Blockchain transparency helps flag money laundering activities

It is the worst medium for money laundering because there is an immutable audit trail


THE transparent operations of blockchain that are used in cryptocurrencies will play an important role in identifying widespread money laundering practices.

Ethikom Consultancy founder and CEO Nizam Ismail said the medium enables authorities to trace transactions made on the platform which could bust illicit activities.

He cited an example where law enforcement in the US managed to retrace audit flows on a dark web via blockchain and arrest the individuals involved in trading on the platform.

“If you want to do money laundering, it is the worst medium for that because there is an immutable audit trail.

“There are inherent mitigation within the blockchain itself but other than that, the financial action task force that administers the anti-money laundering laws globally have implemented quite robust requirements for cryptocurrency which are more prescriptive than conventional currencies,” he said during a webinar held by Maybank Kim Eng titled “Asean New Finance: Crypto Opportunities and Hurdles” yesterday.

He said a lot of exchanges and intermediaries involved in the operations use sophisticated wallet screenings that can track the origin of the bitcoin and trace if it is linked to any criminal or ransomware activities.

A report published by the Crypto Council for Innovation, penned by former Central Intelligence Agency acting director Michael Morell, revealed that illicit activity among all cryptocurrencies from 2017 to 2020 was less than 1%.

Nizam also noted there is tremendous use of blockchain in the financial services despite the disruption caused by it.

He said blockchain could replace intermediaries in the financial system and can be applied in trade finance, insurance systems as well as supply chain logistics, among others.

“Banks or insurance companies can take out the intermediaries in their system and put this basket of algorithms to run the business. It is a mind-boggling but powerful concept,” he added.

Maybank group chief risk officer Gilbert Kohnke said financial institutions have yet to fully dive into blockchain as it awaits and observes further development in the ecosystem.

Matters pertaining to the accessibility of blockchain remains the key area that financial institutions are studying.

“We are still going to see how it evolves and a lot of this focuses on how the ecosystem develops, who has access to it and who is going to use it.

“There has been work done on it and applications but it comes back to the trusted network element.

“I do think blockchain will hit the mainstream but we are still at the sidelines, watching how we can use it to apply to our customers,’” he added.