AML Compliance is entry fee to global banking system
Cryptocurrencies can tout their anonymity all they want, but trying to exchange a bitcoin for dollars still triggers AML Compliance requirements to ‘Know Your Customer.’ That growing reality is proving troublesome for bitcoin and similar non-traditional currencies.
The Wall Street Journal reports in a story today that at least three major bitcoin exchanges in Asia have informed customers that no dollar transactions may be processed. This is due mainly to AML Risk related to KYC/CDD standards of crucial correspondent banks that facilitate wire transfers and transactions in foreign currencies.
According to the Journal, the cryptocurrency exchanges tend to use local banks, and the local banks rely on correspondent banks to handle the transactions into dollars and other traditional currencies. Some bitcoin users embrace the currency specifically for its lack of KYC/CDD data collection, but that lack of transparency raises major AML risks for correspondent banks that could be held liable for financial crimes committed through transactions for which there is no documented KYC.
Major institutions such as J.P. Morgan Chase and Standard Chartered have de-risked relative to cryptocurrency by prohibiting their correspondent-banking customers from handling such transactions.
China has also been assertive recently in scrutinizing bitcoin transactions and moving to regulate the cryptocurrency industry within its borders. Current proposals call for regulating such currencies according to the nation’s standard banking and AML laws and policy requirements. One of the motivators for China’s actions appears to be a desire to stem further the outflow of wealth from the country.
Other countries like the U.S. and Japan are looking at similar requirements to apply AML Compliance regulations to cryptocurrencies. Bitcoin users would no doubt rue the loss of anonymity and light regulation of those transactions, but that appears to be the price for gaining access to the larger global financial world and to the ability to exchange cryptocurrencies for paper currencies.
