US makes Bitcoin exchange arrests
bbc.co.uk
bbc.co.uk
"Shrem email accounts reflect that "BTCKing" not only obtained his supply of Bitcoins through the Company, but did so with extensive support from SHREM. Even though SHREM quickly realized that "BTCKing" was reselling Bitcoins on Silk Road, which SHREM knew to be a marketplace for illicit drugs, SHREM went out of his way to facilitate "BTCKing's" business. Among other things, SHREM: permitted "BTCKing" to continue doing business with the Company, despite initially threatening to "ban" him based on his illegal activity; personally ensured that "BTCKing's" orders with the Company were filled everyday; gave "BTCKing" discounts based on his large order volume; sought to conceal "BTCKing's" activity from the Co-founder and the Cash Processor to prevent "BTCKing's" orders from being blocked; advised "BTCKing" how to evade the transaction limits imposed by the Company's own AML policy; let "BTCKing" conduct large transactions without ever verifying his identity, in violation of federal AML laws; and failed to file a single Suspicious Activity Report about "BTCKing," [sic] despite the obvious "red flags" raised by "BTCKing's" dealings with the Company."
If all that is alledged is true, that's pretty damning and this isn't just a general bitcoin crackdown.
"SHREM, who personally bought drugs on Silk Road, was fully aware that Silk Road was a drug-trafficking website, and through his communications with FAIELLA, SHREM also knew that FAIELLA was operating a Bitcoin exchange service for Silk Road users."
http://www.justice.gov/usao/nys/pressreleases/January14/Schr... (note the 14 Jan in URL and 27Jan release date; first draft Press release, then make arrests)
2014 January?
In my opinion, prosecutors like this are as despicable as many of the people they prosecute.
(The comment I replied to was edited heavily after I replied to it)
http://www.scribd.com/doc/202555785/United-States-vs-Charles...
It is however likely the IRS or FBI simply used a subpoena to get their information through a court and a judge, which is entirely in accordance with the law.
So while its most likely that this went through a subpoena, it's absolutely not conspiratorial to suggest NSA involvement.
It doesn't seem that the NSA accepts anyone else's "authority". No authorized != doesn't happen. They can and do share information about regular crimes. See: "parallel construction". They provide this info secretly to local police so that they can create a clean chain of evidence without implicating the NSA.
To quote: "In a Florida drug case he was handling, the prosecutor said, a DEA agent told him the investigation of a U.S. citizen began with a tip from an informant. When the prosecutor pressed for more information, he said, a DEA supervisor intervened and revealed that the tip had actually come through the SOD and from an NSA intercept."
Admittedly you only specified the IRS and FBI so perhaps you intentionally left out the DEA.
I have an article here that claims 2700+ incidents from 2011 to 2012. One of which affected 3,000 Americans: "The most serious incidents included a violation of a court order and unauthorized use of data about more than 3,000 Americans and green-card holders. "[0] This is only an internal audit - the only cases I have read about are where this information is volunteered by the perpetrators or investigated after a suspicious victim, that knows about potential NSA involvement has come forward.
[0]http://www.washingtonpost.com/world/national-security/nsa-br...
If the NSA were authorised in another case or acquire the data unintentionally and happen upon incriminating evidence, they feel they are authorised to tip off the FBI - this is where parallel construction comes in.
Here's evidence that the IRS has received database information through SOD and the NSA, they have a manual for it:
http://www.reuters.com/article/2013/08/07/us-dea-irs-idUSBRE...
That's how "parallel construction" works.
The ???btc@safe-mail.net patterned addresses came from the 'cash processor'.
This could easily be the open move in a general crackdown, a sympathetic test case to establish that operating a bitcoin exchange == money laundering, with broader applications of that precedent to follow.
If this was a test case of that principle, you'd think it would allege "operating a bitcoin exchange" as the basis of the money laundering prosecution, rather than a whole bunch of things that would be money laundering if you replaced bitcoins with anything else, including US dollars.
After all, if there is no unique principle asserted in the case, it can't establish precedent for any new principle. And all that is being alleged here is bog-standard money laundering by actively, intentionally structuring transactions to avoid $ limits and obscure account identities to avoid transactions being identified as violating anti-money-laundering policies, with knowledge that this was being done to further illegal transactions, particularly, narcotics purchases.
The only principle this stands for is "money laundering is still money laundering when bitcoins are used in the process."
https://bitcointalk.org/index.php?topic=128314.7380 .
There is also a pending lawsuit against Bitinstant itself awaiting class action certification, essentially alleging the cherry picking of transactions in order to maximize profits and eliminate market risk for them.
http://www.scribd.com/doc/160406193/Bitinstant-Class-Action-...
This case sheds new light on the reasons that they were unable/unwilling to deliver Bitcoins that they took money for. Charlie may have privately sold all of the Bitcoins in Bitinstant's possession at various times to this individual rather than deliver orders to normal customers in a timely manner. It would also be interesting to know whether the Winlklevoss twins - investors in Bitinstant and major Bitcoin holders - ever loaned Bitcoins to Bitinstant that ultimately wound up in the drug dealer's hands.
“We were passive investors in BitInstant and will do everything we can to help law enforcement officials. We fully support any and all governmental efforts to ensure that money laundering requirements are enforced, and look forward to clearer regulation being implemented on the purchase and sale of Bitcoins.”
http://dealbook.nytimes.com/2014/01/27/two-executives-of-bit...
We don't know all the details of this case but I guess we can all agree that if justice is to be done, and more importantly perhaps, seen to be done, nobody should be given preferential treatment. This means bankers should be sent to prison instead of being allowed to buy their way out:
"HSBC's $1.9 billion agreement with the U.S. to resolve charges it enabled Latin American drug cartels to launder billions of dollars was approved by a federal judge."
http://www.bloomberg.com/news/2013-07-02/hsbc-judge-approves...
