AML
AML, short for anti-money laundering, is the set of laws, rules and processes designed to prevent money laundering and terrorist financing. Crypto businesses that handle customer funds must follow AML rules in most countries.
What money laundering is
Money laundering means disguising where illegally obtained money came from so that it can be used as if it were legitimate. It typically happens in stages: getting the money into the financial system, moving it around to hide its trail, and finally mixing it back into the regular economy. Crypto can be misused for this because it moves quickly across borders, but its public ledgers also make many transfers traceable.
What AML rules require
Regulated crypto businesses, such as exchanges, brokers and custodians, must verify customers' identities (KYC), assess risk, monitor transactions for suspicious patterns, and report suspicious activity to the authorities. They must also screen against sanctions lists.
International standards are set by the Financial Action Task Force (FATF). Its travel rule requires providers to pass on information about the sender and recipient with crypto transfers between them, similar to bank wire transfers. In the EU these requirements have applied to crypto transfers since the end of December 2024.
What it means for you
AML is why exchanges ask for identity documents, sometimes ask about the source of your funds, and may ask who owns the wallet you are withdrawing to. Transfers can be delayed or blocked if funds are linked to hacks, scams, sanctioned addresses or mixing services, which is why receiving crypto from unknown sources can cause problems later.
Criticism and limits
AML rules increase privacy concerns and paperwork, and can lock out people without standard documents. Blockchain analytics used for monitoring can produce false positives, flagging innocent users who received coins that once passed through a suspicious address. At the same time, criminals keep finding ways around the checks, so AML reduces rather than eliminates abuse.
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Frequently asked questions
What is the difference between AML and KYC?
KYC is the identity check. AML is the broader framework that includes KYC plus transaction monitoring, risk assessment and reporting duties.
Why did an exchange freeze my deposit?
Often because its monitoring flagged the funds' history or the amount triggered extra checks. The exchange will usually ask for information before releasing it.
Do AML rules apply to self-custody wallets?
Not to the wallet software itself, but regulated providers sending to or receiving from your self-custody wallet may have to collect information about it.
Related terms
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