Dark Side of Decentralised Finance: A Call for Enhanced AML Regulation Based on Use-Cases of Illicit Activities

Vladlena Benson, Umut Turksen, Bogdan Adamyk

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)
44 Downloads (Pure)

Abstract

Purpose – The paper focuses on the need for an enhanced anti-money laundering (AML) regulation for decentralised finance (DeFi) to protect the integrity of global financial systems against illicit activities. Research highlights the requirement for a robust regulatory strategy for the fast-paced DeFi evolvement.
Design/methodology/approach – The study employed doctrinal legal research by analysing legislation which involved creating use cases to illustrate different aspects of potential illicit activities via the DeFi ecosystem. Various DeFi applications were assessed for the potential regulatory responses and outcomes.
Findings – The paper offers valuable insight into the regulatory challenges presented by DeFi. The study addresses the blind spots leveraged by criminals afforded by the DeFi's decentralised nature. The paper offers a comprehensive examination of DeFi regulatory challenges based on use- case scenarios and provides recommendations for regulators on how to address them effectively. Originality/value – The paper proposes measures for regulatory authorities to minimise money laundering risks through new channels such as decentralised exchanges, non-custodial wallets and cross-chain bridges. The article concludes with the future directions for DeFi regulation and AML compliance.
Original languageEnglish
Pages (from-to)80-97
Number of pages18
JournalJournal of Financial Regulation and Compliance
Volume32
Issue number1
Early online date11 Dec 2023
DOIs
Publication statusPublished - 10 Jan 2024

Bibliographical note

© Vladlena Benson, Umut Turksen and Bogdan Adamyk. Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at http://creativecommons.org/licences/by/4.0/legalcode

Funder

Research for this paper received funding from the European Union’s Horizon 2020 Programme under Grant Agreement 101022004 – TRACE Project – https://trace-illicit-money-flows.eu.

Keywords

  • Cryptocurrency
  • Decentralised Finance
  • Blockchain
  • AML Regulation
  • crow-chain bridge
  • illicit activity

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