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Am I right understanding that anyone can become an anchor? Let's say, I am an individual or a shell company, or a regular money launderer who wants to conduct some dirty deeds. What stops me from setting up completely made up pre-populated compliance protocol fields and carry on illicit operations?

In other words, if anyone else other that Financial Entities can become an anchor, how is it ensured that the provided information and the compliance info is valid? E.g. when open a corp bank account (pretty much like becoming an anchor), all this info is validated by a person at the time of account opening and compliance processes are tested by an audit firm.

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There are two items to address here that are actually quite independent of each other.

Can anyone become an anchor?

Yes, anyone can become an anchor on the network itself - the technology doesn't do anything to verify you legally can hold funds that are represented on the blockchain, just as there's nothing built into HTTP(S) that prevents an illegal website from being run. The main mechanism that exists is that each Account has to trust assets from an anchor - if you create SCAM_COIN tomorrow as an asset issuer and say it represents USD, people have to explicitly trust that you'll actually pay them out.

However in reality, there is a lot of regulation that currently exists around money operators in various countries throughout the world. Just because one puts money on the Stellar network does not mean they are outside of a country's jurisdiction around what it's doing.

How are compliance fields validated?

Notably, the compliance protocol is for other servers to communicate with each other, and it mirrors how this works in the traditional banking system. While a bad actor may be falsely representing itself, another anchor using the same compliance protocol can mark another organization as dubious, and the user themselves has the ability to not trust any tokens from the organization.

All in all, the network itself has the ability to communicate with others about whether someone has been a bad actor, and news published off-chain is often valuable for users to revert trustlines and not accept funds from bad sources. Also, because the blockchain is public, analysis can always be done on transmitted funds between entities in order to determine illicit activity.

  • Thank you Johnny. It seems like users have an adequate protection from bad players. But if, let’s say I am creating an anchor to transact with other anchors that I want to limit to financial organizations only and specifically those with AML/KYC regime in place. Is there a way to somehow ensure that everyone else will be excluded form my circle? As I understood, the federation protocol may display a domain if a user has decided so. Am I right that to fulfill my requirement I would have to check the domain individually to make sure that for example citybank.com is indeed City Bank? – Stas Belilovskiy Jan 14 at 0:39

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