Anti Money Laundering (AML) regulations are here to stay. These have become a usual and normal way of conducting financial affairs, thanks to a whole plethora of international multilateral and bilateral treaties and conventions.

Ostensibly designed to stop proceeds of terrorism or drug crimes from being laundered, AML rules are now being increasingly used to police commercial transactions in order to detect tax evasion.

For any organisation which is in the regulated financial markets - in other words any entity that deals with money on behalf of its customers or clients - the licensing and regulatory requirements are mandatory. In their simplest form, the entity is required to fulfil Know-Your-Customer (KYC) norms. The entity must itself conduct these checks, which generally take the form of obtaining authenticated copies of the clients' identity documents. There are lists of documents which are acceptable - generally passports, driving licenses, utility bills etc.

The purpose of this is to tie the money / account to a physical person and an address where the person can be located.

The next AML requirement is generally that whenever a regulated financial entity (or a banker, money changer etc.) sees a transaction which he suspects might be fraudulent or an attempt to launder funds, he is required to report the transaction to the financial regulator immediately. A lot of organisations file Suspicious Activity Reports automatically for almost every transaction.

Depending upon the local laws / regime, the organisation or entity might be able to use / deal with that money n number of days after having filed the SAR; alternatively have to wait for specific clearance. In the first case, the organisation having alerted the regulator is deemed to have obtained approval if it does not hear anything adverse from the regulator within the stipulated time.

Why do organisations like MtGox etc. behave in a paranoid manner? Simple. The company and each of its employees risks personal criminal prosecution if they violate AML rules.

Given the relatively anonymous and risky (from the law enforcer's point of view) nature of bitcoins, organisations like Mt.Gox are understandably paranoid and eager to "over-comply" with AML regimes.

Of course, there are companies which have relatively lax AML procedures. These companies either operate in countries / jurisdictions which have relatively lighter AML restrictions and few international obligations; or are simply benefiting from a lazy regulator.

I am happy to answer any questions or concerns.