Opinion: Ana Carolina Oliveira, Chief Compliance Officer at Venga

Crypto itself does not have a money laundering problem. At least not compared to customary finance, where at least this is the practice twice just as common, and over 90% of them are he believed remain unnoticed. Money laundering is a common problem wherever funds are transferred. This is good news.

Blockchain records everything for posterity. When money laundering occurs, an indelible record is created that allows illicit financial flows to be traced from start to finish.

Just because cryptocurrencies do not have a specific money laundering problem does not mean that money laundering has been eliminated. The AML regime must evolve as a whole to strengthen preventive and investigative measures in customary financial environments, as well as in centralized and decentralized finance environments (CeFi and DeFi).

This evolution requires better communication within the sector, improved feedback mechanisms, a deeper understanding of emerging typologies and a more effective dissemination of recent trends.

The recently published European Union Anti-Money Laundering Regulation (EU Regulation 2024/1624) lays down some principles on this issue, but in practice there is still much to be done. Achieving this requires regulators and industry leaders to create guardrails that go beyond compliance checks.

Crypto needs to do better

It is not enough to implement AML procedures. These need to be continually improved to ensure that cryptocurrency overcomes its misunderstood reputation as a high-risk money laundering environment and strengthens barriers to continue to aggressively combat the practice.

This requires a cultural change in the approach to money laundering, with an emphasis on greater information sharing. Otherwise, criminals will simply shift their activities from high-AML venues to softer crypto targets where they can continue to conduct their trade.

Crypto “enables” money laundering in exactly the same way as fiat. The architecture may be different, but the result is the same: bad actors do bad things, using funds that facilitate everything from ransomware to, in the most egregious cases, terrorism.

Blockchain’s pseudonymity may be a feature, not a bug, but it makes it hard to tell who you’re dealing with when it comes to self-hosted wallets, which is made worse when mixers are used to obfuscate the source of funds.

If the source or owner of the funds cannot be easily identified, preventing money laundering will be hard.

Related: Universal blockchains bend to real-world demands

This is the reality for both fiat and cryptocurrencies. An individual exchange, no matter how hearty its AML and Know Your Transaction tools, does not have visibility into everything that is happening on the network. However, collectively, all crypto platforms have a wealth of knowledge about who is doing what on the chain, and when that “what” crosses into the area of ​​criminal suspicion, this information needs to be shared.

Currently, initiatives such as the travel policy, wallet screening and onchain analytics create a powerful AML barrier, but the responsibility and costs associated with creating pathways to combat illegal activity are delegated to individual entities. Let me give you just one example: the travel rule mandates a SWIFT/IBAN-style identification system, but the industry was left to its own devices to create technology and integration to facilitate this exchange of information.

In other words, regulators have tasked the industry with implementing a “SWIFT cryptographic system.” In an industry characterized by companies operating in multiple jurisdictions and subject to different geographic regulations, the compliance burden is colossal and labyrinthine. The ideal solution is to implement a global compliance standard across the industry.

Given the difficulties in gaining approval from various regulators and regions for such a framework, the onus is once again on the crypto industry to self-regulate. States and other relevant national authorities must better regulate and provide pathways for industry compliance.

Fewer loopholes, more freedom

The biggest challenge with cryptocurrency money laundering today is the difficulty in determining who owns the wallets, not the technology itself. Because the US, EU and Asia have different thresholds and rules for information sharing, due diligence and travel enforcement, loopholes exist for bad actors to exploit.

Closing these loopholes will not only reduce money laundering; it will also enable legitimate users to enjoy the financial freedom that cryptocurrency provides. The freedom to transact, trade and tokenize without hitting brick walls every time they change exchanges or regions. Since cryptocurrencies have no borders, compliance must follow suit. Compliance must work everywhere, every time.

That’s why the industry must work together to share information, adopt best practices and signal to the world that blockchain is open for business but closed to criminals who have nowhere to hide their ill-gotten gains.

We have mastered AML tools. Now we need to master the art of speaking. Exchange for exchange. Platform to platform. Region to region. FIU to obligated entities. TradFi with CeFi. This is how cryptocurrencies’ stance on money laundering changes from low tolerance to no tolerance.

If we can achieve this, the industry will grow.

Opinion: Ana Carolina Oliveira, Chief Compliance Officer at Venga.