Hacker News Reader

Comment by siculars | Hacker News Reader

I find it hilarious that they take this guy down and nobody from HSBC does a perp walk. I guess it's who you know and how much you can pay off, ya? This has everything to do with the threat Bitcoin represents. HSBC literally paid a 2 Billion dollar fine against specifically money laundering on behalf of organized drug cartels. The investigation took years and not a single HSBC employee has done a perp walk.

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.

View on HN

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.

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?

>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

Wouldn't that definition mean that every single bitcoin user is in violation of the act?

'engage as a business' means you are probably doing quite a bit of it.

While you might think that and I might be inclined to agree with you, that interpretation is at variance with the laws of the United States. FinCEN was delegated rulemaking authority, and their rule is that if you're in check cashing, travelers checks, or what have you, there is a $1,000 a day minimum below which you don't have to be registered, but if you're in funds transfer as a business, you require registration for transferring one red cent.

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.

The real big risk seems to be that they might not acknowledge that the transfer of bitcoin can happen 'in person'.

IANAL, but it appears that if you did all your purchasing and selling within Coinbase (a registered MSB), you would be complying with the law. In the end though, this stuff hasn't been decided in court.

You're right, obviously. But the real question is: do you think all these money laundering laws are a good idea?

Yes. Especially knowing what I know about the world of money laundering.

Can you share? So that, you know, you actually contribute to the thread.

No, actually, I can't. Or at least, I'm not sure what I can say specifically, so I'd rather just not saying anything.

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.

That link seems to describe the various ways money laundering is done; I don't see it answering the question why it is "a very real problem" though.

The real problem that it has solved is that criminals have no easy straightforward ways of laundering money, since all but the strictly monitored and regulated money pathways have been outlawed.

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.

Well, why not impose the same regulations on mobile networks, then? And ISPs? Cell phones and internet may be even more integral to criminal networks than money is. Regulation of those industries could yield even more leads on criminality.

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?

Yeah that's how it worked throughout most of history.

Maybe it's a coincidence, but the US economy seemed a hell of a lot stronger back when money was easier to move.

If the law was passed in 1994, then the first tech boom/bubble happened under this law. I call coincidence.

Banning all knives would probably also reduce the rate of homicides committed with a knife.

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.

The money laundering charge, however, might not be such a slam dunk (Count 3, I think). That requires a showing that the BitInstant guy intended to promote illegal activities. Courts are usually pretty flexible when it comes to showing intent, but I think a good defense lawyer might be able to argue reasonable doubt with respect to whether the guy KNEW that BTCKing's customer's were going to use the bitcoin to buy drugs.

> Courts are usually pretty flexible when it comes to showing intent, but I think a good defense lawyer might be able to argue reasonable doubt with respect to whether the guy KNEW that BTCKing's customer's were going to use the bitcoin to buy drugs.

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 know it is how the legal system works but it seems kinda silly that laws from 1994 and 1960 apply to bitcoin.

I know its is how the legal system works, but it seems kinda silly that murder laws from 1860 apply to my autonomous knife-throwing killbot.

Why? They are designed to stop people making money from crimes. Seems to be exactly what was intended.I happen to think that drugs should be legal but that's a different issue.

They are designed to prevent people from making too much money anonymously.

Taxes took care of that already. Money laundering rules are designed to make it hard to conceal how you earned large amounts of money.

Is it equally silly that laws from the 19th century apply to somebody born in the '80s? It seems like more or less the same thing — laws keep applying to new instances of the things covered until the laws are changed.

On the contrary, what's silly is when politicians decide every new technology demands a new law instead of simply ensuring laws are written to cover particular evils regardless of the tools being used.

You are quite right because bitcoin is existentially different from a legal perspective. A no-trust system does not need the same legal "protections" as legacy systems and requires a fresh approach.

This is a classic Whataboutism[1], used to derail discussion.

In this case, the topic is BTCKing et al, and this post I am responding to is a "What about HSBC".

[1] https://en.wikipedia.org/wiki/Whataboutism

The charge of whataboutism hinges upon the irrelevance of the counter-charge. Since the two are being accused here of exactly the same crime, the charge fails. Not to mention that, from reading the wikipedia article, the inspiration for the term comes from a situation where the counter-charge comes from the initially accused party, which is not the case here.

No it doesn't. Read some articles about it. The problem with Whataboutism is that two wrongs don't make a right, and that "you're a hypocrite" is a very superficial rebuttal to an otherwise valid criticism.

There's nothing to rebut. The guy is pointing out an inconsistency in the way law operates. Fairness hinges on consistency. He is identifying the whole affair as unfair which is a valid statement to make.

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".

I didn't read the original comment as calling out "hackernews hypocrites" but rather the justice system.

Let's say that I get arrested and hit with a possible 50 years in prison for driving while slightly tired. Not "drowsy" per se, just slightly tired. And the reason is that "hey, you're putting other people at risk -- you could have killed someone there!"

