How can Blockchain benefit AML processes?
A blockchain is essentially a database that records transactions of companies/institutions. For example, all transactions made by Company A are grouped together into a 'block' and these are ordered chronologically to form a blockchain. This allows blockchains to be used like a ledger, which can be shared and corroborated by anyone with the appropriate permissions.
Once the information contained in a Blockchain is verified it cannot be changed, only updated. It essentially provides users with a digital public record of Bitcoin transactions (the digital currency through which these transactions are conducted) that have been executed by a particular entity. It is inherently difficult for hackers to manipulate. Copies of the Blockchain are distributed across potentially thousands of participants in the database, meaning that the hackers would have to individually access and manipulate every single copy of the distributed Blockchain. The certainty this creates is hugely beneficial to regulators, banks or law enforcement agencies because they can instantaneously verify the credentials of parties involved in a transaction and identify any discrepancies in the information. Not only is this cost-effective, but it enables regulators to quickly target criminal activity.
Fintech's role in preventing money laundering is also interesting from a commercial perspective. Failing to adequately maintain AML procedures can be hugely costly businesses, for example, Deutsche Bank was recently fined £163m for such non-compliance. But maintaining AML processes are also incredibly expensive for companies and the checks required are often lengthy (Know Your Customer requests can often take up to fifty days to complete to a satisfactory level). The speed and ease that Blockchain allows participants to obtain information thus has the potential to reduce costs and delays (e.g. to transactions) and, given the wide distribution of the data, diminishes the likelihood of banks duplicating their efforts to track and verify information.