New Approaches to Old Problems? Thinking About a New Design of the AML/CFT Strategy

TL;DR

This paper discusses how new technological infrastructures, especially distributed ledger technologies, impact AML/CFT strategies by offering both challenges and tools for monitoring illicit financial activities, emphasizing the need for interdisciplinary analysis and legislative updates.

Contribution

It provides an interdisciplinary analysis of how distributed ledger technologies can be integrated into AML/CFT strategies and discusses legislative considerations for adapting to crypto-related financial activities.

Findings

Distributed ledger tech can aid in tracing illicit flows.

Traditional value transfer systems may become harder to monitor with new tech.

Legislative frameworks are evolving to address crypto space challenges.

Abstract

The entry of new technological infrastructures into the financial markets poses serious concerns about the misuse of the economic system for illicit purposes, such as money laundering and financing of terrorism. Although there are cases in which this connection has already been discovered by malicious actors, distributed ledger technologies can nevertheless represent a powerful tool at the disposal of competent authorities to trace illicit flows and to better monitor risks in financial markets. However, this possibility may go through an interdisciplinary analysis of the phenomena. The search for alternative systems to move funds, rather than the traditional financial intermediaries, such as banks, is not a new circumstance and not necessarily for criminal purposes. Nevertheless, some of the already-known value transfer systems may benefit from the use of distributed ledger technology and make their detection more difficult. The European institutions are discussing the needed legislative packages to enforce the current regulations and to extend their application to the crypto space, as well as the establishment of a new competent authority.