Blockchain Future: Fighting Fraud and Money Laundering

Author: Conor Maloney

Blockchain was first launched as the underlying protocol for Bitcoin the world’s first

cryptocurrency. In the ten years since its launch, Bitcoin and other cryptocurrencies have been portrayed multiple times as vehicles for crime, fraud, and money-laundering.

While regular fiat currency is what’s used in the vast majority of criminal transactions, cryptocurrencies certainly have their underworld applications as well.

Ironically, even as Bitcoin is painted as a tool to launder money with, the underlying technology is being developed as a powerful AML tool that may come to shape fraud and crime prevention on an international and enterprise scale. To understand how blockchain be used for anti-fraud and AML, it’s important to outline exactly what we mean by the term

To understand how blockchain be used for anti-fraud and AML, it’s important to outline exactly what we mean by the term.

Different Types of Blockchain

Not all blockchains are born equal. The word is actually an umbrella term which refers to a store of records defined by a shared architectural principle.

Typically, a blockchain is an information database that is cryptographically secured, distributed across multiple nodes, and immutable.

This means that the information is encrypted, stored in several computer servers or devices rather than one central location, and impossible to change once entered into the system.

By storing the information on multiple nodes, the system is more secure – all the nodes must validate a new entry simultaneously, making it many times more difficult to take over the system through malicious attacks. The more nodes a blockchain is distributed across, the more computing power required to take over each one.

The AML and fraud use case comes mostly from the immutability feature – the information is permanent and unalterable, stored forever, creating a trustworthy database of financial records, for example.

There three main types of blockchain:

● Public, permissionless blockchains (anyone can use or audit with no ID)

● Private, permissioned blockchains (access and auditing are restricted, ID required)

● Federal or consortium blockchains

National and enterprise-level AML databases will likely take the form of private permissioned blockchains or consortium blockchains, which do not grant access or auditing powers to the general public.

Let’s see what that system would look like.

Blockchain AML Platform: How it Works

By tracking all the funds of an organization on a blockchain, it becomes more difficult to hide bad practices like money laundering.

By combining all data onto one shared system monitored by smart contracts scanning for suspicious activity, institutions can detect fraud at an earlier stage, and permissioned systems require digital identity sign-in, allowing for full accountability.

A blockchain AML system would be permissioned and make use of self-executing programs called ‘smart-contracts’ to monitor financial activity with automated efficiency. Each financial institution on the system would be a node in the blockchain network and would all record their transactions to the blockchain.


The relevant data would be available to each node and smart-contracts would be coded to set off alerts if certain suspicious parameters are met, highlighting the suspicious activity to all participants and allowing the entire network to monitor itself.

Industry Experts Agree

According to a report from Forrester Research, blockchain tech is positioning itself to challenge the monopoly of legacy identity verifiers currently reigning over AML protocols.

Credit bureaus such as Equifax, Experian, RELX, and TransUnion, as well as watch list providers such as Dow Jones and World-Check, are all set to either integrate or be challenged by blockchain solutions which provide transparent, immutable databases for auditors to investigate.

The research firm described it as

“a trusted repository for providing device ID, known fraudster, transaction and other blacklists used in AML and EFM.”


With major initiatives to rethink data storage and management now underway such as GDPR in Europe, the stage has been set for new accompanying innovations that can finally overhaul the flawed AML systems we now use.

Scandals such as the Equifax data breach in which millions of identities were stolen can be tackled with near-unhackable networks, and situations such as banks knowingly handling stolen funds would be made more difficult if that bank were a node in a blockchain AML platform.

The question is not if blockchain will become a major tool in AML practices, but when. Business giant IBM already considers blockchain ready for government use, whereas major consulting firm McKinsey foresees the technology reaching its full potential by around 2022.

As always we love to hear your feedback and thoughts below!

Tags: , , , , , , ,

Leave a Reply