You've seen poor reports, then; specifically, you haven't seen either the actual Justice department press release or the criminal complain, both of which have been both linked and excerpted in this thread.
> No other activity related to money laundering is being reported.
Actually, the money laundering activity being reported is the official of the exchange responsible for AML compliance advising a user who -- by that officials own description -- he had reason to suspect was engaging in criminal activity on how to structure transactions to avoid anti-money-laundering flagging, and that user actually so structuring transactions.
Selling bitcoins wasn't money laundering -- it was the basis of the separate charge of operating an unlicensed money transmission business.
If a licensed exchange even suspects illicit activity, it must report it. Using financial transactions such as these in order to obfuscate and conceal illegal activity is money laundering.
In this case, the guy whose job it was to report the activity as Chief Compliance Officer was materially involved in the illicit activity itself. According to the complaint, he was even a SR drug customer, so there's no way he can feign ignorance as to what was going on at SR.
Oh, and since when does selling BTC anywhere, including Silk Road, constitute a crime? It's what you buy with BTC, or any other currency, that is the crime.
The large companies obviously know how to avoid accountability by eliminating, or never creating paper trails.
Oh, and since when does selling BTC anywhere, including Silk Road, constitute a crime?
The article says money laundering, so there's probably more to it than that. Eterm's review seems to support that.
The large companies know how to avoid accountability by paying off powerful politicians.
The typical bitcoin "fuck the Man he can't catch me!" attitude is the precise opposite of the attitude that HSBC et al. have adopted, which is one of ingratiating compliance.
And then it didn't get fixed, which is why they had to pay two billion dollars.
Edit: The movie quote part of a longer email excerpted extensively in the Congressional report. It's so amazing that I think I'll just copy/paste the whole excerpt.
A number of items jump out from your most recently weekly report (02JUL-06JUL) but everything pales in comparison with the ML items on page 4.
It looks like the business is still retaining unacceptable risks and the AML committee is going along after some initial hemming and hawing. I am quite concerned that the committee is not functioning properly. Alarmed, even. I am close to picking up the phone to your CEO.
[Redacted by HSBC] looks like another [Unimed306] type of situation – what on earth is an ‘assumption responsibility letter’ and how would it protect the bank if the client is a money launderer?
Please note that you can dress up the USD10 million to be paid … to the US authorities as an ‘economic penalty’ if you wish but a fine is a fine is a fine, and a hefty one at that. What is this, the School of Low Expectations Banking? (“We didn’t go to jail! We merely signed a settlement with the Feds for $ 10 million!”) …
So, [Unimed307] is strike one. [Redacted by HSBC] is strike two. Let’s now look at strike three. (I hope you like baseball.)
The same person who is giving the sancrosanct ‘assumption responsibility letter’ for [Redacted by HSBC] … is being asked by the CEO to explain why he retained the [Casa De Cambio Puebla308] relationship after USC11 million was seized by the authority in [Puebla309] account with Wachovia in Miami. What?! The business was okay with this?
The AML Committee just can’t keep rubber-stamping unacceptable risks merely because someone on the business side writes a nice letter. It needs to take a firmer stand. It needs some cojones. We have seen this movie before, and it ends badly.”
7/17/2007 email from HSBC John Root to HBMX Ramon Garcia, with copies to Susan Wright, David Bagley, and Warren Leaming, “Weekly Compliance Report 02JUL-06JUL07,” HSBC OCC 8875925-927.
I'm not saying this to point out a huge injustice, it's just very curious.
http://www.cnn.com/2014/01/06/opinion/calabria-gilbert-too-b...
Holder responded by saying he was not talking about HSBC in particular but that, "I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy."
From Holder's statements, it appears that the government was so worried about the dangerous repercussions that could result from prosecuting such a large, complex and globally significant institution that it shielded HSBC from criminal liability.
Oh, so you can speak for the real thoughts on Eric Holder's mind? Really? At the very least you should clarify that you're speculating wildly.
"On a bank of servers"? Surely you meant to say "in the Cloud"?
What is this, 1999? ;-)
The government could prosecute the low and mid level employees who were the "hitmen". I personally think they should, but there's a bipartisan consensus not to. Some because it would be an indirect attack on the banks (job creators) and others because they see the low and mid level guys as victims rather than co-conspirators.
pretending to comply, a facade of compliance, Potemkin compliance? Somewhere within HSBC, Wachovia, etc. are decision makers with actual authority, who are responsible for ignoring the advice of the respective compliance departments.
Unfortunately it doesn't seem that it was a lack of a paper trail that kept the principals of HSBC out of orange pajamas. But rather an apparent perception on the part of the government that they were essentially beholden to HSBC for the sake of, well, it's hard to say precisely (but you can chose whether you want to take the AG's concern about "jobs" at face value or not):
In December 2012, Assistant U.S. Attorney General Lanny
Breuer suggested that the U.S. government might resist
criminal prosecution of HSBC which could lead to the loss
of the bank's U.S. charter. He stated, "Our goal here
is not to bring HSBC down, it's not to cause a systemic
effect on the economy, it's not for people to lose
thousands of jobs."
See also: http://www.theguardian.com/business/2013/may/30/treasury-dep...
Since September 23, 1994, when they passed the Money Laundering Suppression Act.
http://www.law.cornell.edu/usc-cgi/get_external.cgi?type=pub...
See Title 18 Section 1960:
http://www.law.cornell.edu/uscode/text/18/1960
(a) Whoever knowingly conducts, controls, manages, supervises, directs, or owns all or part of an unlicensed money transmitting business, shall be fined in accordance with this title or imprisoned not more than 5 years, or both.
