Blockchain as a means to fight money laundering: a scenario of the near future

di Massimo Masini


Massimo Masini holds a degree in Law from the University of Rome “La Sapienza”, comes from the banking system where he gained significant experience working in the General Management with particular tasks related to the study and analysis of the international banking, currency and tax supervisory regulations; at a later time, he has undertaken the professional path that, as an expert in banking supervisory rules, in the execution stage of the new legislative framework that started with the currency deregulation of 1990, has participated as an external expert in numerous institutional working groups at the then Italian Office of Exchange for the drawing up of the related implementing rules regarding the liberalization of the movement of capitals and those referred to the rising “anti-money laundering” legislation; he is the author of numerous essays on the topics mentioned above, has spoken at many conferences intended for the banking sector and financial Intermediaries and currently holds the position of Manager at GPM & SAIP GROUP srl, a company operating in the consultancy and training sector for Banks in the context of the topics relating to the anti-money laundering legislation.



In the context of Technological Finance or FinTech, Blockchain represents the innovative path that the majority of Banks and the other financial Intermediaries are exploring to identify the possibility of using the mentioned technology in the operating and organisational procedures, not necessarily linked to the management of the activities revolving around “cryptocurrencies”. International Authorities such as the EBA, the ECB, the Bank for International Settlements, the FATF-GAFI and, consequently, the Central Bank of each Country, in following the fast-paced development of the technological “escalation” of Blockchain, since 2013 have begun to study in-depth said phenomenon by circulating reports, studies, statistics and requiring “Regulators” to provide a revision of the current anti-money laundering regulations, so as to promote strategies aiming to fight the circulation of virtual currencies in an indiscriminate manner, in the context of a system that, potentially, favors anonimity thus producing risks associated with money laundering and the Financing of Terrorism. With the passing of time, the banking system, through a more in-depth evaluation about the functioning of Blockchain disconnected from cryptocurrencies, has identified in this new technology an appropriate vehicle to carry out the functions to perform transactions and other internal organisational functions such as Governance and AML. The basic concept of Anti-Money Laundering provides for the identification and evaluation of the risk profile obligations associated with the client and, thus, for example, to make the exchange or the negotiation of virtual currencies feasible in compliance with the current regulations, it is necessary to have a stiff and specific legislation referred to the sector operators, for the gathering and traceability of the information on the transactions performed. The Blockchain technology, if used in the financial sector, managed with criteria and characteristics which allow the identification of its subjects and the traceability of the transactions, consistently with the anti-money laundering requirements and the fight against the financing of terrorism, may represent the new technological scenario, at least in said regulatory context, which may be used by Banks and Financial Intermediaries to facilitate the KYC “know your customer” of the clientele, in short a kind of Big Brother for the AML. The exploration of the technical aspects of Blockchain has led to consider the potential reliability of the system for the storage of information and the traceability of the transactions. The transaction performed through the shared Blockchain platform, cryptographically protected, is absolutely transparent and its being unchangeable gives it that degree of security and traceability which represent the founding elements required by the anti-money laundering regulations. The Supervisory Authorities, the Banks and the other Intermediaries, in foreseeing the new business perspectives and cost reductions with the application of the new technology, are in any case aware that, by undertaking this new path, the “compliance” risks raised by the “disintermediation” are amplified and that the Authorities themselves will have to identify appropriate protections to deal with the need to respect the supervisory regulations as well as the gathering of statistical data to implement the monetary policy. The use of Blockchain for AML goals may be compared to a shared Library where only “authorised users” can get information from; the information kept in it referred to a single client (KYC, risk profile, sanctions, etc.) is inserted, updated and modified by the “users” themselves (Banks and Intermediaries), i.e. the same persons who access the shared information which is necessary for the performances associated with the customer due diligence requirements. Therefore, Blockchain should provide for the distribution of the information for the digital identification of the client user (prepared by a digital signature administrator) through the Service Providers with which the transaction is being performed (Banks or Intermediaries) on the registries shared and located in the hubs making up the chain so that that encrypted identity appears to be, from that moment onwards, in any case certified and at the disposal of any Service Provider intervening in the relationships with the client/user in the context of that same Blockchain. In a system structured in this manner it is evident that, notwithstanding the absolute guarantee about the inviolability of the digital identity, the Bank/Intermediary would undoubtedly benefit from it as follows:


  1. a) time and cost saving to collect the information, obviously with the client’s prior consent respecting Privacy rules;
  2. b) an improvement of the relationship with the clientele, thus avoiding continuous bothersome contacts for the collection of paper documents;
  3. c) reduction of costs associated with verifying the embargo and terrorism lists, through the sharing of information with the other parties who have already performed the necessary verifications.


The sharing of the KYC is an aspect on which a group of international banks is currently testing a system of digital identification for individuals and companies shared through the Blockchain technology by developing inspections and tests of compliance with the sector-specific regulations (privacy, security, AML). In terms of anti-money laundering, the sharing of the risk profile associated with the client appears to be more complex, meant as a “rating” assigned by the bank of reference; the rating is based on criteria adopted by an intermediary and, these same criteria, may not be coherent with those of another intermediary participating in the Blockchain thus causing a different risk classification that cannot be used, therefore, in terms of “sharing”. Certainly, an encrypted datum with an attributed rating of “profiling”, based on an unequivocal criterion, would allow an easier and readier knowledge of the client for anti-money laundering purposes. The Bank of Italy, during a Conference in June 2016, stated that the “blockchain” is feasible as long as it has characteristics of the so-called Permissioned Ledger, thus “unopened” and at the same time controlled by identified parties, with a validation system of the transaction entrusted to the Trusted; in practice, it is a system entrusted to a Governance which establishes the rules of the game and based on an authorization system. An anti-money laundering system so defined, would be able to exploit the security of the encrypted, decentralized and thus unchangeable information, to use such technology in order to identify and, possibly, block the transactions deemed suspicious. Every Bank or other party obliged to comply with the anti-money laundering regulations which will be part of this Blockchain “Permissioned Ledger”, will act as a hub within the network itself and will use the network directory and the smart contracts to record the transactions in the registries shared in the other “hubs”. As the pertinent information would be filed in the blockchain and made available to each hub, the suspicious activity can be identified and disclosed to all the related participants so that the operation referred to that position is suspended immediately and the blockchain network would be updated with the recording of said circumstance immediately and unchangeably. An anti-money laundering platform structured in this way would allow the Supervisory Authorities, the Internal Control and the other interested parties, to monitor the transactions automatically, as well as record invariably the traceability of the transactions and of the suspected operations in the system. The platform architecture, if created in accordance with the regulations, thanks to the high level of automatism it is endowed with, represents an additional level as regards control, transparency and traceability of the transactions. A global platform based on blockchain could be used by the participating financial institutions also to share the information related to the potentially fraudulent transactions. However, in the near future, to create an efficient anti-money laundering control fully expressing its potential, implementing solutions based on Blockchain must necessarily be integrated into the development programs of the corporate Information Technology through a participation that is programmed and shared with the Central Authorities.


1 October 2018