Author: Debanjan Chatterjee, Compliance Expert

The development trajectory of the stablecoin industry is largely influenced by intense debates between opposing sides regarding potential criminal uses. Opponents of stablecoins point to issues of illegal fund transfers, while supporters argue that the transparent nature of blockchain can be used to detect such crimes.

There is a lack of understanding of how the deep integration of stablecoins into the global financial system can drive the use of blockchain's immutability and transparency features to combat financial crime (even in traditional finance).

The stablecoin industry is continuously growing, supported by increased regulatory clarity and meaningful use cases. Compared to traditional banking systems, stablecoins can facilitate faster and more cost-effective transactions, accelerating their adoption globally. The total value in circulation is estimated to exceed $200 billion.

We now see numerous tech companies, retail giants, and traditional financial institutions lining up to issue their own stablecoins. The payment economy may be on a metaphorical spiral staircase, returning to a pre-Civil War era when the U.S. had hundreds of local banks, each issuing its own private currency as legal tender. Although part of everyday payments, these currencies were not accepted far from the issuing bank. In hindsight, this may have had an unintended constraining effect on any attempts to obfuscate the flow of funds.

In contrast, with the flourishing development of cross-chain interoperability, it can be confidently assumed that users will not have to struggle to convert one stablecoin into another or any other digital asset, or to exchange it for fiat currency. This near-future vision characterized by unobstructed cross-jurisdictional instant capital flows naturally translates into stringent regulations aimed at addressing illegal financial issues.

The regulatory framework for stablecoins requires compliance with the highest standards of anti-money laundering (AML) requirements. Surprisingly, the strength of stablecoins in enhancing law enforcement's ability to combat financial crime has yet to become part of the spirit of the cryptocurrency era.

Stablecoins flow globally on immutable, transparent public blockchains, providing traceability in international finance and adding a much-needed advantage to the global fight against illegal finance.

The outdated structure of traditional finance severely hinders anti-crime initiatives. This is primarily because each bank or financial institution is a walled garden, a closed ecosystem where a central authority controls all access, processes, and user experiences.

Compliance professionals at each of these financial institutions can only investigate financial activities that occur strictly within the organization's virtual walls. This is just a small part of any entity's total business transactions, as any company or individual typically interacts with multiple financial institutions.

Any walled garden only carries a partial picture of its customers.

Each suspicious activity report submitted by a bank is based on an incomplete picture of its customers, which may lead to inaccurate risk level reporting. Furthermore, this outdated dilemma creates significant inefficiencies for law enforcement, as they must separately obtain access to records from every financial institution that the entity under investigation may have interacted with, then painstakingly piece together a complete picture.

A world with agile international capital flows on stablecoin rails would enable law enforcement to study suspicious patterns using undivided, reliable, and transparent information collected directly from the blockchain. Cross-jurisdictional tracking would not require navigating through red tape.

From a more thought-provoking perspective, a robust stablecoin payment economy would encourage regular capital flows between traditional financial organizations and blockchain.

Proceeds from real-world crimes (such as human trafficking, drug sales, and violent crime) and cryptocurrency crimes (such as decentralized finance hacks, ransomware, and cryptocurrency scams) may be laundered through a combination of traditional finance and cryptocurrency products.

Using real-time data from the blockchain in AML initiatives could even provide timely intelligence for criminal organizations that primarily use banks to place criminal proceeds.

For example, recent financial crimes evading sanctions have shown such patterns, with sanctioned funds alternating between banks and stablecoin rails in an attempt to launder money and evade sanctions.

The emergence of widespread stablecoin infrastructure will demonstrate to the global compliance community how the ubiquitous transparency of public blockchains can enable lightning-fast, complex responses to prevent and detect illegal finance, resulting in remarkable effects.

This could facilitate the much-needed collaboration between anti-crime departments within traditional finance and cryptocurrency, allowing both sides to share relevant intelligence for cross-pollination.

Custodians of traditional financial products have yet to recognize that the metaphorical breadcrumbs scattered across the blockchain can serve as informed signals to infer user intent. The stablecoin industry, deeply integrated with the global banking system, will influence the use of these assets, making the universal financial network more secure.

Author: Debanjan Chatterjee, Compliance Expert.

Related: Detailed explanation of the new "concealment crime" regulations, where the "amount" criterion for crime has become a thing of the past?

This article is for general informational purposes only and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Original: Opinion: Anti-Money Laundering is the Unspoken Use Case for Stablecoins

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