There are three prongs which can get you classified as an unlicensed MSB, and they are evaluated with an OR gate not an AND gate. The slam-dunk one is:
[You are an unlicensed MSB if you] fail[] to comply with the money transmitting business registration requirements under section 5330 of title 31, United States Code, or regulations prescribed under such section;
Lets see if buying Bitcoins and reselling them to effect money movements qualifies:
(1) Money transmitting business.— The term “money transmitting business” means any business other than the United States Postal Service which— (A) provides check cashing, currency exchange, or money transmitting or remittance services, or issues or redeems money orders, travelers’ checks, and other similar instruments or any other person who engages as a business in the transmission of funds, including any person who engages as a business in an informal money transfer system or any network of people who engage as a business in facilitating the transfer of money domestically or internationally outside of the conventional financial institutions system
Well, yep, that is exactly what this guy's business is.
This is why the affadavit says "I checked with FinCEN. Nobody with that name is now or was ever registered with them." This makes an absolutely airtight, slam-dunk case for a federal felony.
Can I again recommend to HN that if someone against posts a blog saying "Hey it's really easy to make money by straw-purchasing coins on Coinbase for buyers from LocalBitcoins" that you really, really think twice about doing that?
Regardless, I can point you to further information on money laundering. Here is a recent article:
http://www.wired.co.uk/news/archive/2013-10/21/money-launder...
There is a link at the bottom to a PDF that provides a good overview. Suffice it to say, money laundering is a very real problem.
Imagine if these laws weren't there, how money laundering would go.
A criminal would make some money, and just go to his local unregulated/unmonitored cash exchange to wire the money to a swiss bank account. Since there's no monitoring or regulation, no IRS or FBI would ever know it.
Maybe it's a coincidence, but the US economy seemed a hell of a lot stronger back when money was easier to move.
If you're OK with giving up your liberty to exchange money in order to catch criminals, why not bring make every industry an equal maze of strict, complex laws?
Of course, your economy would pay a high price, since the existing companies in those industries would grow even more massive, and start-ups would be virtually barred from entry. Would it be worth it?
But the question is to what extent it is fair to restrict the freedom of innocent people in order to prevent bad buys from committing crimes.
Wouldn't that definition mean that every single bitcoin user is in violation of the act?
http://www.fincen.gov/financial_institutions/msb/definitions...
No activity threshold applies to the definition of money transmitter. Thus, a person who engages as a business in the transfer of funds is an MSB as a money transmitter, regardless of the amount of money transmission activity.
Maybe, but operating an unlicensed money transmission business is also an illegal activity, and is specifically one of the illegal activities alleged to be furthered by the money laundering conspiracy.
I think the lack of perp walks for HSBC can easily be explained as simple incompetence, not corruption (though you never know, of course...)
In this case, the topic is BTCKing et al, and this post I am responding to is a "What about HSBC".
The "you are hypocrite" fallacy only applies when it is in the form of "you are a hypocrite, therefore what you are saying is false".
Let's further say that a wealthy businessman killed 1,000 people to harvest and sell their organs. And his punishment is a fine equal to 2% of the profits earned that way.
In that situation:
- Yes, you would be correct to say that the organ harvester guy's actions do not absolve me of responsibility for putting people at risk.
- OTOH, it would be a perfectly valid question to ask why I'm facing such a stiffer penalty for a significantly less harmful act than someone else.
No, it really isn't. Your crime stands alone, that someone else may have gotten away with something has no bearing on your case unless that other case established some legal precedent, which it didn't. Another crime doesn't excuse yours.
http://www.bbc.co.uk/news/business-25861717
They're now claiming this was a "policy change".
http://dealbook.nytimes.com/2014/01/26/hsbc-apologizes-after...
And I don't even do business with them! (I do see how tightly integrated the global finance industry is ;)
Law of large numbers says that most people don't need their deposits most of the time.
Lender of last resort (a/k/a central banking) says that a bank can always get more cash if it needs to, though it may risk insolvency. The depositors aren't at risk (subject to limits of deposit insurance, for private depositors, and yes, commercial depositors may, IIUC, be SOL, but businesses don't tend to stockpile cash reserves as people do).
One interpretation of HSBC's actions is that its reserves are falling and it needs to do what it can to shore up its balance sheets by preventing withdrawals. Again: ordinary private depositors should have limited concerns. It'll be interesting to see what develops over the next few weeks. Possibly months.
A bank investing money from demand deposits into 30-year bonds is what causes this, but fractional reserve banking does not necessitate this practice.
Full reserve banking means banks just hold your money, and don't invest it in anything, which would mean you'd have to pay them to store your money.
If someone at HSBC had investigated what was going on, found out it was drug related, and then actively encouraged them to continue then they would probably be facing criminal charges too.
Remember he didn't just turn a blind eye, he helped out.
Shrem, at least, wasn't charged with "selling BTC" but for violating this thing known as the Bank Secrecy Act.
As it says in, you know, the article that was linked to.
Any money-trading entity needs to keep track of who money is coming from and going to and to monitor their transactions. The recent billion-dollar HSBC settlement is an example of a failure to properly monitor transactions, it is not clear that there was any criminal conspiracy involved [1]. That's very different from this BitInstant charge: the operators are accused of knowing that one of their customers was reselling hundreds of thousands of dollars worth of BitCoin on SilkRoad where the transaction was anonymous, which means it can be used to launder money. Worse still, they're accused of helping this guy circumvent their own monitoring systems so that they weren't obliged to report him. This is serious stuff.
[1] The criminal charges from that case were dropped as part of a settlement, but that's an entirely separate contoversy. Failure to correctly charge possible criminals in once case does not make it ok in another.
Money laundering laws are almost never used to track down under the table payments to corrupt politicians or business leaders, as you seem to imply. It's always linked to the drug trade, or occasionally "terrorism" (which may or may not involve actual terrorists).
Do you really think it's a good idea to criminalize non-violent, victimless drug use? If so, then we'll agree to disagree.
It not, then I suggest you look into the history of money laundering laws and how they are applied. They're not doing what you seem to think they're doing.
organized crime? human trafficking? [..]
