Anti-Money Laundering (AML) & Know Your Customer (KYC)—Crypto Law

Blockchain-based currencies are an innovative way to build and handle wealth, but they do come with certain challenges as well. Anti-Money Laundering (AML) and Know Your Customer (KYC) laws have made it difficult—if not impossible, in many cases—to transact business with banks and other financial institutions.

For this reason, it’s important to make sure your Initial Coin Offerings and other forms of cryptocurrency are in line with current laws and regulations. This can facilitate business by making sure institutions know you are fully trustworthy and won’t present a liability to them if they do business with you.

AML, or Anti-Money Laundering, is a set of regulations and laws designed to prevent certain illicit practices. In many cases, parties who seek funding for illegal or terror-related causes may run acquired funds through several steps to make it seem like their resources were obtained legally. For instance, money earned from selling illegal substances could be “laundered” through various steps to make it appear as if it came from a legitimate source.

One concern with cryptocurrencies such as Bitcoin and Ether is that, since the accounts aren’t conventional, transactions with them may be denied as they strive to comply with AML laws. This means careful planning is necessary in order to prevent lost access to funds. An attorney can assist with that.

Know Your Customer (KYC) policies are used to support AML laws. The key principle of KYC is to make sure the bank or financial entity avoids being used by other parties for money laundering, and it does this by gaining certain information from potential clients and customers. Due diligence effort is necessary in order to make sure one avoids doing business with criminal or terrorist elements as well as to maintain compliance with federal and state laws.

Often, these policies are built using the following elements:

• Customer Acceptance Policies
• Risk management procedures
• Consumer Identification Programs (CIP)
• Monitoring transactions, comparing them to what would be expected given the client’s peers, financial standing, etc.

When it comes to working with cryptocurrencies, one concern is that clients can hide their identity in the course of their transactions. Money can indeed be tracked, but the accounts aren’t necessarily connected to the person’s name. Many institutions with KYC policies may not be easy to deal with for those who use cryptocurrencies.

Sound policies and practices are necessary in order to make sure your operations account for KYC and AML policies, making them as profitable as possible. Hart David Carson, can provide the legal assistance necessary to structure your startup and ensure compliance with U.S. laws.

Like many financial regulations, KYC/AML laws are constantly evolving, and sudden changes to the law can have a significant impact on those who deal in cryptocurrencies. It is vital to stay well aware of the changes that could be made and ensure compliance with the law since inability to comply with current regulations could result in some legal backlash as well as lost access to funds.

The attorneys at Hart David Carson, can assist you with AML and KYC compliance. For more information, contact us today.