Can Libra deliver in the fight against financial crime?

By Neepa Patel, Chief Compliance Officer at blockchain firm R3
Neepa Patel, Chief Compliance Officer at blockchain firm R3, tells FinTech Magzine that theLibradebate deserves more attention than it is currently rece...

Neepa Patel, Chief Compliance Officer at blockchain firm R3, tells FinTech Magzine that the Libra debate deserves more attention than it is currently receiving because many don't fully understand or appreciate the potential blockchain has in fighting money laundering.

The cost of anti-money laundering (AML) to businesses globally is no secret, with institutions across the world dedicating time and money to fight financial crime. 

Even the world’s most upstanding economies have not been able to escape the blight of money laundering. Canada’s own problem has become known as “snow washing” – a reference to the country’s positive image tarnished by suspect transactions. 

Despite this, money laundering remains big business, representing around 5% of global GDP. That’s larger than the entire economy of Canada.

In its early days, many feared that blockchain technology - and the crypto assets it became synonymous with - would provide yet more protection for money launderers, cloaking assets behind a wall of anonymity. 

However, with the emergence of new generations of blockchains, like Facebook’s Libra, we may now have an opportunity to build an asset that can prove itself a weapon in the fight against financial crime, rather than a facilitator. 

This may come as a surprise to many, given the fiercely divisive debate Libra has spawned since it was announced in June this year. 

However, with a quick look at the way that financial institutions currently handle financial crime, it quickly becomes clear that blockchain-led solutions such as Libra present a much-needed solution to this growing epidemic. 

The way banks currently approach money laundering is largely reactive, relying on electronic monitoring to identify suspicious activity such as excessively large cash deposits, for example.

The problem is that information is often kept across multiple systems, giving neither banks nor regulators a comprehensive view over the whole network of interconnected payments, deposits and money transfers. 

The nature of blockchain, as a single connected ecosystem, means that information can be shared across a network, enabling banks to develop a more coherent and comprehensive view of activity. This means that AML analytics can build up a much more subtle picture, joining together activities which might not on their own seem suspicious but taken as a whole indicate nefarious activity.

So, if blockchain can actually enhance AML measures, why is Libra – not to mention cryptocurrency more broadly – seen as such bad news in the fight against financial crime?


The key is to understand the difference between a permissioned blockchain – which requires users to be verified before they can join the network – and permissionless blockchain, which offers none of the same protection. 

Permissioned blockchains are by far the most effective way for the technology to deliver on its AML requirements. By creating an ecosystem that ensures participants have valid legal identities and where confidential data is safeguarded, this kind of network has the ability to deliver privacy and security at scale. 

The trouble is that cryptocurrencies – and blockchain more broadly – has become a victim of this little known and lesser understood distinction between permissionless and permissioned networks. 

With Libra facing intense regulatory scrutiny, Facebook now has a unique opportunity to deliver on its ambition to advance AML enforcement in the digital currency industry. If built on a secure foundation of permissioned blockchain, the asset could can set an example for future coin issuers and in doing so create new industry standards. Can Libra deliver? Only time will tell.

For more information on all topics for FinTech, please take a look at the latest edition of FinTech magazine.

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