Sandeep Sahoo
Sandeep Sahoo
Can keep my cool under stress

Blockchain in Anti Money-Laundering Tracking System

Blockchain in Anti Money-Laundering Tracking System

Globalization and the rapid advancement in technology have created a problem for banks and governments at an unprecedented scale all around the globe namely Money Laundering. Money laundering is estimated to equal a staggering $2 trillion per year. To put this figure in perspective, that‘s roughly the equivalent to the entire GDP of Brazil, the world‘s 8th largest economy.

In the past, money laundering involved couriers carrying a large amount of currency to corrupt offshore banks or organizations that would then launder it. These days, money laundering has become incredibly sophisticated, thanks to the new ways that technology allows for money to be transferred throughout the globe.

The finance industry stands to benefit enormously from blockchain implementation. One of the main ways it stands to benefit is from the increased security that comes with this exciting new technology.


Money laundering is the process whereby money obtained is through illegal activities but is projected otherwise. There are lots of ways that this can be done.

Perhaps the simplest way to do so is to record these illegal gains as being sales made by a legitimate business, provided that the income is within a reasonable level of expectation, such activities are very hard to spot without conducting a thorough audit.

Other Methods To Launder Money:

  1. Cash smuggling: Taking money offshore to tax havens, etc.
  2. Shell companies and trusts: Allows criminals to hide cash anonymously.
  3. Trade-based laundering: Inflated prices are used to funnel cash to legitimate businesses.
  4. Round-tripping: Money is offshored and legally returned as an investment.
  5. Corrupt Accounting via a Controlled Bank: Criminals take over a bank then use it to wash money.

What is Blockchain

Blockchain is a distributed ledger framework that cryptographically stores data on an open or private network. Blockchain is a technology that aims to transform the backend systems that most businesses run on. It aims to become a lower cost, more efficient way to share information and data between open and private networks.


The task of trying to prevent money laundering inevitably falls on every government around the world. Most governments have already enacted laws that make such practices a financial crime.

The most recent country to pass money lending legislation was India. In 2002, its parliament passed the Prevention of Money Laundering Act. This law not only made money laundering a crime but also authorized the seizure of any property believed to have been bought with laundered money.

Governments now have more tools than ever before to find and prosecute money launderers. Their ability to access and monitor huge amounts of financial records of suspected individuals is perhaps their most powerful tool.


Immutable Ledger For Regulatory Oversight

The fact that blockchain technology uses a decentralized network, where each participant or node is required to validate changes, makes it incredibly secure.

Provided a hacker is not able to gain control over 51% of the nodes on the network, something which would require a supercomputer that does not yet exist, any unauthorized change would be automatically resisted by the other nodes.

Since each node has a record of the entire ledger, they can compare any change to their record and therefore detect any unauthorized change.

This particular aspect of blockchain technology means that blockchain ledgers can be completely trusted. Regulators would, therefore, be able to example records knowing that the information contained within them was reliable and accurate.

Establish Trustworthy Identifications

Any blockchain-based database that involved money or property could be programmed to record a verified identification of each party for each transaction. This would mean that these individuals could then be held accountable in the case of any wrongdoing.

Right at this moment, companies like Evernym, Sovrin, are racing to develop more secure ways of verifying people‘s identification.

Currently, the market relies on companies such as Equifax, which rely on client-server systems to maintain their databases.

Blockchain for AML transaction monitoring

The question of how to detect money laundering using blockchain technologies is a complex one.

Essentially, any deployment of a blockchain-based AML solution would require the use/integration of smart contracts. A blockchain-based AML platform that utilizes smart contracts would be able to use inbuilt algorithms to automate the process of AML fraud detection.

By programming in a series of requirements, such as the need for verified ID, this technology would be able to automatically block or red flag any suspicious transactions. In this way, it would be possible to gain oversight of overall digital transactions made through participating financial institutions without having to hire huge teams of auditors to check the transactions.

Governments will be able to enact laws making such oversight laws, meaning that all financial institutions and cryptocurrencies will have to facilitate such a system to operate.

Whenever a transaction is made, it will be scrutinized by the network and could be flagged in the case that it was suspicious and needed investigation.

Developments like these are surely exhilarating. While a solid method that prevents money laundering is still far off in the development of ubiquitous blockchains, this new technology has the potential to break through our past limitations. There is an estimated two trillion dollars that gets laundered per annum, as such, solving this problem will require a combined effort from the government and the entire finance industry as a whole.

This task is not easy, given that a lot of the above-mentioned institutions are caught laundering as well, getting their corporation is going to be much more of a steep task than the actual innovation in ubiquitous blockchain technology.

However, it is quite clear that it is possible to reduce criminal activity which has persisted for more than a millennia with the proper use of blockchain. For now, we can only hope that blockchain will succeed where many other endeavors have failed.


Note : Utmost care has been taken to credit the original authors/sources and to make these as apt as possible.

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