Block chain strategy in Banking Compliance

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Compliance in Banking is very complicated and is used in undermining many of the economic frauds. Most of the economic offences start with transactions to many of the shell companies opened in countries where the laws are weak. It is hard to track the whereabouts of money, assets used for such offenses.

Ever since the Bitcoin became a hit the key of its success is in chatter. Once you have installed a Bitcoin wallet on your computer or mobile phone, it will generate your first Bitcoin address and you can create more whenever you need one. You can disclose your addresses to your friends so that they can pay you or vice versa. In fact, this is pretty similar to how email works, except that Bitcoin addresses should only be used once. So how are they doing this, the answer is Block chain. It is a shared public ledger where all confirmed transactions are included in the block chain. This way, Bitcoin wallets can calculate their spendable balance and new transactions can be verified to be spending Bitcoin’s that are actually owned by the spender. The integrity and the chronological order of the block chain are enforced with cryptography. Very simple isn’t it!!!

As per Bitcoin’s website “The Bitcoin protocol is not just about sending money from A to B. It has many features and opens many possibilities that the community is still exploring.”

Yes they are right in many ways .For me with my experience in banking adopting the same protocol in financial transactions can help us in tracking the flow. This eases to know the whereabouts of the assets and thus can help in how and for what the assets are being used.For example , person A wants to send his ill earned money to person B having shell account in some less Due diligent country. He needs to send this wired. Let’s say the bank from which the transfer initiated uses Block chain Technology it will keep track to which account the amount is transferred. You may say this can be found even without Block chain. Yes you are right but the use is when the receiver bank keeps the same track of the receipt and subsequent transfers it helps to keep track the whereabouts.

All is easier said than done. There are few road blocks.

1).Each bank and thus the countries need to adopt this technology. It needs operational and technology costs which they should be ready to bear. And if the amount is scattered ,like the atomic reaction, it is hard to do analysis and we need other tools or newer protocols to keep track. This might be costlier than the money involved in such offenses.


2). Customers privacy is of primary concern. There have been many instances where customer is reluctant to share some of the sensitive information.The fear of privacy loss for the customers can be overcome and can be achieved with proper Due diligence and how the blocks hold the data.

3).When a customer sends money to bank which doesn’t use block chain technology there comes the road block. There’s only one way to track such transactions is when the banks with block chain technology receives from such banks. Again a lot of analysis needs to be applied.

In spite of all the issues discussed above I still strongly feel Block chain will be a path breaker in Money Laundering and other economic offenses. A lot of thought has to be put on how to achieve this. Will keep adding more information as and when I gain more insights.

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