Anti-Money Laundering (AML)

Anti-Money Laundering (AML) regulations are designed to prevent financial fraud.

Financial companies and stock exchanges (including issuers of digital assets and crypto exchanges) are generally obliged to actively combat financial fraud. For that reason, on 19 April 2018, the European Parliament passed the 5th EU Anti-MoneyLaundering Directive, which places even greater obligations on the EU-wide financial sector in comparison to previous directives.

The anti-money laundering regulations cover activities designed to prevent financial resources from being illegally earned or moved by criminals. In addition to money laundering, these include tax evasion, public corruption, market manipulation ( e.g. via wash trading) and the financing of terrorism.

There are two types of measures against money laundering:  preventive measures and analytical measures:

In order to prevent financial fraud as early as possible, a legitimation check of new customers is mandatory, especially for credit institutions, crypto trading venues and insurance companies. In case of non-compliance with legal requirements, high fines may be imposed. At the same time, proper legitimation of new customers reduces business risks for companies and ensures compliance with regulations. The so-called Know Your Customer (KYC) principle provides a guideline in this regard.

In addition, a variety of software solutions are available to government agencies, financial institutions and companies to help identify and/or forensically trace questionable activities.

The blockchain makes fraud easier. Due to the anonymity of P2P cryptocurrency transactions (the two parties only use a public key as identity),cryptocurrencies such as Bitcoin are popular currencies among criminals. This is where crypto exchanges and other intermediaries such as iVE.ONE enter the stage: to minimize the risk of fraud or money laundering, iVE.ONE therefore works exclusively with pre-identified and approved partners and customers.

However, anti-money laundering regulations do not only have advocates. Critics argue that compliance nullifies the advantages of DLT (e.g. anonymity, decentralization and the absence of intermediaries) and represents an invasion of privacy, because according toAML, personal data must be stored in central databases. Consequently, numerous companies and research institutions are currently working on a solution that complies with the law and guarantees the privacy of users at the same time.