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Comment by minimax | Hacker News Reader

Using bitcoin as a way to launder dollars requires the ability to turn USD into bitcoin and back again, which, incidentally, is exactly what Mt Gox does.

  dirty money -> mt gox -> bitcoin -> mt gox -> clean money

I'm obviously speculating here, but this seems like a logical reason for the DHS to come in and shut things down.

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It's not about logic, it's about power. Banks routinely (once every couple years it seems) get caught rigging rates, laundering money, financing dictatorships or terrorism, etc... In the US, when it comes to banking it's really not about logic but about power.

Money Laundering is a serious risk banks face, you only need to look at HSBC's recent debacles to see why. AML/Compliance at contra Dwolla Banks would have flagged this and quite rightly so. I disagree with your last statement. Could you please elaborate?

IIRC, HSBC signed a deferred prosecution agreement and paid a sizable fine. That's not justice.

HSBC paid a $2 billion fine for a "crime" that was rooted in negligence rather than malicious intent.

Actually, HSBC has openly admitted to knowingly and willfully taking active steps to disable specific automated countermeasures put in place to prevent money laundering, as well as deliberately under-staffing departments responsible for AML compliance. There is little question as to their guilt or complicity.[1] Their punishment? Slightly more than a month's worth of revenue.

http://www.justice.gov/opa/documents/hsbc/dpa-attachment-a.p...

The relevant text is: "17. From 2006 to 2009, HSBC Bank USA knowingly set the thresholds in CAMP so that wire transfers by customers located in countries categorized as standard or medium risk, including foreign financial institutions with correspondent accounts, would not be subject to automated monitoring unless the customers were otherwise classified as high risk."

It's very misleading to leave out the "unless the customers were otherwise classified as high risk." That smacks of someone not understanding how to properly implement the compliance function.

The rest of the statement of facts reads like a classic case of a company cheating out on the compliance function (like every company tries to do) and failing to adequately monitor a foreign subsidiary.

I think the fine was too small, but the facts are consistent with negligence warranting a fine, not intentional criminal conduct that might warrant jail time.

No, I believe the text directly that follows the paragraph you quoted is more relevant, and I am Not a Lawyer, but the facts outlined do not appear to be consistent with mere negligence, at least any definition of negligence that I'm familiar with.

18. Between 2000 and 2009, HSBC Bank USA, and its executives and officers, were aware of numerous publicly available and industry-wide advisories about the money laundering risks inherent to Mexican financial institutions.

19. Despite this evidence of the serious money laundering risks associated with doing business in Mexico, from at least 2006 to 2009, HSBC Bank USA rated Mexico as standard risk, its lowest AML risk category. As a result, wire transfers originating from Mexico, including transactions from HSBC Mexico, were generally not reviewed in the CAMP system. From 2006 until May 2009, when HSBC Bank USA raised Mexico’s risk rating to high, over 316,000 transactions worth over $670 billion from HSBC Mexico alone were excluded from monitoring in the CAMP system.

Furthermore, the remaining 80% of the document goes on to outline a pervasive and long-running pattern of behavior consistent with willful subversion of both the letter and the spirit of AML.

I find it disappointing if not unsurprising that HSBC can continue to operate as usual after openly flaunting at staggering scale the very policies that Mt Gox is being effectively shut down for potentially falling afoul of.

Translation: other people thought Mexico was a high risk area from 2000 to 2009, but HSBC rated it "Standard Risk" from 2006 to 2009.

What about this strikes you as intentionally criminal activity?

Are we reading the same statement?

How about this part?

>Without adequate KYC information, HSBC Mexico knew very little about who these high risk customers were or why they had such large amounts of U.S. dollars. However, even without the benefit of adequate KYC information, the risks were obvious. Indeed, one HSBC Mexico compliance officer noted “the massive misuse of [the HSBC Mexico Cayman Islands U.S. dollar accounts] by organized crime.” One example, identified by HSBC Group’s Head of Compliance in July 2008, involved “significant USD remittances being made by a number of [HSBC Mexico’s Cayman Islands U.S. dollar] customers to a US company alleged to be involved in the supply of aircraft to drug cartels.”

Or this?

>When suspicious activity was identified, HSBC Mexico repeatedly failed to take action to close the accounts. Senior business executives at HSBC Mexico repeatedly overruled recommendations from its own AML committee to close accounts with documented suspicious activity.

Or the part where HSBC Mexico was laundering so much money that both the Mexican Central Bank and the Mexican Financial Intelligence Division both complained to them within 6 months of each other?

>In November 2007, Banco de Mexico, the central bank of Mexico, expressed concerns about the volume of U.S. dollars exported by HSBC Mexico back to the United States. Specifically, Banco de Mexico wanted an explanation as to why HSBC Mexico’s U.S. dollar exports were significantly larger than its market share would suggest.

