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What KYC and AML Can Actually Do – and What They Can’t
KYC (Know Your Customer) is the process exchanges use to verify your identity before you trade. You upload an ID, sometimes a selfie, and the exchange checks your details against watchlists of sanctioned individuals, known criminals, and flagged entities.
AML (Anti-Money Laundering) refers to the broader system of transaction monitoring that flags suspicious patterns after accounts are active.
Both systems are reactive by design. They catch what is already known. A first-time money launderer using a clean identity clears KYC without issue. A newly sanctioned wallet address only gets flagged after regulators publish the update.
The real-world friction in exchange security verification is significant even when exchanges are genuinely trying because the threat environment changes faster than any compliance system can track.
Crypto compliance at a global scale is less like a locked door and more like airport security: rigorous, constantly improving, and still unable to guarantee that no threat ever gets through.
The question is whether crypto exchanges have been implying something closer to that level of certainty in how they describe their safety standards – and whether that framing holds up under legal scrutiny.
What This Means for Binance Specifically
Binance is not arguing this point on the basis of untested credibility. The exchange reached a $4.3 billion settlement with the Department of Justice in 2023, and founder Changpeng Zhao pleaded guilty to federal charges related to AML failures.
The company currently operates under monitoring arrangements with the DOJ and the Financial Crimes Enforcement Network, ongoing federal oversight that Bliss says Binance is current on.
The SEC pursued separate civil litigation, including allegations that Binance secretly controlled an entity called Sigma Chain that engaged in wash trading to inflate volume figures, a charge that sits uncomfortably alongside any claim of best-in-class market surveillance. That case was ultimately dismissed, but the legal history matters as context for how seriously regulators view the gap between Binance’s compliance claims and its past conduct.
What Bliss is now arguing – that the standard of zero exposure to illicit finance is not achievable and that regulators need to recalibrate toward risk-based crypto compliance is a meaningful reframe.
If courts or lawmakers accept it, it shifts the entire enforcement conversation from “did any bad actor get through?” to “did the exchange do everything reasonably possible to stop them?” Those are very different legal tests.
This article has been published in yahoo.com via Yahoo News.
SEC vs. Binance: Why ‘Zero Risk’ Doesn’t Exist in Crypto Exchanges
Binance’s head of regulatory affairs, Dugan Bliss, made a pointed argument at the sidelines of Consensus 2026 in Miami: no cryptocurrency exchange, including Binance, can ever achieve zero exposure to illicit finance, and regulators who expect otherwise are misreading how blockchain...
finance.yahoo.com
