Anti-money laundering regulations and cryptocurrencies

Criminals crypto

What are the implications for cryptocurrency of the new AML rules?

As we have discussed in previous posts, cryptocurrencies are becoming more popular and more widely used, but are not yet well regulated. This is gradually changing around the world, as governments and regulators recognise the need to manage crypto assets and keep them out of the hands of financial criminals. Cryptocurrencies represent innovative technology, and most authorities acknowledge the need to encourage and support technological innovation. One thing is for certain: with or without regulation, the crypto train can’t be stopped. Here in South Africa, the Intergovernmental Fintech Working Group (IFWG) has been busy developing regulation of crypto assets based on three pillars:

  • Implementation of an anti-money laundering (AML) and counter-terrorism financing framework
  • Framework for monitoring cross-border financial flows
  • Application of financial sector laws

In this article we consider the application of the new AML regulations to cryptocurrencies.

What is money laundering?

Money laundering is the process of disguising the origins of illegally obtained money so that it appears to be legitimate. Sources of money to be laundered include illegal drugs and arms sales. Laundered money is often used to finance terrorism, which is why regulators take money laundering very seriously. Cryptocurrencies are a soft target for money laundering because they are decentralised and anonymous. It is difficult to track the source of cryptocurrency transactions, making it easier for criminals to launder money.

Money laundering tactics

Money can be laundered through cryptocurrencies using various methods. One common method is called “layering”. This involves breaking down large sums of money into smaller amounts and sending them through a series of cryptocurrency transactions, obscuring the original source of the money. “Tumbling” is another type of money laundering using crypto. Tumbling involves using a progression of different cryptocurrency exchanges and mixing services to conceal the trail of the money.

Impact of money laundering on a burgeoning industry

Money laundering has negative consequences for the cryptocurrency industry. It can lead to increased volatility in cryptocurrency prices, as criminals buy and sell large amounts of crypto to launder money. It can also damage the reputation of the cryptocurrency industry, positioning crypto as a haven for criminal activity.

What can be done to address the problem?

The problem of money laundering must be addressed to protect crypto investors, developers, exchanges, and the reputation of the industry. One approach is increased regulation of cryptocurrency exchanges and other businesses that deal in cryptocurrencies. This will make it more difficult for criminals to use cryptocurrencies for money laundering. Another tactic is the development of new technologies that can track cryptocurrency transactions more effectively. This will make it easier for law enforcement to investigate and prosecute money laundering cases.

New anti-money laundering regulations in South Africa

The new AML regulations for crypto have had a significant impact on the industry. These regulations, implemented in 2020, require cryptocurrency exchanges and other businesses to collect and verify customer information and report suspicious transactions to the authorities. This has made it more difficult for criminals to use cryptocurrencies to launder money and has helped to improve the reputation of the industry.

However, the new AML regulations have also had some negative consequences. They have increased the cost of doing business for cryptocurrency exchanges and other businesses and have made market entry more prohibitive. This has led to a decrease in competition and innovation in the industry.

Impact of AML regulations on cryptocurrencies

Crypto businesses are required to implement a number of compliance measures, such as customer due diligence and transaction monitoring. These measures can be expensive to implement and maintain and may lead to delays in processing transactions.

AML regulations have made it more difficult for new businesses to enter the cryptocurrency market because they must now meet the same stringent compliance requirements as established businesses. This has led to a decrease in competition and innovation in the industry.

However, the new AML regulations have helped to improve the reputation of the cryptocurrency industry. By making it more difficult for criminals to use cryptocurrencies to launder money, the regulations have contributed to the legitimacy of the industry, making it more attractive to investors and businesses.

Ultimately, the AML regulations have had a mixed impact on the cryptocurrency industry. They have improved the reputation of the industry and made it more difficult for criminals to use cryptocurrencies to launder money. But they have introduced new barriers to entry for entrepreneurs wishing to participate in the cryptocurrency market.

For more information

SD Law is a firm of experienced attorneys based in Cape Town, with offices in Johannesburg and Durban. If you want to know more about cryptocurrency or anti-money laundering regulation, call Simon on 086 099 5146 or email

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The information on this website is provided to assist the reader with a general understanding of the law. While we believe the information to be factually accurate, and have taken care in our preparation of these pages, these articles cannot and do not take individual circumstances into account and are not a substitute for personal legal advice. If you have a legal matter that concerns you, please consult a qualified attorney. Simon Dippenaar & Associates takes no responsibility for any action you may take as a result of reading the information contained herein (or the consequences thereof), in the absence of professional legal advice.

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