ALM Banking and Crypto


As mainstream financial institutions begin to provide services related to Web3, crypto, and NFTs, they will need to have new Anti-Money Laundering (AML) capabilities in place to protect customer assets from bad actors and identify whether client assets have been obtained through illicit activities.

The crypto industry has created various constructs like cross-chain bridges, mixers, and privacy chains, which can be used by hackers and crypto thieves to obfuscate stolen assets, making it challenging for organizations to implement effective AML functions. However, banks are taking notice, and regulators have recently come down hard on some crypto platforms.

Centralized exchanges have been pressured to delist privacy tokens. In August 2022, Dutch police arrested Tornado Cash developer Alexey Pertsev, and they have been working on controlling transactions through mixers since then.

While centralized governance is considered antithetical to the Web3 ethos, banks may have to swing the pendulum in the other direction before reaching a balanced middle ground that protects users and doesn’t curtail innovation. To provide digital asset services to clients, banks must have a robust AML framework. Collaborating with third-party solutions and ensuring a holistic approach can go a long way in providing effective AML functions.

There are several vendors in this space, including Solidus Labs, Moralis, Cipher Blade, Elliptic, Quantumstamp, TRM Labs, Crystal Chain, and Chainalysis, who are focused on delivering full-stack AML frameworks to banks and financial institutions.

To deliver a holistic approach to AML around digital assets, these vendor platforms must have several inputs. The vendor provides some, while others are sourced from the bank or institution they work with. The breadth and depth of data an institution can access will decide the effectiveness of its AML function.

Therefore, banks must evaluate and build several capabilities to achieve this, which could be built in-house or achieved by collaborating with third-party solutions. Proactive monitoring and screening of customer wallets is necessary to ensure transactions happening on the network do not involve any illicit activities. Blockchain investigation is critical for this purpose. Platforms like Elliptic can identify transactions that even stem from the darknet.

Banks must take AML seriously when providing crypto services to their clients. With the right AML capabilities in place, they can protect customer assets and identify any illicit activities. Collaborating with third-party solutions and ensuring a holistic approach can go a long way in providing effective AML functions.



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