Blockchain Based Assets and Anti-Money Laundering : A Law and Economic Analysis

The emergence of blockchain technology will impact the world in many aspects. By recording the provenance of digital assets, the decentralized, distributed ledger technology provides many advantages and opportunities to society but not without potential negative impact that requires careful examination. This paper investigates the relationship between blockchain technology and money laundering to provide a theoretical framework evaluating whether the technology could potentially encourage money laundering activities. To analyze the relationship, this paper develops an expected utility function of money laundering derived from the expected utility function of a crime. This model explores the changes in the expected utility from money laundering as a function of a number of explanatory variables adopted specifically to fit the elements of money laundering and the two most widespread blockchain asset classes—payment and asset tokens. Through this theoretical analysis, the majority of the aspects of the blockchain applications are found to have the potential to increase the expected utility from money laundering, therefore making the technology appear attractive to money launderers. The conclusion drawn in this paper sets an important first step in understanding the potential impact of blockchain and identifies certain aspects of it that require the attention of regulators to ensure that society can reap the benefits of this complex yet valuable technology while limiting its negative impact related to criminal activities