In the case of human trafficking, or murder/assault by organized crime, the answer is pretty clear, at least to me. You charge and convict them of crimes like murder and kidnapping, crimes which have been part of our criminal code for centuries.
I'm sorry, this is just ridiculous.
Recently crime syndicates have started to develop malware and card skimmers. The drug trade is a portion of organized crime.
I find it interesting that all the areas that you mention are sources of revenue for organized crime are either illegal or restricted activities.
* Gambling: illegal many places.
* Prostitution: illegal many places.
* Human trafficking: heavy regulation on immigration (if the trafficked women were to go to the authorities to report it, they'd be transported back to their country of origin)
* Loan sharking: illegal many places (a ceiling is put on the interest rate one can legally charge)
Imagine if we didn't criminalize the above, and allowed free immigration: would there be anything left for organized crime to make money on?
As well as other form of crime - prostitution and human trafficking, gun running, identity and credit card theft and other "cybercrimes," and "legal" debt slavery.
But, other things are criminal already, and just because an ability to monitor financial transactions makes some forms of crime more difficult, does not by itself make it a good idea. Surely if domestic law enforcement had the same powers that NSA has would make a lot of crime harder, and allow police to catch thousands of real criminals -- but, would it be a good idea?
Citation needed. I'm sorry, I cannot believe without a lot of proof that human trafficking and drugs are so intimately related that the latter would not exist without the former.
The whole point I was trying to make is that drug related crimes happen because drugs are illegal. You apparently don't have a point, but are looking to nitpick your way through any statement I make. This is tiresome, so this is my last response. Feel free to sneak in a last word, but I do not feel like continuing this conversation. I am writing the following for the sake of clarity; not that anyone will read it.
My argument is that drug use is a victimless crime and the justifications for keeping drugs illegal are flimsy--essentially non-existent. One can use drugs responsibly, or fail to; one can use alcohol responsibly, or fail to. One can consume cigarettes responsibly, or fail to; one can set off fireworks responsibly, or fail to.
It is totally unjustified why drugs are illegal--"they fund organized crime and human trafficking" which is the argument put forth above, is circular reasoning. If drugs weren't illegal, they wouldn't fund such things to any extent, because drug users could obtain drugs without shady internet sites or on-the-street deals. This is not a reasonable justification.
The claim, just to reiterate, is that drug use, in and of itself, is victimless. It harms nobody but the user; the user can take on that risk if they so choose, just as those who drive, or go rock climbing, or ski, or fly, accept the risks of those activities. The argument to the contrary that I am saying is fallacious is that drug use, in and of itself, generates organized crime and human trafficking. It does not. It is only the fact that one cannot sell such drugs legally that generates these crimes.
And the counterpoint is that cigarette smuggling is a drug-related crime for a drug that's entirely legal.
In any situation where you prevent consenting adults from voluntarily entering into an agreement, you will create a black market.
This includes the thousands of people who are beheaded each year by the Mexican/Colombian cartels, which, if you look at it this way, can be blamed on the US government's 'criminalization of victimless drug use'. The US government's policy might be stupid - but the cartels are also evil, and we should do as much as possible to try to curb these kinds of atrocities.
Look the drug war is terrible, drugs should de-criminalized and treated like a health problem as they are in Europe. However, you can recognize this while recognizing that the people who traffic drugs tend to be engaged in some pretty reprehensible behavior, and money laundering is one of those things (along with human trafficking and gang violence.)
However, I strongly disagree with you that money laundering belongs in that group. I mean, if we're going to arbitrarily criminalize an activity that cartels and gangs engage in, why not criminalize their mobile phone usage? It's actively used in their criminal endeavors.
And yes, I agree with you that most of these horrible groups and events are a side effect of the war on drug. Without all the power that drug money brings them (which results from the fact that drugs are illegal), they would just be local bullies and psychopaths -- the kind that local police forces can deal with. But because of money that results from the war on drugs, these groups have accumulated trans-national power to the extent that the build their own submarines.
Study the history of the prohibition and the mafia power that grew from prohibition..
Why should it not be blamed on the criminalization of victimless drug use? Where would the cartels get the immense capital with which to terrorize whole provinces and take on state actors, if not for those highly lucrative drugs - their profitably grossly inflated by their illegality? If our societies would stop burying their heads in the sand over the issue of drugs and the immense demand for them (which remains remarkably static no matter how many billions are spent on 'war' against them), the cartels wouldn't have much left to fight over.
But too often I see people using the stupidity of US drug policy as an excuse for all sorts of morally reprehensible deeds. Case in point: when asked, Ross Ulbricht trotted out all sorts of high-minded rhetoric about freedom and libertarianism and the gross injustice of prohibition, but in private he was ordering hits on his own users, and as far as he knew and was concerned, the murders were carried out successfully. Is that in the spirit of libertarian ideology? Is that about protesting US drug policy or is it just Ullbricht's greed?
People will go through all sorts of mental gymnastics in order to rationalize their personal appetites. In the end the consumers of drugs have to know that they are buying from people who either engage in violence themselves or work for someone who does, and because they are participating in this marketplace they are in some way partially responsible for the violence that occurs because of it. It may be unrealistic to think that they will realize that - but we should not relax our personal criticism of them just because its convenient for our political position.
The Ross Ulbricht case doesn't really help. Ordering hits is morally wrong whatever the context, so that doesn't help in figuring out whether his other actions were wrong.
over half are not about drugs.
The US also puts a lot of effort into freezing assets of people violating human rights.
Your claim made me curious. According to the American Banker's Association, the Bank Secrecy Act was motivated by fears over foreign bank schemes and crime (specifically, the ABA mentions white collar crime). The law also sought to correct practical problems, such as grocery stores failing to photocopy checks. I think this undermines your main point about drugs, along with the fact that the "war on drugs" started after the BSA was passed in 1970.
http://www.aba.com/Compliance/Documents/07cbe87f05f94aa8b84f...
http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001....
http://cointext.com/fincen-issues-bitcoin-friendly-ruling-fo...
