// GLOSSARY -- SECURITY & COMPLIANCE

What is AML (Anti-Money Laundering)?

1 min read Updated

Anti-Money Laundering (AML) refers to the laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income — increasingly applied to cryptocurrency transactions.

WHY IT MATTERS

AML regulations require financial institutions — including crypto exchanges — to monitor transactions, report suspicious activity, and prevent the use of their services for money laundering. Compliance involves transaction monitoring, suspicious activity reporting (SARs), and customer due diligence.

On-chain AML: companies like Chainalysis and Elliptic provide blockchain analytics that trace funds, identify suspicious patterns, and flag addresses associated with illicit activity. These tools are used by exchanges, law enforcement, and compliance teams.

The DeFi challenge: AML regulations assume identifiable intermediaries. Permissionless smart contracts have no operator to serve as the compliance point. Regulatory approaches to DeFi AML are still evolving.

FREQUENTLY ASKED QUESTIONS

Do DeFi protocols need AML compliance?
The legal question is unresolved. Some regulators argue frontend operators must comply. Others focus on centralized intermediaries. The answer varies by jurisdiction and is actively being litigated.
What is chain analysis?
Using blockchain analytics to trace fund flows, identify suspicious patterns, and link addresses to known entities. Companies like Chainalysis provide these tools to exchanges and law enforcement.
Can AML rules apply to smart contracts?
Technically, smart contracts are code — they don't have compliance obligations. But operators of frontends, developers who maintain contracts, and DAOs may face obligations depending on jurisdiction.

FURTHER READING

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