In a world where the positives and negatives coexist, let us address the escalating issues of illegal activities. These activities are rising not only in various industries but especially in the financial sector. According to the PWC, 64% of businesses in the UK have been subject to fraud or other financial crime between 2020 and 2022.
Technologies while offering new opportunities to criminals. It can also provide supervisors with an advantage. Several Central banks have reported using data analytics for anti-money laundering and Countering the financing of terrorism purposes by adopting advanced techniques.
You might be familiar with various unlawful financial activities, specifically money laundering, making illegally obtained funds appear legal by concealing their illicit origins; others include transferring funds to terrorist groups to act for a serious threat. To combat and prevent multiple financial crimes, Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) regulations and measures were first introduced!
Before delving into a detailed understanding of AML and CFT, let’s explore the financial crime trends.
AML is a set of regulations or procedures implemented to prevent money laundering associated with financial and banking institutions. On the other hand, illegal transactions with terrorist groups make it difficult for the regulatory and other institutions to detect the transactions and the activities taking place across borders. Over half of the respondents mentioned lacking resources hampers their AML efforts.
In this blog, let’s understand the importance of blockchain in AML and CFT and how it benefits financial and banking institutions to circumvent these illicit activities associated with finances.
Money laundering and financing terrorism are the major global challenges which impact the financial stability and security of a country. Several challenges include a lack of control over transaction data and customer information, leading to a decline in product or service prices. Moreover, reduced stability adversely affects both the social and business economy. Well, if this continues, then there will be a huge impact on the nation’s economy. To eradicate this, blockchain was implemented. Now, it’s time to explore the importance of blockchain in AML and CFT.
Blockchain technology, renowned for its decentralized and transparent nature, plays a pivotal role in enhancing Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) efforts. Its importance stems from the following key aspects:
AML and CFT integrated with blockchain could help financial institutions improve the efficiency, security and measures required to track money laundering and financing terrorism.
Blockchain is an effective and promising tool for combating AML and CFT as it provides several advantages and improves the efficiency of financial institutions. The decentralized technology can reduce the risk factors associated with AML and CFT, leading to a decrease in suspicious activities. AML and CFT efforts enhance transparency, traceability, and automation while addressing privacy concerns. Its ability to reduce counterparty risk and facilitate cross-border transactions makes it a valuable tool in the fight against financial crimes and the financing of terrorism.