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.

> - 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.

One crime doesn't excuse another. However, a discrepancy between sentences indicates either that one sentence was too harsh or one sentence was too soft. It's a valid question to ask which is true.

That's why I said the bullet point before the one you quoted.

Which is where you should have stopped; but you said OTOH, and I'm saying no, no OTOH, that's not a valid reason.

Also: http://en.wikipedia.org/wiki/And_you_are_lynching_Negroes

I think it's okay for the topic of conversation to move from this particular money laundering case to recent money laundering cases in general. It wouldn't be reasonable for BTCKing to use the HSBC case in his defence, but that's not what is happening here. This is a discussion about a news post, it makes sense to widen the discussion to include other related news topics.

The investigation took years and not a single HSBC employee has done a perp walk.

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.

No; the opposite. The large companies COMPLY with all the paperwork registration and reporting requirements, at least in the general case. Then when some SPECIFIC case comes up where the paperwork has not, perhaps, been filed correctly or accurately, they claim it is a rare exception from the general rule that they comply with all paperwork and reporting requirements, they'll rectify it right away, and so on.

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.

Yes. Some of the most damning evidence in the HSBC investigation was internal documents by the people whose only job was making sure HSBC complied with AML laws -- departments full of them! -- were saying things like, paraphrased from memory, "Why are we accepting this business? We have seen this movie before. It will end badly." or "You [people at one branch of HSBC] need to immediately stop [a particular banking practice] because it is certainly out of compliance with HSBC global policies and relevant AML laws in [our branch's] jurisdiction. You need to fix this, immediately."

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.

But what I don't quite understand is why there aren't 'perp walks'. It seems odd, because I imagine lots of FBI agents would love to take down guys at a big bank.

I'm not saying this to point out a huge injustice, it's just very curious.

It's because the big guys wouldn't be the ones to go to jail. They are smart enough to set up the incentives for low and mid level employees to commit crimes while never actually instructing them to do so. The relevant criminal statutes and doctrines require the government to prove beyond a reasonable doubt the mens rea of "intentionally" and given how things are done that's all but impossible in these cases.

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.

You need attorney generals, which generally run on shoestring budgets, to be willing to criminally prosecute millionaires and billionaires who are likely going to drag court out forever and most likely walk anyways. It's much easier to pop a couple of low level guys for possession to make your numbers look better.

Wow. Why are you just randomly making up your own pet theory when the question was actually answered and also had a catchy phrase to go with it? HSBC was "too big to jail"

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.

That's what he says publicly. The real reason is that he knows prosecuting HSBC's leaders -- a group of very well-connected billionaires -- would end his political career and greatly reduce the amount of future campaign donations financial institutions make to Democratic candidates.

> The real reason is

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.

The American Dream is dead.

I appreciate the irony of saying such a thing here, a message-board set up around the idea that a person with only an idea can change the world.

If by "change the world" you mean "raise lots of VC money for selling a small piece of software to people's smartphones or hosting an ad-supported web application on a bank of servers", then yes.

> ..or hosting an ad-supported web application on a bank of servers"...

"On a bank of servers"? Surely you meant to say "in the Cloud"?

What is this, 1999? ;-)

> ingratiating compliance.

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.

The large companies obviously know how to avoid accountability by eliminating, or never creating paper trails.

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."

Source: http://money.cnn.com/2012/12/12/news/companies/hsbc-money-la...

Wrong, there were plenty of paper trails in the HSBC case.

The large companies know how to avoid accountability by paying off powerful politicians.

While no doubt true in some cased, I prefer the more optimistic view that the system is just somewhat broken with respect to bringing larger entities to account for their errors. I find that problem to be more tractable than eliminating political corruption, while possibly also making paying off politicians to avoid prosecution more dangerous for both involved parties.

If it makes you feel any better, HSBC have been limiting withdrawals for the past few days. Suggesting a reserve shortage.

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...

Come on, HN, you're better than this. The policy change is specifically limited to CASH withdrawals. Notice that nowhere does the BBC story even hint that HSBC limited withdrawals via wire transfer, personal check, or cashier's check (all of which are traceable, unlike cash).

Fractional reserve banking guarantees that banks always have a shortfall of cash! ;-)

Not a shortfall. They're in short position on cash though.

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.

No, it is not fractional reserve banking that guarantees this, but duration mismatch.

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.

It doesn't... :(

And I don't even do business with them! (I do see how tightly integrated the global finance industry is ;)

Oh, and since when does selling BTC anywhere, including Silk Road, constitute a crime?

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.

If he had looked the other way and not investigated he would probably have walked too.

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.

I'm guessing HSBC had a few more layers of indirection of lawyers and underlings with autonomy that made it hard for the government to show criminal intent by a specific individual.

I think the lack of perp walks for HSBC can easily be explained as simple incompetence, not corruption (though you never know, of course...)

Reply on news.ycombinator.com