Abstract

The study focuses on examining the implications of cryptocurrencies to the Bank Secrecy/Anti-Money Laundering (BSA/AML framework. Accordingly, it applies a comparative legal research approach to understand trade-offs between cryptocurrencies and BSA/AML through comparing information from different primary sources obtained from LexisNexis, Bloomberg Law, and Westlaw. The motivation behind the study was the rapid adoption of cryptocurrencies among investors and retail consumers, which poses risks to the stability of the financial system. The study noted lack of a devoted prime regulator with paramount powers to oversee all cryptocurrency activities as a gap that blockchain applies, in respect to the regulatory arbitrage theory, to circumvent harsh regulations in some jurisdictions, for favorable ones in other jurisdictions. Some of the features noted to challenge effective regulation of these currencies include anonymity, lack of physical equivalent to bank notes and coins, decentralized, and the agile technology used in blockchain. However, efforts to embrace effective adoption and incorporation of crypto assets into the financial system are being demonstrated through the enactment of House Bills, legislative histories, State and Federal Acts such as the CANSEE) Act (S.2355) to mitigate against the risks of illicit activities perpetrated in the decentralized finance (DeFi). The study established if the current efforts being made might be combined with amendment of the BSA/AML regulation to apply in decentralized finance, identification of a primary regulator for cryptocurrencies, and collaboration between regulators and blockchain developers, they would enhance secure and effective adoption of cryptocurrencies.

Keywords: Cryptocurrencies, Bank secrecy, Anti-money laundering, Decentralized finance