The global traditional finance space is bedeviled by serious financial crimes such as unethical dealings, thefts, fraud and money laundering. However, the blockchain technology has the potential of eliminating money laundering in the global financial system. The blockchain technology in general, and Bitcoin, in particular, rose as a solution to prevent widespread financial frauds like the ones observed during the Asian financial crisis of 1997 and the global economic crisis of 2008.
The global impact of money laundering is alarming; with related transactions estimated at 2 to 5% of global GDP – amounting to up to $2 trillion. The IMF defines money laundering as a process of conducting financial transactions in a manner that obscures the link between funds and their origin. However, money laundering is more than just a financial crime – performed by criminals and terrorists to finance their illegal activities, it not only hampers the global economy but also poses a threat to global security. Money laundering is equally conducted by thousands of businesses each year to evade tax, provide liquidity to illiquid markets, and purchase assets in tax havens.
Current Anti-Money Laundering (AML) rules in the global market are unable to tackle the complex nature of worldwide money laundering activity. According to Btcmanager, only one percent of all laundered money is seized each year, with both companies and countries unable to accurately eliminate the growing concern.
Although, cryptocurrencies and blockchain-based payment systems offer a highly-secure alternative to traditional methods, regulatory progress remains slow, and the emergence of bad actors in the industry makes the burgeoning market mirror the opaque world of finance. But with rising globalization, decentralized financial systems are primed to be the next step for ensuring a sustainable economy.
The blockchain technology offers a lucrative opportunity that can be harnessed to intensify the global fight against money laundering. An Anti-Money Laundering (AML) mechanism built on a blockchain can create a transparent ledger accessible by all participants of the modern financial framework, including regulatory authorities, risk officers, auditors, and other relevant bodies. All participants can run a node and monitor complex transactions effectively while tracing any trails of suspicious transactions across the system with ease.