Date of Award
Master of Science (MS)
Money laundering can be defined as any act or attempted act to conceal or disguise the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources (Money Laundering, 2016). It is difficult to determine the magnitude of money laundering because these illicit financial flows remain hidden (Schott, 2006). A report issued by the United Nations Office on Drugs and Crime (UNODC) quoted that the total of all criminal proceeds amounted to $2.1 trillion in 2009. The study also shows that “Less than 1 percent of global illicit financial flows are currently seized and frozen” (Pietschmann & Walker, 2012). This is concerning because money laundering not only enables the operation of criminal organizations such as drug and human traffickers but can also significantly distort the economies in which they enter.
The Financial Action Task Force (FATF) is an inter-governmental policy-making body that has helped to promote anti-money laundering efforts since its formation in 1989. It has issued 40 recommendations to fight money laundering and nine special recommendations to combat terrorist financing which have been adopted by 32 countries (About - Financial Action Task Force, 2016). Unfortunately, implementing these strategies has proved to be difficult for both developed and lesser developed countries. According to a study conducted by PricewaterhouseCoopers in 2016, “over the last few years, in the U.S. alone, nearly a dozen global financial institutions have been assessed fines in the hundreds of millions to billions of dollars for money laundering and/or sanctions violations" (PricewaterhouseCoopers, 2016). It stands to say that if financial institutions are having difficulties implementing frameworks to prevent and detect money laundering, then our enforcement agencies are unable to adequately address the issue as well.
A new hurdle that enforcement agencies have had to face is the emergence of Bitcoin, as well as other cryptocurrencies, that can be described as “a digital currency and online payment system in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank” (Swan, 2015). Being an often unrecognized currency, many banks and financial institutions have not had to worry about modifying their compliance programs. The biggest benefit of cryptocurrencies to money launderers is its decentralized nature. There is no governing authority, as members of the network handle issuances and payments. Once a disruptive technology, Bitcoin is beginning to lose momentum for a number of reasons and some its strongest proponents are now referring to it as nothing more than an experiment. The purpose of this paper is not to examine Bitcoin, but rather its underlying technology that has been found to be the actual value: blockchain. After providing a brief overview of the technology and the hurdles that financial institutions face when implementing anti-money laundering compliance programs, the possible ways in which blockchain can help alleviate these difficulties will be examined.
Battistini, Dominick j., "Using Blockchain Technology to Facilitate Anti-Money Laundering Efforts" (2016). Economic Crime Forensics Capstones. Paper 15.