Blockchain solutions with consensus algorithms and immediate finality: Toward Panopticon-style monitoring to enhance anti-money laundering

Abstract

Banks can reduce resources spent on anti-money laundering (AML) compliance with block-chain-based transaction infrastructure. We consider AML compliance as a superset of know-your-customer (KYC) and transaction monitoring capabilities. We conducted an instrumental case study with Danske Bank and Concordium, using internal documents and interviews that served as empirical data. We show how storing digital representations of verified IDs with a blockchain can automate tasks and reduce redundant verification in KYC onboarding. Blockchain transparency also improves identifying counterparties, determining funds sources, and creating alerts in transaction monitoring. These reduce time and labor costs for AML compliance, which may lead to smaller banks. When more banks commit to layer-1 blockchain technology, the benefits of blockchain-based AML will increase. We implemented an instrumental case study approach in this theory-based qualitative research and encourage ECRA readers to recognize that the emerging technology innovations we study in this article have not yet been widely adopted and implemented by financial services firms. We also include a theoretical model with study hypotheses to make the main constructs that we investigate easily understood by non-technical ECRA readers. The findings we have developed are consistent with early-stage exploration in our research context and are intended to encourage more well-developed empirical results as the passage of time permits such work to be undertaken. (213 words)