Anti-Money Laundering (AML) Definition

Anti-money laundering rules prevent criminals from masking illicit funds through digital assets. Legislators, regulators, and industry standards establish requirements that compel exchanges, wallet providers, and other service firms to verify customer identities, monitor transactions, and submit reports on suspicious activity.

Core safeguards

• Customer identification (KYC)
  Platforms confirm personal details before deposits or withdrawals, limiting anonymous access.
• Transaction monitoring
  Automated systems track transfers for red-flag patterns, such as rapid movements across large numbers of wallets or abrupt size changes in balances.
• Regulatory reporting
  When systems detect unusual behavior, compliance teams file Suspicious Activity Reports (SARs) with the relevant authorities for further investigation.

Practical example

An individual transfers USD 50,000 worth of Bitcoin to an exchange account and immediately attempts to disperse the funds across dozens of newly created addresses. The exchange freezes the withdrawal, launches an internal review, and notifies regulators because the activity aligns with common layering tactics.

Compliance landscape

Licensed crypto businesses continually update procedures to match evolving standards, including the Financial Action Task Force (FATF) Travel Rule, which mandates sharing originator and beneficiary details on qualifying transfers. Firms that fall short risk penalties or loss of operating licenses.