Blockchain-Based Anti-Money Laundering (AML) System Using Transaction Monitoring

Chong, Xin Yi (2024) Blockchain-Based Anti-Money Laundering (AML) System Using Transaction Monitoring. Final Year Project (Bachelor), Tunku Abdul Rahman University of Management and Technology.

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Abstract

This project aims to create a blockchain-based anti-money laundering (AML) system to combat money laundering in the modern digital era. Traditional AML systems often lack transparency and immutability, making it difficult to track financial flows and identify any suspicious activity. This project provides an innovative solution to the problem of money laundering, emphasizing the need to enhance the security and transparency of financial transactions to increase the effectiveness of anti-money laundering processes. The scope of this project encompasses the development of a comprehensive AML system that integrates blockchain technology. It consists of various modules and sub-modules including user management, transaction monitoring, suspicious activity management, report generation, risk management, database management and security management. Additionally, it covers the functional requirements relevant to financial institutions and regulatory authorities such as risk assessment and alerting. The project adopts the Agile methodology to ensure flexibility and responsiveness throughout the development process. It integrates blockchain technology, employs hashing algorithms to maintain data integrity, and utilizes rule-based algorithms for suspicious transaction detection. The system leverages distributed ledger technology to create an immutable and transparent record of financial transactions, reducing the risk of fraudulent activities. The system’s performance and effectiveness are assessed through specific testing criteria, including transaction monitoring capabilities, accuracy of detecting suspicious transactions, accuracy of data integrity checking function, and suspicious transaction processing ability. These tests are conducted to evaluate the system’s reliability to identify suspicious transactions and maintain trustworthiness. The proposed system has significantly improved the detection and prevention of money laundering activities by enhancing transparency and immutability, allowing auditing and funds tracking, and providing real-time alerts to financial institutions. However, it also introduces certain challenges such as concerns regarding data privacy, scalability and implementation costs.