Summary
Current AML strategies are not effective in reducing organized crime, tax evasion, or drug use. On-chain analytics can be used to monitor criminal activities on the blockchain. Despite limitations, on-chain analytics can help track illicit funds and identify criminals. However, false positives are a concern and methods need to be improved. Privacy advocates may be concerned, but on-chain analytics can be an efficient tool for AML. It may be time to reconsider AML strategies and allow criminals into the blockchain to track their activities.
Key Points
1. The cornerstone of the modern approach to money laundering is to prevent illicit funds from entering the financial system, but despite 20 years of tight AML regulations, levels of organized crime, tax evasion, and drug use have not decreased.
2. Fintech author David G.W. Birch suggests a different approach to AML – instead of preventing criminals from entering the system, let them in and monitor their activities to hunt them down. This can be done using both traditional financial reporting systems and on-chain analytics within the blockchain.
3. On-chain analytics involves gathering data from the blockchain, mapping addresses, and clustering UTXO to identify entities and track funds. While not an exact science, on-chain analytics can be an efficient tool for tracking criminals on-chain, despite the need for continuous improvement in methods and transparency in false positives and negatives.