How to Launder Billions of Digital Dollars | Hacker News Reader

How to Launder Billions of Digital Dollars

theatlantic.com

51 pointskitcar56 comments

Many of the largest banks in the world launder much greater sums and get away with the lightest slap on the wrist. Wherever money changes hands you will find ethically challenged people making a profit.

Gangster Bankers: Too Big to Jail http://www.rollingstone.com/politics/news/gangster-bankers-t...

This is what I was thinking. Sounds pretty much like big banking as usual.

I think https://en.wikipedia.org/wiki/HSBC#Money_laundering might be more interesting to a hacker.

As I've discussed previously[1], Taibbi is not noted for being a reliable systems expert on the international banking system. The simple facts are damning enough without layers of editorializing cruft from an unreliable source.

For example, consider the assertion that people need to go to jail for fraud in the HSBC case. Most of these bad things are instances of the bank systemically not monitoring transactions closely enough. You can't pick individuals and throw them in jail for responding to bad institutional incentives--you have to pick out a specific criminal act that's punishable by jail time and pin it on someone, beyond reasonable doubt. Truth be told, if you start doing this in an equitable fashion with the goal of "punishing" bad banking behavior, you'll target a lot of lower-middle-class mortgage brokers from the 2008 mortgage crisis who knowingly committed fraud, which seems like an undesirable result. Or maybe you could pick a few politically convenient scapegoats, but that would be unjust in a different way. That's why we fine banks billions of dollars instead.

[1] https://news.ycombinator.com/item?id=5616805

For the life of me, I don't understand why the biggest investors and executives, who are rich because "with great risk of captial comes great opportunity for success". So they get the 99% of the profit, they get the big paychecks, because they took the big risk in the beginning.

But on the flip side, they don't accept the risk for the behavior of their company.

I don't understand how the system operates whereby they accept all the profit from their risk, but successfully mitigate almost all of the negatives of their risk, reducing jail time and criminal penalties to fines and loss of investment.

If a man earns profit from an investment in his control, to me, he also is responsible for the legality and behavior of that investment.

This seems obvious: Take down the executives. And keep on doing it, keep throwing them in jail until banks hire executives who don't let this bullshit happens. How many millionaires in jail would it take to change the culture? I'm betting not many.

That sounds nice, but it's impossible for an executive of a multinational bank to know what every employee is doing at all times.

It's not like their quarterly business review slides include, "committed fraud to increase revenue 20%."

Quite frankly, I don't care. They as executives are trusted to handle every dollar, every share. They are the stewards leading their company, making the decisions, creating the profit or loss. When they succeed, they take the praise and the reward. When they fail... it's too hard for them to manage everyone? What?

The buck stops there. It must stop there. It is THEIR PROBLEM to control the misbehavior of those who they entrust with their capital, not OUR problem.

Those that Executives entrust with their assets are the Executive's responsibility.

As a citizen, I don't get to say "Your accountant is immoral, fire him". I don't get to have a say in the ethics of private sector employees. I don't get to speak to who an executive entrusts with capital. I'm not responsible for their actions by design.

So with that isolation of the private sector comes the responsibility of the private sector to handle it's own shit.

Buck stops with the executive. I imagine the richest people alive, if they can "solve" the problem of <1ms trades cross-Atlantic, they can "solve" the problem of unethical behavior.

What I think: they don't want to solve it. Why would they, unless we forced them?

If they don't have control over their assets and those that manage it, why do they get the profit from what they do not control and do not risk? Either they accept responsibility for their assets and those that manage it... or the public should get the credit and profit from an asset the public is forced to manage and protect.

This sounds like an easy way to make sure nobody wants to be an executive of a major bank. Why would anyone want to take charge of an organization where the actions of any one of hundreds, thousands, hundreds of thousands of employees can get them thrown in jail? Do you have the ability to monitor that? Or anyone you know? Would you bet your freedom on it? Do you want bank executives to be the sort of people who play the odds on going to jail vs. getting money? The smartest people in the world have trouble getting your friend feed to display ads you want to see. The smartest people in the world cannot get their 1ms trades--to use your example--to succeed more than 50+epsilon percent of the time. They don't have this genius power to monitor all fraud that you think they should have. And before you argue that banks don't even try to set up monitoring systems, they actually do. Every major bank now is into big data and machine learning precisely to stop employees and customers from breaking the law. (They are hiring, by the way.) This is in response to Congressional and popular pressure.

In summary, I cannot think of a single significant way in which you understand what you're talking about.

> Truth be told, if you start doing this in an equitable fashion with the goal of "punishing" bad banking behavior, you'll target a lot of lower-middle-class mortgage brokers from the 2008 mortgage crisis who knowingly committed fraud, which seems like an undesirable result.

I think it a very desirable result. When it came time to break up the mafia, the prosecutors didn't say "we can't get the dons right off the bet, oh well let's not bother". Getting the triggermen is both a good in itself and a strategy to both starve the organization of foot soldiers and to work up the hierarchy.

No one seems to have any compunctions about putting outright lower class street drug dealers in prison.

Specicially with respect to HSBC, there were several avenues available for criminal prosecution of individuals both low level (i.e. the actual tellers and bank branch officials who recieved the ilicit funds) and high level. Irene Dorner, President HSBC Bank USA, for example signed the 2010 consent decree with the Office of the Comptroller of the Currency[1] and could have been held in contempt of court for refusing to carry out the agreed changes. Also conspiracy and RICO don't require every member of the corrupt organization to be aware of all the details of the criminal acts imputed to the entire conspiracy.

The Justice Department had no problem securing a prison sentence for money laundering against Vladimir Kats[2] as well as lower level employees of Liberty Reserve, but I bet he didn't go to Oxford. Can't a women that looks and sounds like Dame Judi Dench in prison, that would be uncivilized!

[1]http://www.occ.gov/news-issuances/news-releases/2010/nr-occ-... [2]http://www.informationweek.com/security/government/liberty-r...

Baffling. You can't even get a Mafia don for something his hit man did, unless you can prove the don was involved. RICO isn't a license to throw people in jail because of some hand-waving about responsibility. I don't think the law works how you think it works. When you talk about HSBC officers you're talking about things probably >90% of them didn't even intend to happen, much less had any provable connection to. Even actual bad guys are hard to put in jail, never mind if this stuff about blaming bank executives for everything has any significant merit.

I'm double baffled that you think the mortgage officer example--the harried guy in a cheap suit overlooking some fudged numbers here and there--is at all comparable to a drug dealer or a hit man, both of whom knowingly destroy people for a living with their different weapons.

Liberty Reserve is a poor counter-example because the Liberty Reserve guys allegedly laundered billions of dollars, on purpose, provably knowing they were doing it, in fact setting up an illegal business offshore so they could do it. If the allegations are true there's no doubt they are actual bad guys. Oh, and it took a two year long international effort to bring them down.

And I remember there being some HN indignation when Liberty Reserve was taken down, which is ironic when you compare how angry people are about HSBC doing much less. Imagine the response if Liberty Reserve was owned by Goldman Sachs!

I think the dodgy mortgage officer is actually a pretty good match for a (non-violent) drug dealer. Both are selling something they've been told they shouldn't, to someone who mostly thinks it's in their best interest, and is ultimately profiting by (some or much of the time) hurting that person.

You can't cite your own post as evidence that Taibbi is not reliable. Taibbi is an accomplished journalist who is credible enough that he is routinely featured on radio and TV programs as a worthwhile guest to discuss financial systems and crimes. I'm not sure what part of that suggests he should not be trusted to have knowledge of international banking.

> LR's most basic criminal offense is simple: It didn't know or want to know the identities of its clients. They allowed people to transfer big sums of money without checking their identification.

That this is a crime disgusts me. I should be able to do whatever I want with my money without anyone knowing who I am. That's how it worked up to the past century.

The crime isn't transferring the money. The law applies to the payment processor, who profits from often criminal activity.

Operating a medium of trade for profit that others use consensually shouldn't be illegal. The act of people trading value consensually also shouldn't be illegal. The parent post is likely affirming both of these positions.

You can make that argument, but there are two different positions to argue, and the former position is harder to justify than the latter.

Umm, no, you shouldn't be able to do everything you want with your money.

A payment processor has a fiduciary duty for its customers. So if you are sending $100,000 to Nigeria to pay for puppies, the Payment processor better stop this transaction to protect you form being scammed.

Now maybe you are smart and savvy enough to be not scammed but an average joe isn't.

There are many rules in the payment industry but KYC (Know Your Customer) is pretty high up in the Payment Processor's Bible. From the article it seems that Lib.Res. didn't just commit minor sins; it was designed to disregard the bible all together.

In actuality it's way worse than just being scammed out of your property. People are being deprived of their freedom and dignity, something even the most die-hard libertarian will find challenging about this "total freedom in moving my money anonymously" position.

http://blogs.aljazeera.com/blog/americas/face-human-traffick...

I have seen stories about "human trafficking" in the news for a while. They tend to sound very unrealistic and are all tinged with either hype or hysteria, depending on the source.

The news has had many articles that say the strip clubs and whorehouses in or near New York City are filled with women who are forced to be there. Forced in the manner said here - "they travelled with an escort who held a gun to their backs" and so forth.

The news even said a strip club which I visited a few times, Gallagher's, was like this. It's just ludicrous. There's no way girls were forced to stay at this strip club. It's risible. I talked to some of the girls there before I read the nonsense article about them. Some were from other countries. They were there for the money.

There are very poor girls all over the world who would and sometimes do work in a strip club or whorehouse if they could make a lot of money. Just like girls in China go to work in Foxconn factories for the same reason.

With so many willing women, why go through all the trouble of hiring a full-time guard to watch three women? What happens when he goes to sleep? They pull out the gun when they travel around? It's possible, but highly improbable.

What is she going to say, she wanted to move to the US to make money doing sex-related stuff, then didn't like it any more with those people and still wanted to stay? These stories that people are in locked rooms with guards who escort them around by gunpoint with their families at home under the gun as well - it sounds like something a 21-year-old Indonesian prostitute who wanted a visa to stay in the US would say. The joke is that anyone would believe this. It's laughable. I mean what else is someone who knowingly came to the US for prostitution going to say? Her only option is to say that. Oh, and she wants to stay in the US as well, of course. I don't have the ability to say if her story is true or not, but it makes no sense. Every hole in the story is plugged by some improbably sounding story ("You were moved from apartment to apartment, why didn't you escape when they were continually moving you?", "Uhh...someone was holding a gun to my back, yaa, that's it". This is what she actually said. It sounds ludicrous).

Of course the shady nature of whorehouses in the US is helped by the fact that it is completely illegal in New York, unlike Nevada or European countries. If there were legal brothels, then business for places like this one would dry up.

The hypocrisy is the US helped drive Indonesians into poverty when the CIA helped an Indonesian coup massacre hundreds of thousands of trade unionists etc. in the 1960s. The hypocrisy is the US has a religious hysteria about sex. The hypocrisy is the US has laws on the book making prostitution illegal, which is what could create something like this theoretically happening. Women in poverty come to the US and work for pittance wages sowing shirts and pants together, but we never hear about how they have the gun at their back as they move from place to place and are enslaved etc. But when religious fundamentalists hear sex is involved, then some form of hysteria sets in.

Then we hear excuses for the PRISM Big Brother government controls everything stuff because of all this hypocrisy. It's a win-win for big money and big government - ban a woman willing to have sex from a man with money from conducting a transaction (driving it underground and allowing situations like this to potentially happen), massacre the Indonesian left and drive Indonesians into poverty, and then get support for Big Brother tactics to stop the invented tales of prostitutes who "escaped their captivity" but surprisingly "still want to stay in the US".

So, your argument is that your intimate knowledge of criminal enterprise and everyone's lives leads you to believe that anyone who claims to be a victim of human trafficking is a liar because it sounds unlikely to you?

Despite all the evidence to the contrary provided by human rights organizations around the world?

Fiduciary duty should be to prevent customers from being scammed themselves, not to prevent them from purchasing things they want. IE Nigerian puppies is probably a scam, but of, "Hi, we're Paypal and we've decided to just keep your money because you ordered a reproduction Civil War cavalry saber and it's against our TOS" is just bull.

It's one thing to have some sort of fiduciary duty to protect customers from scams. It's another to impose government or public morality on the commerce a service is gatekeeping.

Especially when said laws prevent access to the marketplace without going through said gatekeepers.

> A payment processor has a fiduciary duty for its customers.

Oh? This time the fiduciary duty is towards customers and not shareholders? :p

Funny how most times it's trotted out as an excuse for some scumbaggery by a corporation, but now it's a reason to "protect" customers.

Agreed. The entire concept of "financial crimes" has only been applied in a widespread manner with the advent of the war on drugs, which many of us oppose for a variety of very valid reasons.

Actually, the Bank Secrecy Act was passed alongside RICO. The target was organized crime, not drugs. Nixon coined the term "War on Drugs" in 1971, but aggressive drug prohibition in the U.S. dated back long before that, and the explosion in imprisonment as a result of drug prosecutions didn't really kick in until a decade later: http://en.wikipedia.org/wiki/War_on_Drugs#Arrests_and_incarc....

While "financial crimes" are a key part of the drug war now, their primary use has been to attack the kind of organized crime that turned New York into Gotham City in the 1970's.

Watch the movie Donnie Brasco and also the various documentaries about the Mob Commission Trial. National Geographic has some good material here: http://channel.nationalgeographic.com/channel/inside-the-ame....

"organized crime" to the level that necessitated the RICO act only came about because of the war on drugs (in that particular case, alcohol was the drug in question).

While it's true that organized crime grew up during the bootlegging era, organized crime was on the upswing in the 1960's and 1970's, at a time long after prohibition had ended and before the modern drug war had started. Clearly, the fuel to feed organized crime existed without prohibition. Given that fact, it's hard to say that those organizations wouldn't have grown bigger and more sophisticated during that period anyway (just like corporations did, for reasons that had nothing to do with prohibition).

The modern drug war was well underway in the 1970s (watch Donnie Brasco again). It just had not yet morphed into the crack epidemic (an epidemic whose roots lay partially in the skyrocketing cost of cocaine due to the war on drugs).

Exactly my point. Prohibition was definitely part of this country's long-standing war on "illegal substances".

Yeah, take a real close look at what led to our needing RICO (another non-sensical law): prohibition of alcohol and gambling. Without those two legal battles, the mob would have still been shaking down the corner grocer for a couple of bucks protection money (which our country's law enforcement should have been taking care of, instead of chasing down bootleggers and betting operations).

Watch Ken Burn's documentary on prohibition and soak in all the parallel's to today's war on drugs: http://www.pbs.org/kenburns/prohibition/

The trade-of here is individual liberty vs what we know the consequences will be from allowing truly anonymous exchange.

For all things in life: cui bono. Illegal operations (the vast majority of which are doing tremendous damage to society) stand to gain the most from anonymous money exchanges. So that's who end up using the service.

So even die hard libertarians who value personal freedom such as anonymity a great deal have to acknowledge that the real life consequences of exchanges like Liberty Reserve are a net negative to society. Leading to less bottom line Freedom compared to the current situation where society tries to make life difficult for gangsters and enterprises that harm us all.

Isn't cash more popular than Liberty Reserve and just as anonymous? (Albeit more cumbersome to transmit around the world.)

So isn't your argument also that cash encourages crime? And if so shouldn't it be abolished so that we can prevent activities that damage society?

Things aren't so clear cut. Laws have to draw boundaries around things all the time, even if the particular location of any particular boundary cannot be easily justified, the necessity of the boundary's existence most certainly can. In this case, we can regulate electronic transactions, but we can't regulate cash. Furthermore, it happens to be the case that when you allow electronic transactions willy-nilly bad things happen, and it's harder for those bad things to happen when cash is involved (Breaking Bad would have been completely different if Walter White had hid is money in Bitcoin). So, we regulate electronic transactions more than we do cash. It doesn't solve all the problems, but it does mitigate them.

>So even die hard libertarians who value personal freedom such as anonymity a great deal have to acknowledge that the real life consequences of exchanges like Liberty Reserve are a net negative to society.

I'm not sure I agree at all with this statement. Replace "liberty reserve" with Bitcoin and I certainly don't agree that it's a net negative to society.

Unless by "society" you mean the current status quo, in which case I'd agree but this changes the tone of your message significantly.

I think Bitcoin's extremely cool, and I think it will take off and increase in value, but it's not yet obvious if it will be a net positive or negative for the population as a whole.

> Illegal operations (the vast majority of which are doing tremendous damage to society) stand to gain the most from anonymous money exchanges.

If we ended the war on individual freedom that is the drug war it would eliminate the vast majority of these illegal operations and the "tremendous damage to society" they cause.

Crimes against facilitating human trafficking and terrorism disgust you?

We should ban trucks too, because people can be carried in trucks. And you're against human trafficking, right?

Nobody is banning money transfer, just regulating it.

