AML/CFT

What is AML/CFT?

AML/CFT stands for Anti-Money Laundering and Counter-Financing of Terrorism. It is a dual-purpose regulatory framework used by financial institutions and crypto exchanges to stop the flow of illicit money and prevent the funding of terrorist activities.

How does AML/CFT work?

1. Regulated entities verify customer identities through government-issued documents (KYC).
2. Automated systems monitor transactions for suspicious patterns, large amounts, or frequent small increments.
3. Transactions are cross-referenced against global sanctions and watchlists (Sanctions Screening).
4. If criminal activity is suspected, a Suspicious Activity Report (SAR) is filed with financial intelligence units like FinCEN.
5. Institutions must maintain comprehensive records for audits and law enforcement investigations.

Why does AML/CFT matter?

AML/CFT is essential for preventing financial crimes such as money laundering, drug trafficking, and terrorism financing. For crypto projects, strict adherence is often required to operate legally, maintain banking relationships, and integrate with the global financial system.

Key features of AML/CFT

• Combined focus on money laundering and terrorism
• Global regulatory standard (set by FATF)
• Mandatory for centralized exchanges and VASPs
• Identity verification and transaction monitoring
• Strict reporting (SAR) and record-keeping duties

Examples of AML/CFT

• Blocking a transaction destined for a wallet address on an OFAC sanctioned list.
• An exchange freezing an account that receives funds from a sanctioned mixer like Tornado Cash.
• Implementing software to trace the origin of deposited Bitcoin to ensure it wasn't stolen in a hack.