90  Blockchain

Business problem #1

Anti-Money Laundering (AML): Within the financial sector, companies

must comply with regional regulations in order to do business. There

can be severe penalties and also cancellation of the banking licence if

the financial company does not adhere to and comply with the local

regulations.

The regulations have been further tightened due to the 9/11 ter-

rorist attack in New York and the financial crisis in 2007–2008.

AML is essential to stop or minimise illegal activities to fund ter-

rorist attacks, drug smuggling, arms smuggling and much more.

In order to comply with local and global regulations, companies

have to spend millions of dollars in order to establish processes, upskill

employees and set up infrastructure to comply with regulations. This

obviously has a negative impact on companies’ profits and can lead to

cost-cutting. The existing financial AML process is manual and there

is a high probability to make a mistake. This can have an impact

on the company’s brand image, risk of losing the licence and more

importantly increase illegal activity including terrorist funding. This

also can have a severe social impact and create a danger to society.

There is also a lot of duplication whereby companies spend time and money

to carry out similar AML checks multiple times to comply with local and

global regulations. There is an opportunity here to simplify the process

and sharing of the information across regulators, banks and intermedi-

aries as part of a consortium through blockchain.

Solution #1

Figure 3.3 articulates how blockchain technology can provide value.

A: A customer or a client of Bank A would like to start doing business

with the Bank. As per the financial regulations, Bank A must onboard

the client. One of the core requirements of the bank is to carry out the

KYC of the customer.

B: Once all paperwork for the client has been collected, Bank A will

carry out checks for verification of the client. This will go through

a consortium-based blockchain whereby other banks do participate.

If by any chance other banks have already carried KYC for the same

customer, Bank A can use the same data. Multiple banks can pro-

vide and approve the client’s KYC verification anonymously. It will

be based on the proof of authority algorithm. The blockchain setup

can offer multiple layers of security and only the information required

to verify the client can be shared with other banks, so the client’s

financial details are not disclosed to other banks for competition and

business reasons.