And coming back to trucks, we do require trucks to be registered, drivers to have identification that can be checked by police officers and the ability for border police to examine your cargo when you cross an international border.

Money laundering is, indeed, as deluded of a new age crime as are most other nonviolent actions made into crimes under a heavily corporatist or domineering system. It's as deserving of punishment as is the harvest and trade of plants; or as is an entrepreneur who dares to create in a world where others, for a fee, can claim total national dominion over trade in prior intellectual "inventions" (patents: one of the most top-heavy, anti-small-business systems in US government); or as are the sexual actions of consenting people.

Societies that learn to solve problems -- what some people see as problems -- by using violence and the threat thereof (i.e. law) will, of course, be societies that have a propensity to engineer even the tritest of cultural aspects they want to change by using more violence.

The idea that the state has a right to know what I do with my money and can force me to give up my privacy just because the amount in question is 'large' is disgusting.

Wanting privacy shouldn't make you a criminal just because many criminals also happen to want to remain on the down low.

Further, the appeals of "oh, but drugs" or "oh, but human trafficking" or "oh, but child porn" and so on are empty.

They reflect an abject laziness from society and law enforcement: they want problems to be easy and they want to play lip service rather than solve them. They reflect the notions that it's 'good enough' for something to be done however ineffective and worthless it is.

Seems like Liberty Reserve just wasn't big enough to protect itself. If they had been bank sized they could just pay a few fines every now and then and continue to operate:

http://www.bbc.co.uk/news/business-18880269

Banks are also heavily regulated. Liberty Reserve was attempting to act like a bank without all the government regulations - which is highly illegal for several reasons, one of which just happened to be money laundering.

>[...]put things like "your share of the cashout," "for atm skimming," and "for the cocaine," into the memo field (where you'd put "Rent" on a check)

The memo field is not terribly relevant. I've jokingly written things very similar to these examples on real bank checks and never had a problem with someone else cashing or depositing them.

I went to the DPRK (North Korea) past summer. Beforehand we met with a guy who went there a year before. In the payment memo field for his trip he wrote something akin to 'Payment for North Korea'. The bank cancelled his wire transfer and nearly cancelled his account. In the end they only barred him from making other payments to that bank account number.

My guess is everything is monitored but red flags only go off when suspicious activity is frequent or serious enough.

"Money Laundering" is an oxymoron. The whole concept of money requires that one unit is an equal store of value no matter who possesses it or how it was obtained. Adding conditions on exchanging destroys independent/classless power by making the value of one's liquid assets dependent on their political connections.

FWIW this is something Bitcoin didn't bother to get right, and will be its downfall, starting as soon as brick and mortar businesses are required to register their wallet identities.

Liberty Reserve isn't the first competitor to USD that USG has shut down, and it won't be the last. It's unfortunate that when economics finally prevails against these goons, the market correction will probably cause the collapse of the USA.

Ah they now have an angle to go after bitcoin.

Difference is, there is no one behind bitcoin. No one to arrest. The only "real people" "behind" it are the Exchanges. However, they(usually) hold proper documentation for transactions and comply with the law fully.

> Difference is, there is no one behind bitcoin. No one to arrest. The only "real people" "behind" it are the Exchanges.

No, the real people behind it are the miners. You know, the people that create bitcoins and validate every bitcoin transaction?

Let them bust a few miners. More will take their place.

If miners are ever prosecuted, then that is a pretty big signal that the U.S. has completely lost its shit. Submitting the outputs of hash functions to a distribitued p2p network sounds like extremely basic free speech to me.

As a young person with no wife/kids and plenty of tech job prospects, I would probably start researching moving abroad.

That's a pretty new situation, and not nearly as certain as you make it sound.

Incidentally, Preet Bharara is also in charge of the Ross Ulbricht trial (the NYC one). So LR is wrapping up just in time to focus on SR.

Bitcoin makes money transfer easier to monitor. Why do they want to go after Bitcoin?

Dang, LR has been big in the underground communities forever. Bouncing money between international Paypal accounts and then through LR has always been the way I've heard of it being done. It will be interesting to see what follows it. Also curious if they will try to prosecute any of the LR users they are able to track down.

All you need is a bank, no detergent necessary.

Detergent is optional, but it sometimes helps.

https://www.schneier.com/blog/archives/2013/02/tide_becomes_...

go buy bitcoins ;-)

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