One of the most exciting developments in financial and information technology in the past decade is the emergence of so-called blockchain technology. A blockchain is a database of information distributed over a network of computers rather than located on a single or multiple servers. The first and most famous practical application of blockchain technology is the electronic currency Bitcoin. Bitcoin and similar cryptocurrencies using blockchain technologies offer users the equivalent of anonymous cash transactions, and have been linked to illicit transactions in drugs, weapons, and prostitution as they. It is therefore no wonder then that blockchain technology is sometimes viewed as a problem, or at least a challenge, for those interested in fighting financial crime and corruption.
But blockchain technologies have other uses, many of which could in fact aid in the fight against these crimes. In an earlier post on this blog, Jeanne Jeong discussed how blockchain technology could be used managing land records. Another use for blockchain that has occasionally been mentioned (see here and here), but not yet sufficiently pursued, is anti-money-laundering (AML). Currently, banks spend about US$10 billion per year on AML measures, yet money laundering continues to take place on a vast scale. The goal of laundering money is to “wash” illegally obtained money (e.g. through corruption) into “clean” money, making the origins of the money untraceable. Blockchain technologies have five features that could make AML efforts both more effective and less costly: