U.S. Alleges $6 Billion Money-Laundering Operation Using Virtual Currency
online.wsj.com
online.wsj.com
This is like saying Henry Ford designed the modern automobile to be used in bank robberies, drunk driving murders, hit-and-run maimings, and kidnapping.
Yes, virtual currency is attractive to criminals. It's also attractive to law-abiding citizens, many of whom do not like to be lumped into one big morass with "organized crime" stuck on top as a label. We're stepping dangerously close to "If criminals like doing it, it must be bad" reasoning.
ADD: I also note this section: "...On Tuesday, in the first use of the 2001 Patriot Act against a virtual currency, the Treasury Department invoked a section of the law to choke off Liberty Reserve from the U.S. financial system..."
Well, there's your terrorism act, used to control crime via virtual currency. We get scared of one thing, pass a law, and then see it used in a completely different context. The current American kerfuffle involving investigating reporters is tied to a WWI-era law that's almost never used. Amazing the tools American prosecutors have available to them. One could say overbearing, even.
ADD2: Nobody is saying they are innocent. The point here is that these guys are being shut down (and they probably need to be shut down) by procedures that have broad application to all kinds of legitimate use as well. These are very broad and powerful tools we've given the state. We should take some time and think about if they need to be more narrowly-focused. The initial Patriot Act had an expiration date. For a reason.
It's nuts that the US can step in and shut down a foreign company like this. I understand cracking down on any of the exchangers that operated in the US, but it's really not the US's business if foreign parties in foreign countries exchange money with a foreign company.
What if the only reason it was cheaper for legal uses is that they were being subsidized by the illegal uses? What if the pricing LD offered would not have been a workable business model if they hadn't allowed money laundering?
(I don't know the facts here. I'm just offering a possibility.)
Dwolla has a $.25 fee for example and while I'm sure a bunch of criminals use Dwolla, it would not stand out as suspicious.
Liberty Reserve wasn't in the business of actually converting money in their system to or from real-world currencies, and handed off tasks such as indentity verification and anti-fraud to the companies who actually exchanged those bits for real money.
In some regards, LR was very similar to a protocol.
1. http://web.archive.org/web/20130424151449/http://www.liberty...
If they come after bitcoin and you make the same comment, I'll be more sympathetic.
OK, I assume that they would be leant on and "persuaded" to give this thing up, but that just big bully boy tactics. Not a moral or legal thing.
Reading an indictment to determine whether the accused did something wrong is about as sensible as watching Fox News to determine whether Barack Obama is a socialist. All indictments paint the defendants as guilty.
And since when is working around the law a crime? It's almost by definition not a crime, because the whole idea is to accomplish the goal you set out to achieve without breaking the law.
| And since when is working around the
| law a crime?
Its very much like how urber or air bNb are finding ways around existing constrictive regulations designed to protect existing incumbents.
I mean really, what business is it of the governments is it who i send my money to??
| I think theres a rather large difference between finding away around the
| law to defraud/steal from someone and finding a way to send money
| cheaper/easier then existing methods.
| I mean really, what business is it of the governments is it who i send my
| money to??
| designed to protect existing incumbents
If I have a house that I want to rent out, am I an evil person that needs to be put in my place by the tenants that rent it from me? Is there someone wrong with me wanting to vet the people that will be living in said house (especially since damage done to the house can be hard to recover in some municipalities)?
That is not what i was referring to, I was talking about the laws the city passes to prevent it and protect hotels.
What you mean to say is that there are some things which are contemptible but still technically legal. But the converse is also true: Some things remain legally prohibited that would otherwise be morally unobjectionable. Legality and morality are independent variables.
Whether doing a thing is 'good' or not has nothing to do with whether that thing is legal, "technically legal" or totally illegal. All its legal status tells you is whether you can expect to be convicted of it if accused.
| Defrauding someone will cause you to be
| guilty of fraud, because that's what
| "defraud" means.
I really don't see why everyone is assuming these guys are in the right. I don't see much to support that claim.
>I really don't see why everyone is assuming these guys are in the right. I don't see much to support that claim.
You don't see much to support that claim in the indictment? No kidding.
An indictment is not a reliable source of objective fact or unbiased interpretation of fact. It's an accusation, written to make the accused sound as deplorable as possible.
Then they came for the socialists, and I didn't speak out because I wasn't a socialist.
Then they came for the trade unionists, and I didn't speak out because I wasn't a trade unionist.
Then they came for me, and there was no one left to speak for me.
That is why this is blowning up that strong in mainstream media which unquestionable accepts the idea that all the over 1m users are just money launderers.
My guess is that current legislation is not strong enough to bring Bitcoin down and cases like these help to propagate the only-pedophiles-and-terrorists-want-anonymity meme.
That analogy might be valid if 50-90% of Model-Ts were used for bank robberies, and all those other things, and exclusively.
At some point it crosses the lines of being a legitimate business and becomes a caterer for criminal enterprises.
Having 1 legitimate customer does not excuse you from willingly servicing the needs of 9 criminals.
LR went out of their way to hide the tracks of money transactions.
basically - I don't think the US gov't is going to cede the digital currency space quietly.
more important than the anonymity issue facilitating money laundering (which is a consideration) - is preserving the sanctity of the US dollar in world trade. to give one example - most oil is priced in US dollars, around the world. the dollar, including all the manipulative tricks we can pull with the fed, is the basis for our economic power and likely a key driver in all the shenanigans we pull around the world so the government would be complete fools to allow bitcoin or similar to turn into anything other than a science project.
But apparently if you signed up to them and put as a reason "to buy cocaine" this was fine by them
It sounds like there's considerable evidence that the owners were fine with supporting illegal transactions. So, no one really contests their arrests.
The problem is that the service they created is/was used by many people to store and transfer legitimately earned money.
The end result is that many cybercriminals are no longer able to access the money they illicitly earned, yet many regular working people, often in foreign countries where they can't use Paypal or otherwise, can't access their actual funds. Those people had nothing to do with LR's management, nor the criminals who were using the service.
I have no opinion about the allegations against Liberty Reserve. That needs proper judicial resolution, which takes time. I will note, in light of some of the other comments here, that the United States has international treaty agreements with most other countries in the world mutually to regulate money exchange from one country to another. Once in my work as a Chinese-English interpreter (this was back in about 1997), I had occasion to accompany a Chinese official to the offices of FinCEN
so that he could discuss with United States officials how his country (NOT an "ally" of the United States) and ours could cooperate in fulfilling their mutual treaty obligations.
I'm largely with you, Daniel, in desiring government to have narrower rather than broader powers to regulate individual behavior around the world, but I'm not so sure governmental power is too broad or being abused in this case.
The moral of the story here is if you're going to launder money, you should launder a whole shitload of it. Because then you only have to pay a tiny percentage worth in fees. If you don't launder enough, you'll end up broke and in prison.
Imagine if this kind of logic applied to other crimes. You could have a sex slave operation with one prostitute and get caught and go to jail for the rest of your life. But if you run a massive sex-slave industry with tens of thousands of slaves (children for the hell of it), and made $10 billion a year, you'd occasionally get a fine of 10% of your profits that year and be allowed to continue on as if nothing happened...?
Yes. Or rather, if you're going to launder money, make sure you're making healthy campaign contributions, hiring ex-politicians and their staffers as lobbyists, oiling the great lobbying machine, etc...
For those who haven't read it, Lessig has written a rather nice book on exactly how this kind of "soft corruption" works: http://www.amazon.com/Republic-Lost-Money-Corrupts-Congress/...
Enslave a few million and successfully arm yourself against potential rescuers and you meet all the accepted standards of a sovereign nation.
The $6B total appears to be each transaction added. If $100 got transfered within LD 10 times the government says there should be $1,000 (and is demanding it be given to the US gov't), but in reality only $100 ever existed and it's quite likely that after being transferred internally it had been transferred out of LD.
Were are you getting that from?
43.a ... The defendants, shall forfeit to the United States, pursuant to Title 18, United States Code, Section 982(a)(1), all property, real and personal, involved in the offenses and all property traceable to such property, including but not limited to: a. A sum of money of at least $6 billion in United States currency;
It's not bizarre at all. This is regular practice. They name a ludicrous figure, freeze assets, and seize absolutely everything they can get their hands on.
1. Most prosecutor's offices in the US are funded by criminal asset seizures.
2. If you had your assets frozen, guess what? Can't hire an expensive defense attorney that can actually get your ass out of trouble and potentially keep all that $$$.
Whenever you see a press conference when a bunch of police agencies are crowing about a big bust, the brass are all there to accept credit, and their agencies portion of the take.
If a civilian "easy work form home!!!" money mule forwards 100 payments of $1000 stolen money, then he's also liable for the full $100 000 even if he transferred away most of it and doesn't have so much money at all.
If you let a large proportion of Bitcoin transactions become linked with illegal things like drugs, credit card fraud, and money laundering, the law will certainly figure out a way to shut it down.
So I guess the interesting question is how the Bitcoin community can police itself to ensure that these types of transactions (while ultimately not avoidable altogether) remain a minor part of the whole.
That hasn't happened with cash [yet]. Humorously, if the idea of cash was new today like digital currencies are it would be outlawed for our "safety".
The key word here is "proportion." Cash is used in a lot of illegal stuff, but its used legally far more than the illegal. I don't know what the proportion is for Bitcoin, but this answer doesn't that fact. Its a rather poor rebuttal to the issue of Bitcoin being used for illegal activity.
This is not a crackdown on virtual currencies--it's a crackdown on unlicensed money transmitters. If they follow the law, they can trade bitcoin without issue.
The only problem I can imagine having with this is if you don't believe in anti-money laundering legislation, which is one of the best weapons governments have against organized crime, human traffickers and terrorist groups.
Police regularly abuse forfeiture. It's a horrible and very un-American thing they have going on. Yet because the money ends up in the police pockets, there's little incentive to fix the law.
http://reason.com/archives/2012/08/10/why-asset-forfeiture-a...
It also needs to be shown that such weapons are not unduly harmful to law-abiding citizens.
Honestly, it's not something I'd thought about much before all the recent government crackdowns on money transmitters. But when I stop to take a look at it, it seems to me that the freedom to exchange money without government interference is close to a fundamental human right.
When I look at it carefully, it seems very very strange that we've accepted that governments have the right to minutely examine what we do with the fruits of our labors.
I get that it's a good tool to stop crime, but so is listening to every phone call. So is recording every move every person makes in public. We're starting to see resistance to movement in those directions, why should our economic actions be subject to the same level of scrutiny?
I'm not ready to throw out the whole shebang, but I've started to think there should be some firm limits.
This should be a simple A/B test in my opinion.
Inspect every single monetary transaction. Measure the results.
Do not inspect every monetary transaction. Measure the results.
Has money laundering and crime increase or decreased? If it has increased, inspect every monetary transaction, assuming all other variables stay constant.
If criminals do know know whether they are A or B, then the existence of the A group can deter crime in the B group. Given the increased scrutiny on A, you're likely to catch more crimes there. That doesn't mean that B doesn't have uncaught crimes though.
Thus your test is fundamentally messed up both coming and going.
This is where you fail.
Let's suppose that monitoring all monetary transactions actually does reduce crime.
But the apparatus for doing so legitimizes similar actions by oppressive governments, which use it to suppress democracy activists rather than terrorists, and in so doing use the tools we built which they would not have had the funds or local knowledge to build themselves. And if you don't care about those people, imagine what happens if our own government should ever turn malicious, or fall under foreign control, and have this ability to prevent our citizens from funding a resistance.
Then there is the danger of all this data falling into the wrong hands. Requiring it to be collected creates a secret which in the aggregate amounts to a national security threat. If you know who is paying whom for what and in what amount, you can commit industrial espionage on a massive scale. You know where strategic weaknesses are because you know which company doesn't purchase reinforcing materials for its products, you know how much capital an important defense contractor has in reserve before it goes into financial straits that impair its ability to operate effectively, you know who isn't insured against specific risks and could be bankrupted if they were contrived to occur, etc.
This is effectively the same trouble as mandating lawful intercept backdoors. The damage you cause by creating immensely powerful surveillance tools that inevitably fall into the wrong hands by far outweighs the cost of requiring law enforcement to use the more traditional methods of catching criminals.
Neither money nor property exist without government. Sure, you can say that bottle caps and a fence might do the trick, but those don't have the same force.
The only time they actually interfere is when they believe crime is going on, which is how things always go.
Are you saying they should be blinded so that they don't accidentally accost people who are not engaged in crime?
> should [they] be blinded so that they don't accidentally accost people who are not engaged in crime?
Given the law above, yes. So they don't intentionally accost people to get their cash.
And, just like Bitcoin, you have alternative illegal ways to obtain cash without going through these AML hassles: trade goods with a individual on the black market.
The point is, cash is comparable to Bitcoin in terms of enabling anonymous transactions. And there are legal as well as illegal ways to obtain both.
http://www.usatoday.com/story/money/business/2013/05/12/2-tr...
So I think companies like MtGox have a lot to worry about, but companies like Tradehill, which have gone and done the regulatory dance, will be fine.
This is not the US versus Bitcoin, this is the US versus dumbasses who try to cheat the money transmitting rules and know damn well what they're doing is illegal. I happen to sympathize with these folks because I don't think the government should have its hands in every monetary transfer, but regulatory concerns are always a part of any business plan and ignoring them is a plan too (albeit not necessarily the best one).
What I would like to know definitively is whether MtGox is openly flaunting the rules, or is just doing their best to operate in a legally untested area.
1. https://support.mtgox.com/entries/20919111-AML-Account-Statu...
Tradehill alludes to the fact that they are doing some simple "know our customer" type verifications, but that won't satisfy FinCEN when they come knocking.
[0]: http://www.fincen.gov/financial_institutions/msb/msbstatesel...
Not many ways into MtGox now.
From MtGox:
Transaction Limits
Deposits
All methods below do not have deposit limits:
Bitcoin - For everyone.
LibertyReserve - Through AurumXchange and Bitinstant only
OKPAY - For everyone has an OKPay account.
Japanese Domestic Transfer - For Japanese residents who have a "verified" account with us.
Technocash - Only for Australian residents who have a "verified" account.
Wire - For "verified" or "trusted" account status. Please note that we are unable to accept funds coming from any entity or country listed by the OFAC*
SEPA - In order to make Euro deposits you need to have a "verified" or "trusted" account status.
To check if your account has been "trusted" or "verified" please visit: https://mtgox.com/forms/verification to apply.
1) Shutting down big torrent sites by modifying laws (for example, making linking to torrents illegal)
2) ISPs blocking the big sites domains like piratebay
3) Fining consumer users (who failed to be anonymous with VPNs and other tools)
4) Attacking the big users of the network (seed boxes, pirate groups or in the context of BTC: miners)
The other approach is make the conversion of state currency into BTC illegal. But the implications of that are unclear. Would people adopt a different crypto-currency? Would all crypto-currencies be banned? Could a BTC black market still exist like drugs?
I think more than likely it would be like torrents are now: a large amount of the tech-savvy population uses them and loves them, but a lot of people are afraid they'll get sued or have a letter written to their house from their ISP (which means nothing), and would rather just pay $7.99/month for a worse selection on Netflix and maintain a peace of mind.
"We need a way to publicly discredit this non-controllable currency alternative without raising suspicion"
"Well sir, I have a plan. How about we tell the public only criminals are using Bitcoin to launder money, criminals are selling guns and drugs to students and paedophiles are using it to sell child pornography. We'll make the public eventually beg us to ban this currency and when people complain we are being unreasonable or have ulterior motives we can proudly say we are only doing what you asked us to"
First and foremost money laundering isn't a new practice. Mobsters in the 20's were laundering money, Laundromats, cafes and nightclubs are perfect fronts for money laundering operations as well. Yes, no doubt Bitcoin is being used for nefarious purposes (look at Silk Road for a perfect example), but lets not lose our cool over this.
What we are starting to see is a coordinated effort by the US to remove the threat that is Bitcoin. While I have no conclusive proof that is the case, it's not rocket science that too many people benefit from the current monetary system to not want to see it become less relevant or have its dominance threatened in any way, way or form.
The powers that be didn't think much of it in the beginning, but Bitcoin is starting to gain a lot of traction, not to mention we are starting to see the currency stabilise.
I predicted that the financial elites who owns the banks and control cashflow (such as the holders of shares of the privately owned fed reserve) would not want a form of currency they cannot debase at their will. Gold was first to go in the 70's, and now bitcoin, having similar properties of gold, is on the crosshairs. I can only just hope the general public has enough sense to see through propaganda. Bitcoin survival depends on it going mainstream, and its the one weakness no technology can solve.
Companies like MtGox and Liberty Reserve simply decided to skirt the envelope and paid the price. The answer is to register as a money transmitter; simple and plain. The difference is one conforms to the law and maximizes its potential whereas the other simply willfully ignores the law. The latter does not work whereas the former is tolerated as a matter of course.
Who do you think is trying to convince people that this is the right way to do things? How long have we associated "anonymous transactions" with terrorism etc.?
Only recently, we've developed the idea that something must be wrong with you if you use cash. $100 doesn't even afford a meal for two at a nice restaurant and people look at you like you're a drug dealer if you carry a $100 bill.
Yes, we most certainly did. Start with the Bank Secrecy Act which was enacted, by duly elected representatives of the People of the United States, in 1970. This group of regulations "require[s] financial institutions, which under the current definition include a broad array of entities, including banks, credit card companies, life insurers, money service businesses and broker-dealers in securities, to report certain transactions to the United States Treasury."
Yes we did, in reaction to the fear of organized crime, especially in urban areas. Anti-money laundering laws were the direct result of efforts to combat organized crime (the Bank Secrecy Act, the Organized Crime Control Act, and RICO were passed in the same year, 1970).
And you know what? It was extremely effective--so effective that we've got a generation of people who don't even remember what a huge problem it used to be.
http://www.salon.com/2012/12/11/hsbc_to_pay_1_9bn_to_settle_...
Above street level, all justice is politics.
Wall Street is getting massive funds directly or indirectly from the government/taxpayer.
http://www.nytimes.com/2013/05/29/nyregion/liberty-reserve-o...
Not sure how that would work, you might just be charged with conspiracy.
> The rise of virtual currencies has been exemplified by bitcoin, which lets Internet users create new money by solving complex math problems.
While technically correct, this explanation would probably give a layperson the wrong impression as to how bitcoins are mined.
> A transaction would start with one person opening a Liberty Reserve account using a false name and address, including what prosecutors said were blatant criminal monikers such as "Russia Hackers" or "Hacker Account."
Those are blatant criminal monikers? They sound more like trolls to me--serious criminals are probably a bit more sophisticated in their fraud.