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Money laundering and blockchain technology: can you follow the trail of cryptocurrency transactions?

Author

Listed:
  • Romina Gabbiadini

    (Bank of Italy)

  • Lorenzo Gobbi

    (Bank of Italy)

  • Eugenio Rubera

    (Bank of Italy)

Abstract

Money laundering is the process by which wealth of illicit origin (money, valuables, goods) is hidden, transferred to conceal its origin and subsequently reinvested in the legal economy. There is no definite quantification of this phenomenon, but according to the estimates of various institutions its impact on the legal economy is significant and shows no signs of diminishing. Compared to the traditional financial system, measuring the extent of money laundering in the crypto market is made more complex by tools that can be used to hide its trail. National and European regulation has therefore extended the anti-money laundering (AML) obligations to entities that provide services in crypto-assets, but decentralized supply models and some jurisdictions are still unregulated. The aim of this paper is to analyse the use of blockchain and crypto-assets for money laundering (and terrorist financing) purposes, in order to evaluate the effectiveness of new solutions based on smart contracts in intercepting anomalous operations in decentralized finance (DeFi).

Suggested Citation

  • Romina Gabbiadini & Lorenzo Gobbi & Eugenio Rubera, 2024. "Money laundering and blockchain technology: can you follow the trail of cryptocurrency transactions?," Questioni di Economia e Finanza (Occasional Papers) 893, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_893_24
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    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2024-0893/QEF_893_24.pdf
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    More about this item

    Keywords

    KYC; AML; blockchain; crypto; DeFi; DLT; money laundering; smart contracts; zero-knowledge proof;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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