In February 2008, HSBC Mexico’s CEO met with the head of the CNBV and the head of Mexico’s financial intelligence unit, Unidad de Inteligencia Financiera (“UIF”). Again, the volume of HSBC Mexico’s U.S. dollar exports was raised as a concern. Specifically, HSBC Mexico’s CEO was told that law enforcement in Mexico and the United States were seriously concerned that the U.S. dollars being deposited at HSBC Mexico might represent drug trafficking proceeds. HSBC Mexico’s CEO was also told that Mexican law enforcement possessed a recording of a Mexican drug lord saying that HSBC Mexico was the place to launder money.

Or my personal favorite, where the cartels designed special boxes to maximize the rate at which they could shove their dirty money through the teller windows:

>In order to efficiently move this volume of cash through the teller windows at HSBC Mexico branches, drug traffickers designed specially shaped boxes that fit the precise dimensions of the teller windows. The drug traffickers would send numerous boxes filled with cash through the teller windows for deposit into HSBC Mexico accounts.

And before you tell me that this was limited to HSBC Mexico:

>Senior HSBC Group executives, including the CEO, Head of Compliance, Head of Audit, and Head of Legal, were all aware that the problems at HSBC Mexico involved U.S. dollars and U.S. dollar accounts.

Huh? Why do you think it is appropriate for the US government to be regulating the behavior of a foreign bank in a foreign country? I have a business account at HSBC in Hong Kong. It stores assets in USD and it is none of your or your government's business. I had assumed the US bank somehow violated American law, because if the only complaints are about the behavior of the Mexican bank, the whole thing smells like a political shakedown.

By your logic the Chinese government should be fining American banks (i.e. Citibank) which offer RMB<-->USD conversion services outside China. Because, after all, the RMB is a controlled currency in China and the behavior of American banks is illegal under Chinese law.

> Huh? Why do you think it is appropriate for the US government to be regulating the behavior of a foreign bank in a foreign country?

That's quite the straw man you've set up. I don't believe I ever once said anything like that.

I do think it is appropriate for the US to regulate the operations of a foreign bank within their boarders. If the multinational bank violated US law, the multinational bank and its US subsidiaries should lose their ability to continue to conduct business in the US. You know, like what DHS is doing to Mt Gox now, which was the whole point of this thread in the first place.

> That's quite the straw man you've set up. I don't believe I ever once said anything like that.

Huh? Your post goes on and on accusing HSBC Mexico of malfeasance yet does not contain a single accusation of wrongdoing on the part of any American subsidiary or company.

As far the MtGox issue goes, DHS has shut down an American account belonging to an American company (a subsidiary explicitly created in the US to process USD). It is an entirely different matter.

Seriously, RTFD.

The document outlines in unambiguous terms the extent to which HSBC (the parent HSBC) consistently, knowingly, and over an extended period of time, manipulated transactions and associated processes, at times over the objections of their own US subsidiaries, to conduct business, in America, in US Dollars, that was in violation of AML laws and regulations.

I'm not sure what else there's left to say about this at this point.

There are international agreements about money laundering.

There are international agreements about a lot of things. Doesn't make American law apply to non-American companies.

We could use a political shakedown or two for the Mexican cartels.

The whole point of white collar crime is that it is difficult to distinguish from negligence. And when the standard for prosecution essentially requires that the defense acts like a comic book villain --or at least plainly writes down their intent, rather than masking it-- it really isn't a surprise that the courts are unable to convict over criminal charges. That other people thought (rightfully) that Mexico was a high risk area, while HSBC classified it under their lowest risk tier, smacks of intentional "negligence." So they pay a civil fine --that wasn't nearly big enough-- and the take-home message stays the same: just play dumb if you're ever caught and all will be fine.

I completely agree, but in this case it doesn't seem to be a question of being able to prove that they were guilty.

The DOJ-HSBC joint statement acknowledges that, among other offenses, "From the mid-1990s through at least September 2006, HSBC Group Affiliates violated both U.S. and New York State criminal laws by knowingly and willfully moving or permitting to be moved illegally hundreds of millions of dollars through the U.S. financial system on behalf of banks located in Cuba, Iran, Libya, Sudan, and Burma, ... in violation of U.S. economic sanctions."

The statement then goes on for several pages to outline in detail how they demonstrably knowingly broke the law, including this gem:

"HSBC Group was aware of this practice as early as 2000. In 2003, HSBC Group’s Head of Compliance acknowledged that amending payment messages “could provide the basis for an action against [HSBC] Group for breach of sanctions.” At that time, HSBC Group Compliance instructed HSBC Europe to stop the practice. However, HSBC Europe appealed, and due to the “significant business opportunities” offered by the Sanctioned Entities, HSBC Group’s Head of Compliance granted HSBC Europe an extension to continue processing payments in the same manner."

> The whole point of white collar crime is that it is difficult to distinguish from negligence. And when the standard for prosecution essentially requires that the defense acts like a comic book villain --or at least plainly writes down their intent, rather than masking it-- it really isn't a surprise that the courts are unable to convict over criminal charges.

