Key Takeaways
- A Bank for International Settlements report argues that current crypto AML approaches are inadequate.
- The organization said relying on stablecoin issuers to freeze assets isn’t enough.
- Instead, it proposes assigning a compliance score to individual assets based on their transaction history.
In the permissionless world of blockchain economics, the burden of preventing money laundering has traditionally fallen on a few key players.
These include stablecoin issuers, who have the power to freeze assets at the request of law enforcement or if they discover connections to a relevant blacklist.
However, a recent Bank for International Settlements (BIS) bulletin argues that relying on stablecoin issuers to freeze funds is inadequate for large-scale anti-money laundering (AML).
Stablecoin Issuers and AML Compliance
Unlike during the Wild West of early crypto, modern stablecoin issuers have extensive systems for responding to law enforcement requests and proactively screening addresses for compliance with international sanctions.
Tether, for example, collaborates with more than 230 law enforcement agencies in 50 countries. Yet despite this, the company has still come under fire for not freezing funds fast enough.
According to the BIS report, “while stablecoin issuers have frozen balances at authorities’ request in high-profile cases of financial crime, such an approach is unrealistic to cover billions of day-to-day transactions.”
The report’s authors argue that a better approach is to rely on blockchains’ publicly available transaction ledgers for risk monitoring.
Scoring AML Compliance
The BIS report proposes an “AML compliance score” for crypto assets, reflecting the likelihood that a particular token or balance is linked to illicit activity.
A score of 100 would represent a completely “clean” asset, while a score of zero would reflect high exposure to known illicit addresses.
This differs from current approaches used by crypto exchanges, which typically screen addresses rather than the assets themselves. As such, it could help prevent multi-step money laundering schemes that move assets between addresses, often hopping between different chains to obscure their origin.
Toward Unified AML Standards
While most crypto offramps deploy blockchain analytics tools to flag suspicious users, huge discrepancies exist between their different AML systems.
The BIS proposal envisages a more standardized model that embeds compliance into the asset, not just the exchange’s risk filter. This would make it harder for bad actors to “shop” for lenient exchanges.
If adopted, such a framework could reshape the coordination between regulators, exchanges, and issuers, turning a compliance challenge into a cornerstone of standards-based financial oversight.
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James Morales is CCN’s blockchain and crypto policy reporter. He has been working in the news media since 2020, writing about topics such as payments, banking and financial technology. These days, he likes to explore the latest blockchain innovations and the evolving landscape of global crypto regulation.
With an educational background in social anthropology and media studies, James uses his platform as a journalist to explore how new technologies work, why they matter and how they might shape our future.
