AML (Anti-Money Laundering)
AML (Anti-Money Laundering) is a set of regulatory requirements and technical measures designed to prevent cryptocurrency from being used to launder illegal proceeds. Exchanges are required to screen transactions and block suspicious activity in compliance with FATF guidelines and national regulators.
Detailed Explanation
AML regulation in the crypto space emerged as a direct response to early use of Bitcoin and other assets for illicit transactions. FATF — the Financial Action Task Force, an intergovernmental body focused on combating money laundering — required crypto exchanges to implement the same standards as traditional banks. This means mandatory customer identification (KYC), transaction monitoring, and blocking of suspicious activity.
In practice, AML requirements affect every exchange user. When you deposit cryptocurrency, the system automatically analyses the sending address's history. If it ever interacted with flagged sources, your funds can be frozen instantly upon arrival, without warning.
How AML screening works on exchanges
Exchanges use specialised blockchain analytics platforms: Chainalysis KYT (Know Your Transaction), TRM Labs, Elliptic, and Crystal Blockchain. These systems trace the origin of every transaction through the blockchain — sometimes hundreds of hops back through transaction history.
The process works like this: crypto arrives at the exchange's deposit address → the system checks the history of all preceding addresses in real time → assigns a risk score to the transaction → if the score exceeds the threshold, the account is automatically blocked and the client receives a document request.
Transaction risk scoring explained
A risk score is a numerical rating from 0 to 100 reflecting the probability that cryptocurrency is connected to illegal activity. Factors that raise the score include: direct transfers to or from darknet markets (Hydra, Silk Road), OFAC SDN sanctioned wallets, mixing services, and known addresses from hacked exchanges.
Each exchange sets its own blocking threshold. Binance typically blocks at scores above 60; more conservative platforms may trigger at 30-40. The paradox is that legitimate funds can receive a high score through indirect association across multiple hops — you may have bought USDT from a random P2P seller who received them from a mixer.
The Travel Rule and its impact on users
The Travel Rule is a FATF requirement to share information about senders and recipients for transfers above $1,000. Since 2023 it has been in force across the EU, Singapore, Switzerland, and is gradually expanding to other jurisdictions. This means exchanges must know not only your identity but also the intended recipient of outgoing transfers.
For users, this manifests as requirements to verify withdrawal destinations when sending to external wallets. Refusing to provide information is formal grounds for blocking the withdrawal.
AML freeze through no fault of your own
The most frustrating scenario is being frozen due to someone else's actions. In P2P trading, you have no way of knowing the origin of your counterparty's funds. Even after passing KYC on Binance, your account can be frozen if you inadvertently received "dirty" USDT from another user.
In these cases, KarCrypto helps prepare a Source of Funds package: gathering evidence of legitimate fund origin, drafting a statement for the exchange's compliance department, and accompanying the unfreeze process. Based on our experience, 80-90% of such freezes are resolved when properly prepared documentation is provided.
Why AML matters for your crypto security
AML freezes are among the most common reasons clients contact KarCrypto. Unlike a hack or phishing attack, the funds aren't stolen — they're frozen on the exchange. This creates a false sense that the situation is easy to resolve independently. In reality, exchanges aren't obligated to explain their reasons for blocking and often ignore user requests for months.
Timing is critical. The longer an account remains frozen, the higher the risk of forced closure. Once an exchange decides to close an account, getting funds released becomes significantly harder and requires legal instruments.
KarCrypto specialises in preparing Source of Funds packages and managing the unfreeze process on Binance, Bybit, OKX, KuCoin, and Garantex. Don't wait months for a support response — reach out at the first sign of a block.
Frequently Asked Questions
Can my account be frozen because of someone else's transactions?
Yes. If you receive cryptocurrency from an address previously linked to fraud, sanctions, or darknet activity, the exchange's AML system may freeze your account even if you had no knowledge of the source. This is called indirect exposure, and it's one of the most common reasons for unexpected account blocks.
What is a Source of Funds document and why does an exchange require it?
Source of Funds (SoF) is documentary proof that your cryptocurrency was obtained legally. Exchanges request it during AML investigations to confirm funds weren't derived from criminal activity. Typically, transaction history from previous exchanges, P2P trade records, or bank transfer confirmations are sufficient.
How long does an AML account freeze last?
Without professional assistance, the process can drag on for one to six months. A properly prepared Source of Funds package typically resolves the issue within two to four weeks. In 10-15% of cases, exchanges close accounts without explanation — at that point, formal legal requests become necessary.
Can I appeal an AML freeze decision?
Yes. You can submit a formal request to the exchange's compliance department, attach your SoF documentation, and demand a written response. Exchanges registered in the EU or UK are subject to consumer protection regulations. KarCrypto guides clients through this process from the initial freeze to full account reinstatement.
What is a crypto address risk score and how does it affect transactions?
A risk score is a numerical value from 0 to 100 assigned to each address by systems like Chainalysis, TRM Labs, or Elliptic. A score above 60-70 typically triggers automatic transaction blocking. The score reflects the address's history: connections to darknet markets, mixers, hacked exchanges, or sanctioned wallets.