Digital Assets: AML and Sanctions Compliance Best Practices

The prevalence and desire for cryptocurrencies in global markets continue to ascend, as seen by the introduction of Bitcoin exchange traded funds (ETFs) and the rise of stablecoins. This development improves accessibility for a broader range of investors and signals a growing acceptance of cryptocurrencies within the institutional frameworks of global financial markets. 

Digital assets present challenges and opportunities for anti-money laundering (AML) and sanctions compliance efforts due to their underlying blockchain technology. The challenge comes from pseudonymity, easy access, decentralization, and speed at which cryptocurrency transactions can occur globally, providing bad actors with added means to obscure the source, nature, and ownership of assets to launder illicit fund and evade sanctions. 

Government authorities are taking steps to regulate digital assets. The US Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) are intensifying their regulatory enforcement on digital assets, signaling a firm stance toward the oversight of exchanges and investment holders within the cryptocurrency space. The government has established a more secure and regulated environment for digital asset transactions. 

There are a set of best practices firms should implement to improve AML and sanctions program to capture digital assets. They should continually reassess their direct and indirect exposure related to digital assets and employ new and robust tools and procedures to screen and analyze all relevant data when onboarding and performing due diligence on customers. Automated customer due diligence, sanctions screening and transaction monitoring tools are essential for an effective AML and sanctions compliance program. This is in particular for customers and accounts linked to digital assets, due to the volume and complexity of the blockchain available data that should be exploited for intelligence gathering an analysis. 

Looking ahead, we expect to see an increasing risk of digital assets being used to facilitate money laundering and circumvent sanctions. The regulatory landscape surrounding digital assets is likely to evolve in the months and years ahead. 

The article originally appeared in the July 2024 issue of Financier Worldwide

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