An acronym for “anti-money laundering“, AML is a collection of rules, regulations, financial laws, strategies, and best practices used by financial institutions and businesses (like cryptocurrency exchanges and banks) to keep criminals from laundering illegally received currencies.
They do this by detecting and identifying suspicious transaction activity on the blockchain or within the banking network that attempts to convert illegally obtained currencies into another currency.
This primarily takes the form of converting cryptocurrencies into fiat money, and moving currencies into different wallets and accounts in hopes of shielding the true identity of the owner.
AML policies have become more and more important as cryptocurrencies have become more appealing to criminals.
Criminals are drawn to cryptocurrencies and other digital assets due to their pseudonymous status and ease of sending and receiving funds virtually anywhere in the world, far faster than traditional money transfer methods.
It’s estimated that over US $2 billion was laundered through crypto exchanges in 2020.