Will blockchain be an asset or liability in combatting trade-based financial crime?

A think tank that advises several US government agencies is exploring the potential threats blockchain poses to national security.

But while the use of blockchain, particularly when associated with cryptocurrencies such as bitcoin, has faced criticism for facilitating illicit fund flows, it also holds the prospect of making each stage of the trade cycle more visible and clearly identifying the parties in a trade.

Moreover, it can help in know-your-customer (KYC) and anti-money laundering (AML) due diligence which is increasingly demanded by regulators.

Early-stage research

Some research into the use of blockchain in cryptocurrencies and how these can be used to evade sanctions is already underway.

Research, still in its early stages, being conducted by Yaya Fanusie of the Foundation for the Defence of Democracies, is looking at both how blockchain can help prevent illicit activity and how it can enable it.

Democratic transactions

Blockchain was conceived with the aim of cutting down on or even cutting out middlemen in payment systems such as banks as well as, for example, tax or customs authorities that have an interest in a transaction.

Fanusie describes this as a “desire for more of a democratic way of transacting or interacting.”

Blockchain’s benefits

But while conceding that this is a potential threat to national security in respect of terrorist financing, transferring the proceeds of crime or evading sanctions for example, Fanusie also emphasises the need to learn more about blockchain’s benefits.

His research identifies a growing tendency for serious cryptocurrency exchanges to conduct KYC and AML due diligence so they can continue bypassing middlemen while still adhering to internationally acceptable regulations.

Trade fraud

Fanusie also cites as potential blockchain benefits the efforts of financial institutions and technology providers to develop new ways to prevent trade-based money laundering, particularly in relation to the laundering techniques of over- and under-invoicing to mask illicit financial flows.

Separate from Fanusie’s research, several observers suggest blockchain may well help authorities concerned with trade-based financial crime because it offers the prospect of tax or customs authorities, auditors or investigators being able to closely examine each stage and party in the trade cycle.

Categories: Trade Based Financial crimes News

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