Blockchain Technology and How It Can Help Prevent Money Laundering

Understanding Blockchain technology and the encrypted information within it could potentially help regulators find the powerhouses behind money laundering, trafficking, and terrorism.  Illicit activities can be pursued through cryptocurrency transactions involving Bitcoin, Ether, and other digital currencies, and blockchain technology records these transactions and makes them accessible to the public by authenticating and verifying participants in its digital ledger, which reduces the potential for false information getting onto the exchange.

Moreover, because Blockchain technology is not restricted by jurisdiction, information sharing and tracing money transfers and cross-border transactions is practically effortless.  However, even though transactions are visible to the public, they are “keyed” into a long collection of letters and numbers which makes deciphering them and matching them to the related users difficult.  This issue facilitates a conversation between regulators on how to flag fraudulent and high risk behavior despite jurisdiction.

After the release of the Panama Papers in April 2015, it became clear just how much money laundering and fraud threatens the global economy and creates a credibility and transparency gap between officials and the general public.  The papers exposed the illegal transactions and tax avoidance from 214,448 entities in over 50 countries. This discovery revealed to the public that the offshore financial environment was unethical and at a higher risk than anticipated.

Blockchain technology can potentially allow for transparency to increase by implementing due diligence protocols that will enable cryptocurrency sites to ensure that their information is compliant with anti-money laundering (AML) and anti-terrorism regulations.  In addition, because blockchain technology is completely unhackable due to the fact that hackers would need a supercomputer to make any unauthorized changes, and only nodes (participants that work to keep the network tamper-proof) have access to the ledger, regulators can trust that the information stored within is reliable and accurate.  Furthermore, blockchain technology can also be used to monitor AML transactions by utilizing inbuilt algorithms to automate detection.


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