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Promote with Leviathan NewsA recent Bank for International Settlements (BIS) Bulletin sets out a new framework for anti‑money laundering (AML) on public, permissionless blockchains that does not rely on traditional intermediaries, but instead uses on‑chain provenance and risk scoring of individual crypto units. The authors argue that while standard AML/KYC models struggle with pseudonymous addresses and the absence of centralized gatekeepers, the radical transparency of blockchains can be repurposed to build effective compliance tools at fiat on‑ and off‑ramps. According to the BIS paper, conventional AML is built around financial institutions identifying and monitoring customers, screening transactions, and filing suspicious activity reports, all of which presuppose identifiable account holders and centralized control. In contrast, public blockchains have pseudonymous addresses and open participation, which undermines customer‑based controls and creates what the paper calls a “compliance gap.” The authors propose shifting the focus from customer identity to token‑level provenance: tracing the full transaction history of specific units of cryptoassets and assigning them AML risk scores based on their exposure to illicit activity. These scores could then be checked whenever users move between crypto and fiat—at exchanges, banks, payment providers, or other off‑ramps—allowing those institutions to treat high‑risk units differently (for example, by refusing, quarantining, or further investigating them). The Bulletin stresses that this model leverages the core properties of public blockchains—immutability, transparency, and global traceability—to enable system‑wide monitoring that is often harder in fragmented traditional finance. By focusing on the “cleanliness” of funds rather than the identity of every on‑chain actor, it aims to foster a broader “duty of care” for participants interacting with tainted assets, while still working within existing AML standards and without recreating centralized intermediaries on‑chain. The approach aligns with a wider policy debate on how to regulate cryptoassets in a way that preserves innovation in permissionless systems but addresses regulatory expectations around financial crime.
AI-generated background, compiled from web sources — not editorial content.
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