Blockchain to Transform Anti-money Laundering Ecosystem – Report

Blockchain technology may be the answer to money laundering and fraud associated with payment processing services within financial institutions.

This is according to a Forrester report titled: “Examining Blockchain In Anti-Money Laundering and Fraud Management.” The report found that contrary to popular belief, the distributed ledger technology, when integrated into a company’s anti-fraud efforts, can radically transform and improve enterprise fraud management and anti-money laundering.

Blockchain, according to Forrester, is built on consensus algorithms that provide unique characteristics such as availability of tamper evidence; transaction monitoring; traceability and tamper-proof features – key requirements in effective anti-money laundering and fraud management investigation.

“Financial institutions globally find it increasingly difficult to meet tough anti-money laundering and enterprise fraud management requirements while also maintaining their edge to serve and retain customers. Blockchain will radically transform the anti-money laundering and the international financial management data provider ecosystem.

“The technology is secure and immutable, making it ideal for these processes which must rely on rich, secure, tamper-evident information for identity verification and transaction risk scoring.

Blockchain, by design, meets these requirements, making it a perfect way for financial information systems to store and use identity data to monitor financial transactions for identity verification,” explains the report.

Virtual currencies are notorious for being besieged by hackers and thieves and fraught with risk for consumers. Regulators globally have raised the alarm on the blockchain, saying the technology may aid money laundering and terrorist financing, hurting consumers and undermining trust in the global financial system.

However, Forrester says because blockchain is a distributed, highly available, consensus-driven, and secure technology, this makes it the suitable choice for financial organisations – it has all the security features which include extensibility, encryption, authentication, authorisation, auditing, and logging – to make it a suitable choice for representing data, lists, and investigated cases in anti-money laundering and enterprise fraud management solutions.

“Blockchain’s inherent design ensures that subsequent transaction records contain artifacts and identifiers of previous transactions. This allows authorised investigators to backtrack transactions on the blockchain more easily than with current anti-money laundering and financial management systems,” according to the report.

Forrester predicts that blockchain will augment and transform the anti-money laundering ecosystem at financial institutions in many areas, including: watch list management; transaction monitoring and case management, among others.

Blockchain regulations

Globally blockchain is largely unregulated and some countries are reacting either by seeking to find the right legislative approach, e.g. Switzerland, Hong Kong, Singapore, Mauritius; while others are more concerned about all the implications and have intervened actively, such as the US and China.

US lawmakers are also moving to consider new rules that could impose stricter federal oversight on cryptocurrency, Reuters reports.

Last month many South Africans reportedly fell prey to a Bitcoin scam which resulted in losses of over $50 million (R593 million).

According to a Times Live report, more than 27 500 people, including South Africans, Americans and Australians, were duped in one of the biggest Bitcoin scams to hit SA, after binary trading platform BTC Global promised to give investors “unmatched returns” and easy profits. It transferred Bitcoins into an online wallet address.

The Chinese government on 4 September banned ICOs and ordered some crypto-currency exchanges to shut. Over 15 exchanges, including the country’s three largest players OkCoin, Huobi and BTCChina, closed their mainland businesses.