This analysis is spot-on. White collar crime is difficult to prosecute because people fuck up all the time and it's hard to distinguish between a run of the mill fuck up and malicious intent, especially because our usual go-to for inferring intent ("motive") is hard to rely on because in the context of billions of dollars flying around, there always seems like there was motive.

Hence the fine, though we're in agreement that it should be bigger, in order to make it more justifiable to spend resources on exercising more care.

Besides all the other facts in the statement, how about this, vastly improved translation:

"dialing down Mexico, one of the top and well known high risk areas for drug money, into merely Standard Risk"?

You make their on purpose decision to benefit from looser checks sound as some kind of ...unfortunate miscalculation on their behalf of the risk of Mexican money.

>The relevant text is: "17. From 2006 to 2009, HSBC Bank USA knowingly set the thresholds in CAMP so that wire transfers by customers located in countries categorized as standard or medium risk, including foreign financial institutions with correspondent accounts, would not be subject to automated monitoring unless the customers were otherwise classified as high risk."

It's very misleading to leave out the "unless the customers were otherwise classified as high risk." That smacks of someone not understanding how to properly implement the compliance function.

I don't see anything misleading. It clearly shows this was no negligence.

They purposefully complied only for the coarser and more dangerous cases ("customers classified as high risk") and stood to benefit for letting all the others go through.

To be fair, you should use the much smaller revenue of the US branch to campare it with a US punishment. Taking global revenue is bindende, even though US lawyers push this nonsense as well.

But its a global organization. Why should we only look at the US Branch, especially considering the ability for multinational companies to shift money around for outside appearances?

Wait, folks showing up and depositing millions in a go in cash not raising red flags was negligence?

That 2BN fine was leveraged for a combined failure to monitor more than $670bn in wire transfers and $9.4bn in dollar purchases in Mexico. You can bet yer britches they made more than 2bn off of all the shadiness -- and when a fine is less than the profit of the act being fined, the act will not cease.

Exactly... they made more cash by laundering and then paying a fine. Presumably banks will keep on doing this until there is a real deterrent (like having the entire operation shutdown by DHS)

Much like Mt. ......

Aw crap, full circle.

> a "crime" that was rooted in negligence rather than malicious intent.

Speculation, not fact.

Technically, so is the inverse.

Given the prosecution and statements, no it is not.

Simply 100% not true. They freely admitted to committing crimes, and there is overwhelming evidence they routinely broke the law and helped clients do the same. The 'fine' was a joke.

A fine so small it did not impact their quarterly profits much. In other words, it was an acceptable expense.

There was nothing "negligent" about it.

Regarding the last part In the US, when it comes to banking it's really not about logic but about power. which you wanted elaboration on, the OP is essentially referring to the fact that power is king (well one of the kings anyway) and in order to have power, one of the easiest ways to do it is through controlling the debt - after all if you can control the debt you can control everything - this is highlighted perfectly when there is any form of conflict between nations as, the true value from conflicts isn't who wins or loses but rather the debt it creates.

true value from conflicts isn't who wins or loses but rather the debt it creates.

Would you expand on this (possibly with examples)?

For instance when two nations go to war it doesn't really matter who wins or loses because, they're both creating debt (the one who loses the war usually ends up with the most debt) in order to fund their conflicts.

Likewise, another example is a bookmaker - those who are in conflict are the punters who are betting on an outcome (one of them wins & one of them loses) - however, to the bookmaker it is trivial who wins or loses because they always make money on that outcome. It's the same with the banks etc.

Money laundering is not a risk banks face, it's a profitable venture they willingly engage in whenever they think they can get away with it.

Money Laundering is a serious risk banks face, you only need to look at HSBC's recent debacles to see why.

It's not a risk, it's a business opportunity. At least it was for HSBC http://www.bbc.co.uk/news/business-18866018 . Joe Schmo from small Town, MN would have been a felon by now for doing the same with $10K. The fact that HSBC, other banks (NY Mellon Bank iirc too) and their execs got away with a "cost of doing business fine" shows what's wrong with the system

The HN hivemind thinks that corruption and elite deviance doesn't exist. Maybe we're trying to be different from the Reddit hivemind which sees a conspiracy under every rock.

Everyone missed Wachovia's dirty laundry story. HSBC is just a British bank, not Chinese, so we get to hear about their transgressions. Got Barclays?

I would think DHS is more worried about

   (any) money -> mt gox -> bitcoin -> groups not aligned to DHS interests

This "threat" already exists with cash though (and with cash you can throw it into an ocean or burn it, but the blockchain will forever record your Bitcoin ID and you have to hope DHS never figures out which ID is yours).

Yes, but DHS can't eliminate cash. However they can restrict the amount you carry across borders without declaring to around $10K. Bitcoin does make it very easy to transfer a million USD worth of coin to anywhere in the world in minutes. It's impossible to do that with cash, unless you go through a heavily regulated and monitored bank.

And there is always the Tor network for anonymity.

You can transfer absurd sums in bitcoin across borders all day, but good luck when it comes time to convert it into a useful currency. Turning btc into a useful currency in the US and Europe is about as easy as its going to get.

>Turning btc into a useful currency in the US and Europe is about as easy as its going to get.

But good luck trying to get the value out that you put in. Dollars and Euros are relatively stable compared to bitcoin. There is a much higher guarantee that you're going to get the same value out that you put in with Dollars or Euros compared to bitcoin. Bitcoin looks like a great investment until you actually try to turn it back into dollars or euros.

Furthering my point. Using Bitcoin to transfer large sums of wealth across borders without being tracked is by all measures almost impossible, unless you're in bed with an exchange and they'd be willing to take that risk.

At some point, if you're trying to move a lot of money, it's cheaper to buy tickets for multiple people and split the amount of cash they can carry to some fraction of the maximum amount allowed out by law and then combine on the receiving end. If you're a powerful enough person (or dangerous enough) you can probably compel them to cooperate either based on compensation or intimidation.

who then need to go -> mt gox -> money in order to get any damn use out of it.

That's not how laundering works. MtGox is tracking all the transactions, and will work with the police.

There are laundering services that will take your money, then send it to a recipient in dribs and drabs over time. They basically say they won't work with police.

Dwolla was probably stopped because there's some regulation regarding converting money between currencies.

- mt gox and BTC generally volume is miniscule, nowhere near to accommodate money laundering - cartels probably make mt gox's monthly volume in one hour - 'dirty money': is it cash or bank account? i presume cash. how will you sent million of $$ to mt gox? fedex a suitcase? how mt gox will deposit million $$ cash into their back account? good luck with that - BTC transactions are public (see blockchain faq); tracing significant amounts of BTC entering and leaving mx gox is a matter of technicality - etc

Mtgox monthly volume from bitcoincharts.com: $454,693,733 USD.

I'd be impressed at any cartel making $454 million in an hour!!

What matters for ML/AML is money going from external accounts into MtGox. I do not believe that is $454mm/mo. A lot of the Bitcoin/Dollar stuff is internal to MtGox and is essentially daytrading, which is why you have crazy hundred-trillion dollar numbers on the F/X markets, too.

Yeah, I know. But it isn't insignificant and I can't believe that there aren't people with a few million dollars who want to launder it, and would do so if the service kept existing (or maybe already do).

Isn't the daily limit for reporting something like $10,000? There is clearly far in excess of that amount of money flowing through mtgox in transactions, so surely the possibility of money laundering is something the authorities would consider.

It is insignificant for anyone not already using Bitcoin and using Silk Road. (or, a nerd pot or RC dealer who just likes the idea of bitcoin)

There are many many opportunities for money laundering which are cheaper/easier/more stable than MtGox. I personally haven't had to worry so much about AML regulations since I was last seriously involved in digital payments around 2000, but while a lot of the easier routes to accept USD cash and move it out of the US have been addressed, there are still a lot of lower hanging vectors.

The main ML vector would be localbitcoin and other person to person cash exchanges, and they go in the wrong direction (generally people buying bitcoin and GIVING you cash). I'd bet the total volume of bitcoins you could buy for physical cash is less than $5mm/yr/person right now, without a seriously high profile. And probably way less. So, less than would comfortably fit in a bag in your trunk. For domestic stuff (like a pot grow in Humboldt and selling to NYC), shipping bulk currency back and forth is probably fine.

SR is a threat to narcotics control regimes, and it's possible there are other issues with anonymous payments through Bitcoin today, but it's not a high volume channel of going from USD physical currency in the USA to any kind of useful placement.

I'd bet the total volume of bitcoins you could buy for physical cash is less than $5mm/yr/person right now, without a seriously high profile.

Correct me if I'm wrong here, but couldn't you deposit money into bank accounts in "less stringent than the US" countries where mtgox operates, convert into bitcoins, then convert back into USD and withdraw from Dwolla as "legitimate" currency? That seems like the main use to me. You're getting around the paperwork and suspicion of a bank transfer directly into the US.

Of course Mtgox says that it complies with money laundering regulations, but you could chop up the transactions (foreign account -> mtgox -> bitcoins -> some other exchange -> different bitcoins -> mtgox -> USD). Once the money enters bitcoins, it's very easy to shuffle it around so it can't be "traced" (by which I mean have it go outside companies that comply with money laundering regulations- it is actually traceable technically, but I'm not sure the authorities have tools that do this yet or whether they actively look at it) and then pull it back out as USD. Seems like a problem to me, but I'm not a money launderer, so I dunno.

The problem is essentially all the buyers of drugs are in the US, and pay cash. You end up with a bunch of $5-20 bills in the US. You need to either pay electricity/personnel/fertilizer/rent/etc. to grow pot, or pay Chinese companies for research chemicals, or South Americans or Central Asians for cocaine or heroin, or old people/poor people for pharms (or sometimes foreign companies).

The direction is

product: producer (foreign) -> reseller (USA) -> user (USA)

money: buyer (USA) -> resller (USA) -> producer (foreign)

The hard part is the initial stage of taking US physical $5-20 bills and depositing it into a bank account without arousing suspicion, at scale. You can't just deposit it into a US account and wire it overseas, and you can't as easily play the remittance game where you give ~$500/wk to a bunch of Mexicans to "remit to Mexico" to accounts you control.

Right now, the best thing to do is actually "bulk currency export", where you put it in a bunch of bags and ship it overseas, then deposit it into foreign accounts. Once you get it into a foreign bank, you SWIFT it to a slightly less shady jurisdiction, going through a bunch of steps to obfuscate (although doing traffic analysis on SWIFT is a solved problem; I suspect FinCEN is a Palantir customer...), then put it into investments, usually government approved/affiliated, which won't be questioned.

By buying slightly government affiliated assets (real estate?), you then get rent streams which are "clean", and then you invest those in the US.

Your average dude buying a few hundred pounds of weed in Humboldt for $1500/pound and flipping it for $3200/pound in NYC just moves bulk currency back in the same manner he shipped his product cross-country, pays his vendors in cash, and ends up with a lot of cash, which he spends on flashy purchases for his personal life (paying rent in cash, etc.), and with the excess, may make cash investments in assets (small businesses, whatever) which generate licit revenue, on which he pays taxes and then does whatever.

Bitcoin is totally irrelevant to that.

The market where bitcoin might make sense is if you're a US research dealer who wants to buy, say, 100 grams of some new RC from a manufacturer in China. The dodgy "sell to individuals" front there might be willing to accept BTC then fedex it to you. Otherwise you have to go through the trouble of doing a wire to a foreign account, etc.

It also could make sense if your retail buyers also take bitcoin. Maybe selling cocaine to VCs in SF/NYC could meet that (1 BTC ~= 1 eight ball), assuming you can then somehow take a bunch of BTC to buy larger quantities of cocaine (maybe via silkroad?). But in practice I think the only people selling serious weight for Bitcoin above the retail level are pharm, RC, or pot.

FYI the entire public order book on MtGox is under $7mm USD.

They're not making that much money. The processing fees are a fraction of that. It's still profitable, but at this point Mojang might still be making more than Mt. Gox.

If all it takes is a little bit of money laundering to get your bank shut down, we're going to run out of banks pretty fast in this country.

> If all it takes is a little bit of money laundering to get your bank shut down,

Don't be ridiculous. You have to both launder money and not give any of it back with campaign donations. Only then do you get shut down.

This exactly why I think Bitcoin has no future. Soon or later it will be regulated and we will go back to the same thing.

I realized yesterday that the number one non-speculative use of Bitcoin (to be specific: buying stuff on SR) is already a felony in the US today.

Even if it's regulated, it can't possibly be more illegal than it is now.

I doubt the regulatory environment in the US will have much effect on Bitcoin adoption curves.

it will not be regulated , it will be shut down , plain and simple , unless everybusiness out there accept bitcoins , one needs to convert it to a sound currency in order to use it.

It cannot be shut down for the same reason that Bittorrent cannot be shut down: it is a peer-to-peer decentralized protocol. You need to learn about the basics... http://blog.zorinaq.com/?e=66

I think the basic principal is that it will be unusable within the USA, because you'll have no way to convert US dollars into Bitcoin.

A similar attack was made against Wikileaks.

If you can't transfer your cash to Bitcoin, or your Bitcoin to cash, then the decentralized nature of Bitcoin itself is immaterial.

There are plenty of ways to convert US dollars into Bitcoin, without exchanges.

For one, an often overlooked and dead simple way: you can sell goods/services and tell your customers you accept Bitcoin.

You can buy bitcoins for cash from sellers you meet face to face: https://en.bitcoin.it/wiki/Category:Directories

You can mine.

Etc.

> I think the basic principal is that it will be unusable within the USA, because you'll have no way to convert US dollars into Bitcoin.

You'll have no way to convert electronic dollars into bitcoin. Saying that the government can prevent the conversion of cash into bitcoins is like saying it can prevent the conversion of cash into drugs.

> If you can't transfer your cash to Bitcoin, or your Bitcoin to cash, then the decentralized nature of Bitcoin itself is immaterial.

Unless you can turn your bitcoins into goods and services.

people buy bitcoins for cash in person today. if anything, preventing financial institutions from accepting bitcoins makes the transactions harder to track.

That is not how money laundering works. The whole point is to provide an ostensibly clean source of the revenue. If you must first deposit the money into something traceable (a bank presumably, since Mt Gox probably doesn't take cash) your cover is blown. Also converting it to bitcoin and back again does nothing at all.

Mt. Gox has anti-money laundering policies. They have a withdrawal limit of $10,000 per month for non-verified accounts, this is utterly useless for laundering money by any serious actor. I feel fairly certain claiming that you can launder $10,000/mo. a lot easier, and more privately, than by going through Mt. Gox.

How is this different tho from USD -> Swiss Franc -> USD? I don't see how that cleans the money...

Banks are under the same political pressure as Mt Gox is, they're just better at handling pressure and playing nicely with politicians, so you don't hear about it as much.

Ever tried to send money to Somalia? If you think that's a silly question, there are a lot of Somalians here in Minneapolis who would like to feed their families back home (and a lot of banks who would like to make money by helping out). But politics makes that very, very hard. This is just one example.

My friend's Russian father lived in Serbia with his mother when he was a young child. He was entitled to a wage in rubles - he was employed by the Russian government - and he had a nice little triangle going. The Russians had pegged the ruble to the US dollar (or close enough) to avoid looking weak, so the ruble was artificially inflated. Yugoslavia didn't do that, so it had a much weaker currency. He would make his paycheck go ruble > USD > yugoslav currency (can't recall the name) and he made quite a bit of 'free' money that way.

For things like these Hawala systems are existing ( http://en.wikipedia.org/wiki/Hawala ). Really a great tool to cut out banks and government control in financial transactions. I wish this somewhat would find its way into the digital age.

Yes, and almost all Minneapolis banks will refuse to do business with the hawalas, and hawalas have to move money, and they are also subject to US regulations.

I'm not making up issues, you know. Inability to move money to Somalia is a real thing. Here's one link: http://www.startribune.com/local/minneapolis/136396028.html

Ripple [0] has some similarities to a digital Hawala system.

[0] - https://ripple.com/

There doesn't seem to be any information about who's behind this? I can see OpenCoin Inc but their site seems to be down. HN effect at work perhaps?

Ripple is run by Jed McCaleb, founder of Mt.Gox, and Chris Larsen, founder of Prosper.com.

Interesting project. Has it got any traction?

Bitcoin IS Hawala =) Just standardized and widespread.

Because that first step of USD(cash) -> Swiss Franc has to go through a bank and/or Forex exchange which has to follow U.S. anti-money laundering regulations. If you attempt to place a large amount of cash into a bank or forex account you will have a lot of paperwork to fill out to reasonably prove that it isn't illegitimately gained money.

Whether those regulations are actually effective is questionable (see HSBC, BoA, etc.), but that's the rationale.

Isn't that the same with Mt. gox? How do you get the money to them without going through a bank?

I'm not really familiar with Mt. gox, but I'd assume you can send in a money order or perhaps even cash. I don't know anything about Dwolla either, maybe they have a method of bypassing banks? I might be wrong so if someone knows better please correct me.

Edit: Did a little bit of digging[1], looks like they accept wire transfers (e.g. Western Union), and I'm sure there would be ways through those e-currency and other services to deposit large amounts of unregulated money.

[1]https://support.mtgox.com/entries/20490576-Withdrawals-and-D...

Mt. Gox is AML compliant. I had to send in various ID for them to accept SEPA transfers to my account.

Pretty much every step of USD -> CHF -> USD for large enough denominations is dealt with by firms that have strict requirements regarding recording transactions and verifying the identity of their customers due to anti-money laundering laws.

Bitcoin crosses borders more easily than CHF. Try this:

  Money in Saudi Arabia -> mt gox -> bitcoin -> mt gox -> terrorists inside the USA

Terrorists don't need much money to kill. All you have to do is recruit a dude in the US, give him information on how to purchase an AR-15, and the dude can start killing people at the malls or any other soft targets.

Or actually just kill people with pistols. Seung-Hui Cho, the Virginia Tech mass killer, kills 35 people with his Glock 19 and Walther P22.

The attacker is basically undetectable until he start his assault, and the probability of success is quite high. He can even use his car to ram into the mall door and run down individuals before he start his shooting spree. The only hope for civilians at that point is that a policeman or a civilian with a pistol to start shooting back.

The operation can be done with the attacker saving money for those purchase of weapons by working at his usual job. You don't need to send funds.

(Of course, if it was that easy, why don't terrorists do it more often?)

Exactly the point. All the money laundering talk is complete bs when it comes to terrorism. There is only one reason, and that is that government wants their taxes.

Which is a very valid reason.

I don't think that's strictly true. It's generally thought that one of the biggest bank robberies in the UK (the Northern Bank Robbery) was pulled off by the Provisional IRA. Terrorist organisations do need to launder money - it may just not be the same terrorist organisations that you are thinking of.

> How is this different tho from USD -> Swiss Franc -> USD?

It isn't, which is why there are big stacks of anti-money-laundering regulations that governments impose on banking and forex.

If you try and change a significant amount of currency banks will require you to go through "know-your-client" verification and anti-money laundering checks. I'm assuming Mt Gox didn't do that.

Bitcoin doesn't launder money, but does enable the barter economy to be more liquid and scalable. Barter is very difficult to tax, so there is the issue.

I have personally discussed this with a friend that is a federal reserve spokesman, so anyone that wants to argue otherwise should consider that first.

Cash is difficult to tax. I don't have a friend in the fed.

What's your daily ATM withdrawal limit? Familiar with the letters SAR? Mere suspicion of structuring requires a report. If you know any local people that work at a bank, ask he or she how many SARs are filed in the one branch per week, on average.

A major federal reserve branch maybe has $30 billion in cash on hand at any given time. The marginalization of the US cash market is almost complete after the past decade.

Lastly, consider the possiblity that those back scatter xray machines aren't about weapons.

I didn't understand a word you just wrote.

The paper money market is being closed down too.

A suitable argument could be made for both.

Is barter against the law?

It is not against the law. However, you are supposed to report barter transactions to the IRS. What percentage are actually reported is probably not all that high, but I have not seen any research on the topic.

It seems like it should be a reason for DHS to force Mt. Gox to share information about their customers and agree to help DHS prevent money laundering, but shutting things down seems like an overreach that will likely be temporary.

Wouldn't you still have to explain who was paying you BitCoin, and why?

"I do freelance [whatever] over the internet in exchange for bitcoins."

Where "[whatever]" is something relatively unverifiable. Programming, essay writing, whatever. Declare it properly as income and you probably won't have issues unless somebody actually decides to look closer.

Not all that different from "selling" heavily marked up drinks at your bar in exchange for cash, then pouring said drinks down the drain. It will work for a while so long as you avoid suspicion.

> Where "[whatever]" is something relatively unverifiable. Programming

Yep. And that may sound inefficient, but it's actually really great at decreasing information about the source of money. For example, you might have a legitimate software business where you're selling custom software to a customer, but meanwhile you're financing the creation of those bits through dirty e-goldcashcoin. Later, you transfer the bits through Tor to yourself, with very little record of the origin of those bits.

The only problem is that the worker that was paid in dirtcoin might be able to recognize their work in the future (in the wild), breaking the anonymity of that value-creating transaction. So you can focus on content creation work that is less unique, but you can't always charge customers that much for that sort of work anyway..

I think it's an interesting problem to think about. I am sure there's a solution where you don't end up with a stray existential threat like the worker stumbling upon his beautiful artwork in the future. Assassination market? That's really extreme, surely there's a better way.

Jurisdiction allowing^, a bitcoin gambling website would be a fantastic way of laundering your bitcoins. Just start using your undeclared money to play at your own casino. The house always wins, so slowly but surely that dark money will become your legitimate income.

Do it right and you might actually even turn your casino into a legitimate source of income itself.

^ I'm not sure where this would be legal. Not the US clearly.

> The house always wins, so slowly but surely that dark money will become your legitimate income.

That's not helpful, because the transaction is really obvious. If your casino is unpopular, it's even more obvious that it might just be you. This is a much worse idea than the one in your original comment.

Edit: also, you can't verify that obfuscators operate without logs, so using "mixers" isn't a legitimate answer either.

The way I see it, there two stages to money laundering:

The first is simply disassociating your money from the crime. If you robbed a bank this means swapping your bills for other bills. If you robbed MtGox or sold a bunch of coke on the silk road this means using a fuckton of mixers... but that is not a good solution as you have noted. Bitcoin does not lend itself to this at all. Honestly if I somehow found myself in the possession of a ton of prominently stolen bitcoins I would just write them off; the risk involved in recovery would be far to great. If it was just bitcoins I got from selling some coke on silk road then I would be more relaxed; a few (presumably) independent mixers over a few months would put me at relative ease. None of the money from this step is useful though.. not unless you are content with paying your rent in cash for a few years or blowing all your bitcoins on VPSs... For the money to become actually usable you need part two.

The second part is the traditional money laundering. Taking money that is assumed to be unconnectable with the crime and associating it with your identity in a way that appears legitimate. If you robbed a bank this means taking the bills that you got out of step one and finding a way to put them back into the bank. If you are selling coke in real life then this is actually the only step you need to worry about; take the cash you got for the coke, "spend" it at your bar, and deposit it at the end of the week in your bank account. If you mined a shitton of coins a few years ago and don't really care to explain that you are a miner, then this is the only step you need to worry about.

The idea of both the "freelancing" and "casino" ideas is to do only step 2; that is to say they are both just to associate money with your identity in an "official" way. Neither will work worth a damn for step 1... at least I wouldn't trust either of them for that.

The nice thing about bitcoin casinos is that they are easy to spin up. Just load one up, spam it all over the place over the period of a week. During that week you "gamble" with yourself, then you taper that down to simulate waning interest in your service. Rinse and repeat as often as you need more money, just rip off whatever the current preferred gambling/toy is in the community at the moment. Never keep them around long enough for them to be popular or unpopular, only new. With the freelancing idea you may eventually have to explain where you are getting your contracts, but with technically legal fly-by-night gambling schemes nobody would expect even you to know or care. Gambling sites involve far less fabricated story and background, which is to your advantage.

Which I would choose would depend on how much money I wanted to attach to my identity and how fast. For modest amounts quickly I'd make a gambling site. For large amounts infrequently but at steady interval, I would become a freelancer. That would be the better one to attempt to live off of. (Also I'm in the US, so a gambling site is a non-starter anyway.)

> With the freelancing idea you may eventually have to explain where you are getting your contracts

Ah, I thought you meant the otherway around. Hire a freelancer, tell them what to do, pay them with dirty money, sell their bits for clean money. I don't see how becoming the freelancer is a good idea; that doesn't scale unless you have extremely specialized knowledge and can blow through $1000/hour or whatever. But if you have extremely specialized knowledge, it's probably easy to de-anonymize you as a freelancer.

> Honestly if I somehow found myself in the possession of a ton of prominently stolen > bitcoins I would just write them off; the risk involved in recovery would be far to great.

I think this is a great solution until something better is figured out. Also, you could just use them for other activities that are unrelated to you, as long as you're okay with that and very careful (don't let tracking pixels catch your browser, even if you're under Tor, etc.).

> blowing all your bitcoins on VPSs

Fascinating idea; you could blow your bitcoins on VPSs to mine more bitcoins. However, you will have to be sure that your VPS is not being logged. Otherwise those bitcoins will be tainted too. But you could probably just participate in a mining pool maybe, and have one mining-pool-account per VPS instance?

> The nice thing about bitcoin casinos is that they are easy to spin up. Just load one up, spam it all over the place over the period of a week.

Ehhh.. I am still skeptical. You could make the site claim it's been around for longer ("Copyright 2003"), and you could even re-purpose a bitcoin address that someone else was using before. But it is relatively easy to figure out a shift in the types of accounts that are sending in money, and use that to determine a change in ownership of the account to prove that the casino hasn't actually been around as long as it claimed. And if the bitcoin address has a previous public identity associated with the address, that's a dead give away that your casino was just using that history to seem more legitimate.

A crazy question: there's a kids restaurant called Chuck E Cheese. You pay for tokens to play games. From the games, many of them spit out tickets. With enough tickets saved, you can redeem them for prizes.

How is that not like gambling, and how do I run my own?

My recollection is that the prizes, once you adjust for the number of tickets required to get them and the difficulty and time involved in getting enough tickets, are severely marked up. There are undoubtedly more efficient ways to launder money. Not to mention that to do this with any significant sum you'd need a lot of people to be playing these games for a long time. Adults would raise a lot of suspicion, and kids would want to keep the prizes. The main value the restaurants like these offer is entertainment.

..or selling haircuts or tattoos to non-existent customers.

I have exactly 1 bitcoin and no silk road experience, but IF I sold drugs I might do it like this:

drugs->bitcoins->mt. gox->USD->Dwolla->Bank Account

A buyer would do the above actions in reverse.

As it stands today there are many, many ways to perform that chain of actions. I personally funded my Mt. Gox account with Dwolla because it seemed like the only above the board operation out there.

I think a more typical chain is:

drugs -> USD -> mattress -> grocery store

Shouldn't it be the FBI or DOJ then, not DHS?

DHS typically takes the lead on money laundering investigations. To unpack the acronyms: that would be HSI, part of ICE, which in turn is part of DHS.

Money laundering is about legitimizing the source of money and isn't facilitated by the unit of exchange: dollar, yen, rupee, peso or bitcoin.

Post-2001 and the Patriot Act, bank tellers, stock brokers and insurance agents have all become lay intelligence officers under "Know your customer" compliance requirements. Informal value transfer systems, barter/black-market, are only a problem in terms of taxation.

Mt. Gox and money exchanges were functionally brought under these KYC compliance regulations and it is only a question of time until bitcoin users will have to speak about the source of the money. Sources are important because that's how taxes are levied.

If you can show you have paid taxes on your money, it's rare to have a problem.

We have systemic trillion dollar annual deficits, so tax collection efforts are being ramped up. It's why you get 10,000 IRS officers hired instead of 10,000 doctors for a national health care system reorganization.

> We have systemic trillion dollar annual deficits, so tax collection efforts are being ramped up.

Funny. In renewable energy circles, the first, and most efficient, optimization is "conservation". Converting the 50 incandescent bulbs in your home to their LED or CFL counterparts yield more long-term value than spending the money on the ability to produce the power those original bulbs consumed.

Likewise, our government needs to quit pretending it actually needs money and cut spending. The TSA and middle-east war machines are the first places I'd start with.

"Likewise, our government needs to quit pretending it actually needs money and cut spending. The TSA and middle-east war machines are the first places I'd start with."

Absolutely, but those things are a drop in the bucket relatively speaking and aren't systemic budget problems. By far the biggest culprits are Medicare/Medicaid and the Bush tax cuts, but neither party has the collective will to do anything about them. It's not totally their fault, either- it's the nature of the political system and the level of voter awareness. Anyone who started seriously gunning for any of those things would get voted out at the earliest opportunity, or at least that's their perception. It's a profoundly messed up situation.

It is a bigger problem than just votes, but votes do drive the initial policy formation and corresponding political discussion.

What happens when you retire a light bulb? Contrast that with what happens when you retire a person. The light bulb goes in the trash bin, but the person begins an escalting battle for survival as he or she's financial reserves approach depletion.

Why was Mt. Gox shutdown but HSBC wasn't? The last thing the Fed wants is a currency they don't control and can't debase.

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