That said, for financial regulation purposes, bitcoin is considered a virtual currency, which from the descriptions that apply to it seems to mean mostly not like a currency, though what exchanges that trade it for actual currencies do generally subjects them to regulation around what they are doing with the actual currency for which they exchange it.
I thought it was less of a lack of understanding and more of an incredulity at the injustice and inequality of the system.
> Worse still, they're accused of helping this guy circumvent their own monitoring systems so that they weren't obliged to report him. This is serious stuff.
And billions of dollars of drug and terrorist money just happened to flow through HSBC.... unknowingly?
> but that's an entirely separate contoversy
No, it's exactly the same controversy. HSBC pays, no one goes to jail, the process repeats itself, and justice isn't served.
Or are you both parroting someone else?
Or am I witnessing the Infinite Monkey Theorem in action? https://en.wikipedia.org/wiki/Infinite_monkey_theorem
EDIT: They're parroting the GP by jahewson https://news.ycombinator.com/item?id=7132006
1. The argument can apply to absolutely any other aspect of life - if it's useful, criminals can use it, so the government should have tight control on it. For example, criminal enterprises are much easier to conduct if you can move around on the roads freely. We can not have that, ergo we have to institute regular routine checkpoints where you have to routinely prove to the law enforcement officers you are going around on legitimate business and they should keep the database of all your movements and require all road operators to report all your movement to the government movement tracking center, in case you later prove to be a criminal. Etc., etc.
2. You can not have both money laundering laws and bitcoin (or any non-governmental money system) as it is now. If you keep the former, the government will either subjugate or shut down the latter. Either bitcoin loses virtually all its anonymity and distributed control features and allows the government to control it the same way it controls regular money, with same regulations and roadblocks, or mere touching bitcoin or related technologies will become a crime. You can see how it works with drugs - anything that can be classified as related to drugs or precursor to drugs or can be used in relation to anything to do with drugs is outlawed. Bitcoin will inevitably follow one of these roads - or maybe both.
On your second point: Money laundering laws and bitcoin are compatible. You just have to make sure you comply with the laws when you run a business using bitcoin. Bitcoin is already only pseudonymous at best, and it practice it will be quite easy to eliminate anonymity; and distributed control features are not necessary to prosecute those who use bitcoin for money laundering, as the article under discussion clearly shows.
[0] In case it isn't obvious: money leads to power, and society needs to keep power in check. Therefore, society needs to keep (large flows of) money in check.
2. I never said money laundering laws and bitcoin are incompatible. What I said is the properties of bitcoin which make it attractive now as money (as opposed to speculative commodity, for example) - i.e. independence from government, anonymity, etc. - are incompatible with those laws and with the motivations that lie behind those laws. Just as we discovered that secure communications are incompatible with government's need for surveillance, and the secure communications lost.
That test is: Is owning/dealing in large amounts of $FOO specifically relevant for having power?
Three examples that lie on different points of the spectrum:
Criminals can eat hamburgers. Should hamburgers be tightly controlled? Ask yourself: Is owning/dealing in large amounts of hamburgers specifically relevant for having power?
Criminals drive cars. Should cars be tightly controlled? Ask yourself: Do large amounts of cars lead to power?
Criminals use guns. Should guns be tightly controlled? Ask yourself: Do large amounts of guns lead to power?
And so on...
>>> Is owning/dealing in large amounts of hamburgers specifically relevant for having power?
Sure, if you control hamburger market for a large city, you would have lots of power. See also agricultural lobby - they produce a lot of food and have a lot of power because they produce food.
>>> Do large amounts of cars lead to power?
Definitely. Having large amount of cars, you could cause traffic jams anytime and cause immense economic harm. Or you could deliver stuff really quickly and earn billions of dollars and buy a dozen of congressmen with these billions, gaining a lot of power.
Having a real lot of basically anything could give you power. And note that government controls even minute amounts of money which give you no power whatsoever - low boundary for reporting requirements if a puny $10K, which wouldn't even buy you a decent car.
>>> To say that the government can and should regulate cash transfers of over a certain amount (say $10,000) but not smaller transfers, is perfectly reasonable.
Because 10000 is a magic number which creates entirely different situation, right? Or because you think government can actually regulate any transfer, even for $0.01, but for practical reasons actually bothers only with large ones? There's absolutely no difference between $5000+$5000 and $10000 in any aspect that may relate to legitimacy of government regulation. If the difference is practical - that means you'd accept any number that seems practical, i.e. if the government tells you $1 is practical now, you'd support the bound of $1. Or you have to explain where the number comes from and why it's different from others so that it is legit to regulate it but not lesser ones.
One commenter argued that the bound is power, but no one in his sane mind can argue $10K gives one any power except the power to buy a crappy car or a decent vacation.
edit: Also, of course, whether or not you agree with the argument strongly depends on the values you place on crime and freedom.
I don't think 99.999% of people that are arguing this ever seen any statistics about it, let alone can explain how exactly they know how much reduction in crime justifies how much loss in freedom. I think it's just thing people say because they read somewhere that it is something you say when those pesky libertarians ask you why our freedoms are being eroded. "Oh, it's justified by reduction in crime and safety of the children, go away!" - and presto, they go away.
A claim made without proof or any supporting arguments.
What the article doesn't make clear is that the charge isn't for just selling BTC to Silk Road users. The charge is that Faiella purposefully targeted Silk Road users, sold them BTC at a markup, and Shrem coordinated with him to bypass BitInstant's anti-money laundering mechanisms and deliver the actual Bitcoin.
US Attorney for the Southern District of New York, Preet Bharara, who filed the charges: "truly innovative business models don’t need to resort to old-fashioned lawbreaking, and when Bitcoins, like any traditional currency, are laundered and used to fuel criminal activity, law enforcement has no choice but to act" [1].
This is different from HSBC's case because while HSBC was negligent in implementing proper anti-money laundering procedures Shrem was actively aiding his clients in their money laundering. That has not been proven in the case of any of HSBC's U.S. executives, at least so far.
[1] http://www.ft.com/intl/cms/s/0/a994436a-8770-11e3-9c5c-00144...
This is ridiculous! Please tell me how selling Bitcoin to someone is illegal? What that person does with the Bitcoin they acquire not the responsibility of the exchange. This smells like another case of gvt scare tactics to protect the bankers and their out-dated & thieving business models. Anyone remember liberty exchange ?
Does that answer your question? It's far from ridiculous.
You know that it's illegal for actual banks to assist in money laundering right?
Money has to pass through specific channels and be exposed to specific checks to be wired from country to country (in some countries even from person to person after a certain amount).
Else you're liable to be caught for assisting in money laundering.
So, yes, if you help people to move money, you can be held liable for what they're doing with it.
You know that when a bank does it though, nobody gets arrested right? They just get a small fine that is a fraction of their net profit from their illegal activities. When someone with Bitcoin is accused of money laundering, everyone involved is arrested and every asset they have is immediately frozen. It's a tremendous double standard.
http://www.rollingstone.com/politics/blogs/taibblog/outrageo...
It's not really a double standard, though. It only appears that way if you believe our society to be founded upon the foundations of justice and law. If you believe it is founded upon the premise that the powerful cannot be wrong, it makes perfect sense.
You know that it depends, right? With some heavy big banks nobody gets arrested, with others, and especially smaller ones, people go to jail. Also the US isn't the only country with such laws -- people have gone to jail in other countries.
And a terrible legal argument.
That is to say: 'You know that one of the times a bank did this, nobody got arrested right? ...'
You can hardly generalise from the one exceptional case recently involving HSBC to the conclusion that all banks everywhere always get away with money laundering.
Guess how Wachovia got out of criminal charges? They settled!
The e-mails are bad.
http://en.wikipedia.org/wiki/Accessory_(legal_term)
If you ask me to front up some money for you to buy some drugs, I'm an accessory to your drug transaction. Similarly, if I sell you some Bitcoins and I know that you're going to go and buy drugs with them...well, you get the idea.
If they specifically sought out the users or owners of the Silk Road and told them they could convert their bitcoin to dollars anonymously, than thats a little different than if they were just operating a regular exchange that regular investors use.
Obviously, all transactions cannot be held to the same standards of diligence. e.g. How can a bureau de change at an airport be expected to know that it is accepting a £5 note from a pickpocket?
However some transactions are expected to attract a degree of diligence, either based on magnitude or some other circumstance.
It is clear that they appear to have been attempting to sell a large sum of bitcoins to people who are at least on the grey side of the law. In such a situation, one might expect that a quantity of the money they receive from the transaction might be dirty.
Whether the defendants are guilty of (attempted) money laundering is for a jury to decide.
Should the U.S. decide to "start a war" against bitcoin just like they did with Poker, we'd end up in the same situation: servers outsides of the U.S., not using .com domain names, without the reach of the U.S.
I'm pretty sure that any Bitcoin exchanges outside the U.S. (like MtGox, BTC-E, Bitstamp... which are the three biggest ones) and their employees are shielded from U.S. laws. If they can't extrade Snowden out of Russia, I don't see how the U.S. could reach the BTC-E russian Bitcoin exchange.
The U.S. have been unable to stop online poker worldwide. Should they try to stop bitcoin worldwide, they'd fail too.
Now that said I don't think the U.S. government is going to ban bitcoin or to go on a crusade against bitcoin. At least I hope not.
The major charges against Pokerstars were bank fraud and money laundering. If those crimes occur in the US, the DOJ does not care where you are based.
I personally wouldn't put it past the US government targeting honest bitcoin exchanges but that doesn't seem like the case here
How? Are you saying that BTC exchanges necessarily fail to comply with money laundering laws in the way the offenders here are accused of? They weren't charged with money laundering for selling bitcoins, they were charged with money laundering for doing things that would have been money laundering if they were done with dollars, euros, or anything else.
No, but
a) a lot don't,
b) all are way smaller than banks, much less cautious with accounting practices and with much reduced legal representation (lawyers) and political pressure.
> No, but
> a) a lot don't,
Well, yeah, I would a assume a lot don't fail to comply the way that occurred here (that is, a lot don't have their official responsible for AML compliance actively conspiring with money launderers to enable violations of the exchange's own AML policy and to conceal those violations from both the government, other officials of the exchange, and business partners of the exchange.)
That's rather my point.
"SHREM, who personally bought drugs on Silk Road, was fully aware that Silk Road was a drug-trafficking website, and through his communications with FAIELLA, SHREM also knew that FAIELLA was operating a Bitcoin exchange service for Silk Road users. Nevertheless, SHREM knowingly facilitated FAIELLA’s business with the Company in order to maintain FAIELLA’s business as a lucrative source of Company revenue. SHREM knowingly allowed FAIELLA to use the Company’s services to buy Bitcoins for his Silk Road customers; personally processed FAIELLA’s orders; gave FAIELLA discounts on his high-volume transactions; failed to file a single suspicious activity report with the United States Treasury Department about FAIELLA’s illicit activity, as he was otherwise required to do in his role as the Company’s Compliance Officer; and deliberately helped FAIELLA circumvent the Company’s AML restrictions, even though it was SHREM’s job to enforce them and even though the Company had registered with the Treasury Department as a money services business."
http://www.businessinsider.com/report-ceo-of-major-bitcoin-e...
Anyway, the market doesn't appear to be crashing, yet.
Most bitcoin exchanges require proof of identity, proof of residency, only accept wire transfer coming from the same identity as the owner of the account, etc. I wouldn't be surprised if they were soon to add a token sent by snailmail to the address given (like Poker sites in Europe do).
Transaction of fiat to/from Bitcoin exchanges are basically one of the easiest thing to track.
Many honest people are using Bitcoin exchanges and doing legitimate trading. Some may be doing "money laundering" just as criminals are using $100 and 500 EUR bills and are using highways. Most people using highways and bills are still honest people...
This entire "Bitcoin is only about money laundering / selling cocaine" is getting a bit old (but maybe I misunderstood your message).
I don't think VCs (and now business angels) would all be investing in Bitcoin / cryptocurrencies startups if they thought it was mostly money laundering.
This is a big hit to the credibility of Bitcoin in the near to midterm future.
It sure seems that way, doesn't it? If I had significant amounts of bitcoin, it would freak me out. But, I think we're seeing selection bias here. The fact that I believe that the government will eventually shut the operation down, as they did e-gold, is a big part of why I don't have any bitcoin.
But the thing is, the current bitcoin price, something like $970 as of now (Monday, 11:54 AM PST) would indicate that "the market" (that is, the people who own and are thus in a position to sell bitcoin) doesn't think this is such a huge deal.
This might be one of those places where the difficulty of shorting bitcoin is propping up the price. I don't know if I would /short/ bitcoin right now, but if it were possible, I would probably blow a couple grand on put options if I could do so in a reasonable way.
Bitcoin isn't an "operation" that a government can 'shut down.' It may yet fail by some measure but not directly by government edict.
>I would probably blow a couple grand on put options if I could do so in a reasonable way.
Easy peasy. Bitfinex features margin trading. Good luck. https://www.bitfinex.com/pages/howitworks
My belief is that bitcoin will slowly become less legally convenient, through actions like the story above.
The government can't just shut down bitcoin like they did e-gold, sure, but the government can put in legal barriers to transferring bitcoin. if it becomes defacto illegal to transfer bitcoin? Yes, they haven't "shut down" bitcoin, but for me, they've made it worth zero dollars.
>Easy peasy. Bitfinex features margin trading. Good luck. https://www.bitfinex.com/pages/howitworks
Yeah, that lets me short bitcoin. the difference between a short and a put is that with a put, I'm only risking what I've paid for the put, and the put expires after a certain period of time. Put options become more expensive the further out you want that expiration date (and more expensive as the security in question is perceived to be more volatile, so it's very likely that put options on bitcoins would be very expensive. But they don't have the unlimited liability of a short.)
The fact that I'd be willing to buy put options but I'm not willing to short bitcoin tells you that while I believe it is likely that bitcoin is going to fail, I'm not anywhere near certain.
If this is all as presented, this is good for bitcoin. The fact that a criminal has been caught is good. The fact that they were using bitcoin to commit their crime makes it doubly good they were arrested as it reflects badly on the community.
Exactly.
> If this is all as presented, this is good for bitcoin.
Perhaps, but to the extent that the value of bitcoin is supported by people buying it based on (a) the perception that they can use it in can't-get-caught criminal schemes, or (b) the perception that other people will buy it for that reason, then events like this (and them being reported widely in the media) are bad for bitcoin (value).
It's good for mainstream adoption if it is perceived as cleaning the criminals out of the ecosystem more than as a sign that the ecosystem is infested with criminals.
I would rather such people left the Bitcoin community. IMHO that would increase the value of bitcoin, even if it means a dip in the price.
(To be clear, I'm not "rooting" for the government to find it that way... I'm just trying to look clearly at the situation and not conflate desires with reality.)
Nothing in the complaint here does that in any way more than the government previously has -- the money being laundered here as US dollars, and the transaction limits that people are accused of structuring transactions to avoid are all US dollar limits on the currency being deposited to purchase bitcoins.
The indictment in HSBC is full of stuff like "HSBC ignored government recommendations that Mexico be treated as a high-risk area instead of a medium-risk area..." This indictment has deliberate, knowing activity on the part of Shrem that, as the e-mails indicate, even he thinks is illegal.
'In some of the documents, prosecutors allege that HSBC intentionally flouted the law. The bank created an operation that was a "systemically flawed sham paper-product designed solely to make it appear that the Bank has complied" with the Bank Secrecy Act and is able to detect money laundering, wrote William J. Ihlenfeld II, U.S. Attorney for the Northern District of West Virginia, in a draft of a 2010 letter addressed to Justice Department officials.'
'In one email exchange submitted as evidence in that case, employees debated whether the bank should help a Miami client get around U.S. sanctions by moving the client's business to HSBC's Hong Kong office. "I believe that the best outcome would be for the customer to open a relationship with Hong Kong just for leters (sic) of credit purposes. He travels there all the time," private banker Antonio Suarez wrote in a 2008 email. Suarez has since left the bank and couldn't be reached for comment.'
http://mobile.reuters.com/article/idUSBRE8420FX20120503?irpc...
From the indictment: "Shrem email accounts reflect that 'BTCKing' not only obtained his supply of Bitcoins through the Company, but did so with extensive support from SHREM."
If the DOJ had an e-mail trail of anyone important at HSBC giving personal technical support to a drug cartel, the outcome would have been very different. Remember, "allegations" are just that, and there is a gap between what the prosecutors might allege and what they can prove in court. The proof in this case is a slam dunk. It combines explicit support for BTCKing with explicit knowledge of his illegal activity. In HSBC's case, that link is missing. You have emails like the one you quoted, which could be interpreted as wrongdoing, or could just be interpreted as figuring out how to let a client do what he wants in a legal way by dealing with a different office.
The only thing they didn't do is advertise directly to drug kingpins. Then again, we don't know that they didn't.
Edit: Not necessarily their own wealth.
It seems to be that BitInstant CEO sold BTC to a known Silk Road BTC dealer, who was aware of what the BTC was being used for.
http://en.wikipedia.org/wiki/Money_laundering#The_role_of_fi...
A bank must verify a customer's identity and, if necessary, monitor transactions for suspicious activity. This is often termed as "know your customer". This means knowing the identity of the customer and understanding the kinds of transactions in which the customer is likely to engage.
http://en.wikipedia.org/wiki/Money_laundering#Preventive
These laws, contained in sections 5311 through 5332 of Title 31 of the United States Code, require 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. Cash transactions in excess of US$10,000 must be reported on a currency transaction report (CTR), identifying the individual making the transaction as well as the source of the cash.
The cited external links should provide more depth.
With the help of at least one other person, the roommates re-sold these [stolen] high-end components to various telephony equipment suppliers nationwide, washing the checks through a series of falsified bank accounts and voice-mail business fronts.
It's pretty clear that in the not too distant future it will be illegal to not make a good faith effort to identify anyone you are selling bitcoins to.
Is that a bad thing?
And there are plenty of people who would disagree with you about the morality of the government doing anything but enforcing quality-control and truth in labeling when it comes to what molecules adults want to put in to their bodies.
Am I missing something?
1) Big banks have more leverage than insignificant fringe exchanges.
2) Wells Fargo was also investigated and fined (although an insignificant amount compared to their business).
That said, the points are realistic, not ridiculous. Reality might be ridiculous, but you can't leave in a fantasy world.
http://business.time.com/2014/01/27/bitinstant-ceo-charlie-s...
http://world.time.com/2014/01/14/dea-boosted-mexican-drug-ca...
Look at what happened to all the "Work from home" companies a few years ago. All the owners had their assets seized in full for breaking a new FTC policies that had been published for only a matter of days.[1]
The reality is if you're doing something the government doesn't like you NEED to leave the country. They'll just keep moving the goal posts until you're in prison.
[1]http://www.ftc.gov/news-events/press-releases/2012/11/ftc-ex...
No ambiguity there!
FTC makes rules, not laws. That is a important distinction, and the Courts determine where the rules are consistent with the pre-existing laws.
Come on, man.
Press release November 15, 2012.
I don't think 6+ months qualifies as "a matter of days."
1: http://www.ftc.gov/news-events/press-releases/2011/11/ftc-ad...
But Wall St. can't control bitcoin. So JP Morgan CEO Jamie Dimon denounced it as "terrible" and predicted its downfall. Source: http://rt.com/usa/chase-ceo-bitcoin-terrible-downfall-100/
Then JP Morgan filed patents on its own crypto-currency, one that it can rig with frontrunning, naked short selling, and wash trades. Source: http://www.ft.com/cms/s/0/e230307a-61c4-11e3-aa02-00144feabd...
As for bitcoin, I predict we'll increasingly see it in the news headlines linked to: (1) illegal drugs, (2) child porn, and (3) terrorism. These are the exact same smear tactics we've seen before used against P2P filesharing.
And we'll see lots more bitcoin arrests like these.
Also maybe an example of crypto over-confidence.
CoInvalidation will probably never be even close to implemented, and the proposed usage of x.509 certs has nothing to do with anonymity or privacy.
All of which would be considered money laundering, yes?
And they reveal the hand they'll use to shut it all down.
The US government isn't going to give Bitcoin a status that's different than other currencies.
Well, except that they released information about how they viewed MSB rules applying to virtual currencies some time ago, and since then bitcoin related businesses to which the rules would apply have taken steps to become appropriately licensed.
The worst is, if you innocently run a site like this and don't have the correct AML protections, the baddies will use your service for their goals. You will be in trouble for not having the appropriate controls in place.
I guess this bodes poorly for the people who were hoping to get their coins back from Bitinstant: http://bitinstant.info/
More arrests will likely follow. I wouldn't be surprised if Dwolla and/or Veridian Credit Union is next. They were one of the largest pipes to the Silk Road.
In this case, there was evidence of blatant, specific conspiracy, hence the arrests and federal charges. That's different from the ThinkComp suit, which has broader concerns of inter-state registration. We've already seen government actions which were directly relevant to the concerns of your suit: seizure of MtGox assets held by Dwolla, the $500k fine on Square by the state of Florida, and the California DFI cease-and-desist to the Bitcoin Foundation. More of that is to be expected, against say Stripe and Coinbase.
We did recently see a wide crackdown (arrests and domain seizures) on the whole network of LibertyReserve and exchangers, but those were offshore companies actively evading US banking and regulations. The situation with bitcoin exchanges (and the other defendants in the ThinkComp suit) is of a different nature, mostly about the specific approach to inter-state regulation, rather than blatant federal violations.
If the ThinkComp defendants were directly doing payment processing for online poker (rather than one-decentralized-step removed, in the case of bitcoin), then I would expect another round of arrests. But the arrests would be for violation of federal UIGEA and bank fraud. Operating an MSB in an unlicensed state is punished by a fine, as seen with Square.
But please, point out anything I might be confusing or overlooking. And keep fighting the (good) fight.
http://www.forbes.com/sites/andygreenberg/2014/01/27/winklev...
Every currency or commodities of value have a dark side. A significant percentage of British notes have traces of cocaine, occasionally you see ones with blood on them. I'd consider blood diamonds to have just as sinister connotations as bitcoin.
Discussing this reminds me of the scene in Beverley Hills Cop, where the character Michael Tandino is murdered for stealing a wad of bearer bonds.
The BBC coined the headline, but last I checked, the BBC can't criminalize things -- at least not in the US.
I doubt many FBI agents would hesitate to pursue a big bank. But they don't seem to be able to, even when there are civil fines given. What causes that, I wonder?
Start with congress for making drugs illegal in the first place.
I guess this is the moral of the story. Don't do this stuff within the confines of the US? Find a nice island paradise (I hear Vanuatu is nice this time of year) and do your business from a country that has no extradition treaty with the US.
For some reason, libertarians really flock to Bitcoin, not realizing that it's the worst possible currency to use if you want anonymity. (Physical cash is easy to hide, but a digital currency will always be traceable with enough effort.)