Lawyers for the largest Danish bank, Danske Bank, in September reported that from 2007 to 2015, through their branch of Estonia, € 200 billion had been laundered. This fact seriously undermines the credibility of processes such as KYC and AML.
Of course this case is more the exception. However, over the past 10 years, many large global banks have been fined for “legalizing” money.
The decision-making by the banks to verify the customers from the banks was a usual response to the intervention of regulators and no small fines.
However, the main problem lies in the fact that most of the clients are absolutely honest people and legal entities trying to conduct business within the law, which are increasingly becoming the object of constant inspections. In addition to dissatisfaction, this leads to the fact that law-abiding clients are deprived of the opportunity to credit and use banking services in some jurisdictions or industries.
If such measures reduced the scope of money laundering, then we could safely say that the end justifies the means. But in reality (except for a noticeable increase in bank spending), financial institutions have to contend with increasingly complex financial fraud concealment systems. This led to the fact that many banks and regulators saw the potential in using the blockchain.
Information hosted on the blockchain thanks to a distributed system of records and records that resembles an archive is transparent, reliable and unchanged.
The entire history of the client’s actions, records of his transactions and information about assets can be recorded in the blockchain only after reaching a consensus on the truth of the data received.
As a result, it is extremely difficult for any person to provide the network with any deliberately false information. After checking and posting on the blockchain, information is almost impossible to fake — because any entered data is hashed by cryptographic encryption, i.e. to fake them, you need to change the hashes of the whole block chain.
The blockchain technology removes data ambiguity and eliminates many opportunities for fraudulent actions. If we imagine that all banks will switch to blockchain technology, financial institutions will also be able to exchange user data in a safe and open way.
Unchanged — the main advantage of the blockchain, which gives a new level of reliability. Each unique account can be linked to a verifiable registry that cannot be falsified even by employees of a financial institution. In addition, decentralization — even in a private network — eliminates the danger associated with the vulnerabilities of the central critical point, protecting the information of hacker attacks.
In the case of banks, the blockchain’s attractiveness lies in the high level of security, data invariance and transaction efficiency; facilitated collaboration between institutions; cutting castes and refusal of laborious processes of copying the collected information, their processing and verification; and ultimately, increased regulatory compliance. And for regulators, the blockchain technology is beneficial in that it allows you to obtain data on customer activity more transparent. Customers are also interested in reducing the waiting period (associated with the KYC procedure) to get started and increasing confidence in financial service providers.
The BITLATS team is working to prevent further scandals in the financial environment related to ignoring the rules and, even worse, deliberate criminal activity. And all of the above follows the conclusion that it would be unwise for the regulators to ignore the technology of the distributed registry and decentralized data storage, which have the ability to solve all the considered problems.