Anti-money laundering in the age of cryptocurrencies E-Book

Céline Carucci

• Herausgeber: buch & netz
• Kategorie: Fachliteratur
• Serie: Next Generation
• Sprache: Englisch

Seitenzahl: 81

Veröffentlichungsjahr: 2024

Beschreibung

This thesis explores the growing challenges of combating money laundering in the face of emerging technologies like cryptocurrencies, artificial intelligence, and blockchain. It examines how traditional anti-money laundering (AML) frameworks in the U.S. and the EU struggle to address these challenges, particularly the anonymous and decentralized nature of digital currencies. By analyzing recent regulatory developments in both regions, the thesis aims to assess how effectively new measures target digitalized money laundering and whether they address the gaps in existing AML approaches.

Leseprobe

Anti-money laundering in the age of cryptocurrencies Copyright © by Céline Carucci is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License, except where otherwise noted.

© 2024 – CC-BY-SA (Text)

Author: Céline CarucciPublisher: EIZ Publishing (https://eizpublishing.ch)Layout & Production: buch & netz (https://buchundnetz.com)ISBN:978-3-03805-743-7 (Print – Softcover)978-3-03805-744-4 (PDF)978-3-03805-745-1 (ePub)DOI: https://doi.org/10.36862/eiz-ng010Version: 1.00-20241108

This work is available in print and various digital formats in OpenAccess. Additional information is available at: https://eizpublishing.ch/next-generation/.

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Next Generation

The “Next Generation” series offers a platform for young academics in all areas of law. The aim is to promote the visibility of special talents at an early stage. The volumes in this series are published in Open Access and can therefore be shared and distributed via social media and other channels. Each contribution undergoes a peer review process before it is published.

Anti-money laundering in the age of cryptocurrencies

Céline Carucci

Celine Carucci has completed her Bachelor of Law at the University of Luxembourg and has pursued an L.LM. in International Law at the University of Maastricht with a focus on International Trade Law and International corporate and Commercial law, as well as an L.L.M. in. international and comparative Law at the University of Zürich as part of the University of Zürich’s double degree program. She is currently working in the commercial litigation department at a renowned Luxembourgish legal firm in Luxembourg while undertaking the bar exam course in Luxembourg. Her areas of interest are Corporate Law, Investment funds, commercial law and banking and finance law.

This thesis explores the growing challenges of combating money laundering in the face of emerging technologies like cryptocurrencies, artificial intelligence, and blockchain. It examines how traditional anti-money laundering (AML) frameworks in the U.S. and the EU struggle to address these challenges, particularly the anonymous and decentralized nature of digital currencies. By analyzing recent regulatory developments in both regions, the thesis aims to assess how effectively new measures target digitalized money laundering and whether they address the gaps in existing AML approaches.

Table of Contents

List of abbreviationsIntroductionExplanation of the general backgroundStatement of the problemResearch questionMethodology and Literary FrameworkThesis structureAnti-money launderingIntroductionMoney laundering cycle and methodsCycleMethodsAnti-money laundering framework in the U.S.OverviewEvolution of AML frameworkSupervision of AML complianceAssessment of AML complianceAnti-money laundering in frameworks in the EUOverviewEvolution of AML frameworksSupervision of AML complianceAssessment of AML complianceVirtual currencies and digital assetsDigital assets and cryptocurrenciesDefinition and classificationCharacteristics and functionalitiesOverview of regulatory approachesDigital technologiesArtificial IntelligenceBlockchainRisks and illustrations of money laundering through cryptocurrenciesMoney laundering risksIllustrationsNew developments in Anti Money LaunderingLegislative solutionsThe U.S.The EUImplicationsFuture strategiesCooperationsThe use of digital technologiesConclusionSummary of key findingsLimitations of the study and avenues for further researchConcluding remarksBibliographyList of Legislation

List of abbreviations

AIArtificial IntelligenceAMLAnti Money LaunderingAMLAAnti-Money Laundering ActAMLAAnti-Money Laundering AuthorityBSABank Secrecy ActCDDCustomer Due DiligenceCFTCounter Terrorist FinancingCFTCCommodities Future Trading CommissionCIPCustomer Identification ProceduresCRTCurrency Transaction ReportEUEuropean UnionFATFFinancial Action Task ForceFinCENFinancial Crimes Enforcement NetworkFRBFederal Reserve BoardKYCKnow Your CustomerMiCAMarkets In Crypto-Assets RegulationMSMember StatesMSBMoney Service BusinessesNCUANational Credit Union AdministrationOCCOffice Of The Comptroller Of The CurrencyOFACOffice Of Foreign Assets ControlRFIAResponsible Financial Innovation ActSARSuspicious Activity ReportSECSecurities And Exchange CommissionTFRTraceability Of Transfer Of Funds RegulationUNUnited NationsUSUnited State

