Ask anyone involved, AML/CTF regulations are a demanding money pit of complexity. They represent a burden in terms of both time and money for the regulators that oversee them and the businesses that have to comply with them. For many, regulatory compliance could be likened to commerce having to wade through a rising tide of bureaucratic obstacles, denying optimal productivity.
For Australian commerce, proposed legislation which will grow the number of industries subject to AML/CTF regulations, has long been on the horizon. It’s expected to include the real estate industry, legal practitioners, conveyancers, accountants and trust and providers of business services.
It might be necessary, organizations like the Financial Action Task Force and Transparency International have shamed Australia for it’s overly lax system. But the move could result in a lot more organizations being subject to regulatory burdens.
By some estimates, the number of reporting entities is set to grow from 14,000 to as many as 100,000. This means an additional 86,000 Australian business battlers are faced with the burden of AML/CTF compliance. We don’t know what will be the final form of this increase, referred to as “Tranche 2”, but it could very well involve each organization having to hire compliance officers and conduct ongoing, expensive risk-based analysis.
The money for this will come from the bottom line of the organizations that need to meet their new obligations. That is, instead of going in to growing the business, revenue is going to be used to satisfy compliance regulations. It’s no surprise why the potentially impacted industries are resisting the move.
Perhaps equally concerning, is that it isn’t likely the regulators are going to have their budgets increased sixfold to manage their compliance objectives. They’ll have more organizations to keep track of, but without increased resources.
A more effective way
Tranche 2 is an attempt to broaden the compliance responsibilities so that Australia becomes less of a safe haven for money laundering. This is a respected goal. But, given the costs, it’s critical that we find a way to streamline compliance so commerce doesn’t drown in bureaucracy. This must be done so society remains protected, and regulators can be effective in the tasks for which we hold them responsible.
Enter the blockchain. Though it’s currently viewed as one of two things — either the underpinnings of a radical financial society or a solution to those seeking to replace centralized database applications with immutable alternatives. It is these limited options that have prevented the full potential of blockchain technology being realized, that is until now.
Challenging accepted assumptions, CRDZ is introducing a decentralized, confidential, compliant, innovative blockchain solution, intent upon becoming the ally of regulators, businesses, and especially those committed to a decentralized cryptoverse. A solution that releases the potential of a decentralized, regulatory compliant, ecosystem of integrated commercial services. A solution with the potential to streamline the whole world’s compliance burden, eliminating trillions of dollars in newly redundant processes.
What has so far prevented this is appears to be a lack of determination, and a belief that it’s technically and politically unachievable.
But imagine decentralized blockchains that enable service compliance, inclusive of risk-based analysis and jurisdictional reporting at the chain level. These blockchains would give regulators automated visibility over an entire ecosystem.
In this world, service providers — be they banks, real estate businesses, accountants, lawyers, etc. — wouldn’t have to report to the regulator because jurisdictional reports are generated automatically by the chain. This world would remove the burden of compliance that threatens to drown commercial operations in regulatory oversight.
What would those blockchains look like? What’s preventing them from being developed?
The challenge of such a vision is that its requirements are so onerous that any solution would seem vulnerable to centralization. Avoiding this fate demands you ask several questions.
How might it be possible:
- To allow regulatory inspection of the chain without sacrificing the privacy of its users
- To assure privacy by encrypting every transaction, whilst still allowing regulatory inspection of the chain
- To allow regulatory inspection of an encrypted chain without providing a key — which if compromised, would expose all transactions to the regulator, or whomever had possession of the key
- To allow regulators to inspect the chain and maintain regulatory rules without exposing the solution to undue government leverage or overreach, or indeed coercion or subversion by any centralized entity.
These questions have vexed the CRDZ team for nearly five years. During those years we have worked extensively with leaders in blockchain technology, such as Dan Larimer and we have sought opinions from respected experts like Scott Stornetta along with other highly regarded individuals.
No matter where we turned, it was considered illogical, arguably impossible to merge the needs of the regulator with the tenets of crypto independence - John Underwood, founder & designer of CRDZ
Some pointed out the challenge of producing customized, jurisdictional, suspicious transaction reports: how can you satisfy the regulator’s requirements without opening the door to coercion, they argued. And, how would the regulator be satisfied that regulatory reporting was of the highest quality?
For all these reasons the crypto community appears to have accepted that a jurisdictionally compliant, suppression proof chain is a delusional aspiration. But maybe it’s not, as that’s precisely what’s behind the CRDZ vision and design.
A path, to how trillions of dollars of unproductive capital tied up in service level compliance can be liberated, where privacy is respected, yet regulators enjoy the new found efficiencies of oversight of an entire ecosystem.
Once we start looking at things this way it’s not a matter of if, but rather how and when chain level compliance becomes a reality. Thanks to the innovation inherent in CRDZ Confidential Compliance, it is now possible to disrupt compliance and realize the full potential of blockchain technology, the journey has just begun.