safeguard, detect, and report suspicious activity including the predicate offenses to money laundering and terrorist financing, such as securities fraud and market manipulation.
Most exchanges have AML measures that include identity verification (Know-Your-Customer checks) and bots that monitor for suspicious trading activity.
AML Laws at Work
AML laws take explicit aim at corruption, tax evasion, market manipulation, and the trade of illegal goods.
Much of their emphasis also looks to bring to light the efforts individuals or entities utilize to conceal these crimes.
Essentially, AML procedures are intended to make it harder for criminals to “hide the loot.”
Often, money launderers attempt to disguise their illicitly-obtained funds by funneling it through a legitimate cash business, like a regulated cryptocurrency exchange.
Therefore, it is up to the businesses to ensure that they aren’t unwillingly part of a money-laundering scheme.
One of the most prevalent issues to combat is laundering, which involves running money through a legitimate cash-based business owned by the criminal organization or its associates.
A supposedly legitimate business can then deposit the money, which the criminals can subsequently withdraw.
Launderers can also target foreign accounts to make deposits it, depositing cash below several regulatory thresholds that fail to garner suspicion.
In the US for example, many transfers or cash payments under $10,000 are unlikely to draw the attention of regulatory authorities.
Additionally, money launderers can move cash into dishonest brokers who are willing to ignore existing regulations in return for large commissions.