I. Introduction

Explanation of the general background

Every year, around 2 trillion dollars are laundered.[1] This represents roughly 2.7% of the global GDP.[2] Given the staggering amount of money getting laundered every year, money laundering represents one of the biggest challenges for regulators and law enforcement entities. Money laundering depicts the process of making money obtained through illegal means, or otherwise “dirty”, appear clean to hide it.[3] Generally speaking, the fight against money laundering seeks to tackle terrorism and criminal organizations by obstructing their funding. Several methods have been devised to combat such a persistent problem both nationally and internationally, such as the know-your-customer principle or the monitoring of suspicious activities. However, this fight against money laundering has been effectively hampered by technological innovations. With the advancement of communication, technology and technological financial services, money can be moved around the world in a quick and mostly anonymous way, making the fight against money laundering incredibly harder.

Statement of the problem

In the past few years, we have seen the emergence of new technologies such as Artificial Intelligence (AI) and blockchain. Additionally, the development of new tech devices and the financial services they offer have facilitated the movement of money. This facilitated movement has created both positive and negative externalities. On the one hand, it is now easier than ever to access its own money anywhere in the world. On the other hand, it is also now easier for criminal organizations to move around money without encountering any issues through cryptocurrencies, for example, which are anonymous and decentralized. This makes the identification of the ultimate beneficiary extremely difficult. Given the emergence of such new challenges, traditional anti-money laundering (AML) methods have proven to be quite unsuccessful, leading to regulators adopting new measures to fight against digitalized money laundering.

Research question

Given that the U.S. and the EU are the two leading actors in the fight against money laundering, it will be relevant to analyze their regulatory developments regarding the fight against digitalized money laundering. As a result, throughout this paper, the answer to the following question will be sought: To what extent do the US and European AML frameworks address emerging challenges in the financial sector, such as virtual currencies and digital assets?

Methodology and Literary Framework

The research will be mainly doctrinal and will involve analyzing several doctrinal and legal documents dealing primarily with money laundering and cryptocurrencies. As a prerequisite to write this thesis it was essential to conduct a thorough literary review to get familiarized with money laundering and digital technologies. As a starting point to understanding money laundering, reviewing the book “Anti-money Laundering in a Nutshell” by Sullivan was of great help. In this book, Sullivan explains in great detail all possible aspects relating to money laundering and the measures undertaken by the U.S. Government to fight it. Jason Sharma’s book “Cryptocurrency Compliance and Operations” was a great start to understanding the different types of cryptocurrencies and how they operate and can be regulated. Given the topic’s novelty, it was necessary to focus on journal articles and reports by professionals specializing in anti-money laundering and cryptocurrencies. Getting familiarized with all the different legislation on the topic was also essential to identify how they are inadequate to deal with the challenges brought on by the use of cryptocurrencies in the ongoing fight against money laundering.

Thesis structure

The paper will be divided into three distinct parts. The three main parts will be laid out after the introduction and definition of the topic. In the first part, the different aspects of money laundering will be explained such as its usual way of working, its cycles, and the current traditional approaches to anti-money laundering. In this part, the current/traditional U.S. and EU framework will be presented and analyzed.

In the second part, digital technologies will be presented and explained. First, digital assets and cryptocurrencies will be defined and analyzed to highlight the shortcomings of the traditional anti-money laundering frameworks. Next, existing digital technologies and their subsets, such as AI, machine learning, and blockchain, will be presented to analyze how these can contribute to the fight against digital money laundering.

The paper’s last chapter will focus on the latest regulatory developments in the U.S. and EU, where new efforts to fight anti-money laundering have been undertaken in the last few years. Several bills have been proposed in the U.S. to tackle the new challenges related to digital anti-money laundering. Its analysis will reveal whether these challenges have been effectively taken into account and how effective they might prove to be. Respectively, the analysis of the new EU anti-money laundering framework will reveal how far digital money laundering techniques have been taken into account and whether the new approaches can be useful in the fight against anti-money laundering. Following the presentation of the latest regulatory developments, it will be relevant to see how they help resolve the issues identified under Part 3 and how they fill the gaps identified under Part 2. This part will be followed by a conclusion and some general thoughts.

Europol. Money laundering. [Online] Available at: https://www.europol.europa.eu/crime-areas/economic-crime/money-laundering. ↵United Nations (2020) Tax abuse, money laundering and corruption plague global finance [Online] Available at: https://www.un.org/development/desa/en/news/financing/facti-interim-report.html. ↵United Nations Office on Drugs and Crime [Online] Available at: https://www.unodc.org/unodc/en/money-laundering/overview.html. ↵

II. Anti-money laundering

Introduction

Money laundering became a known concept during the 20th