Could someone please ELI5 if I was a very wealthy Russian criminal involved, say, in counterfeit, drugs, human trafficking and/or technological scams, how exactly can bitcoin help me "launder" my wealth?
1. I have some cash which I want to stash away from government.
2. My options are a) Buy property (India's property boom) b) Buy gold c) Store the cash somewhere (say inside mattress)
For
a) I can be identified or property can be lost. As can't buy it on my name
b) Can't easily transfer internationally. Theft fears etc.
c) Inflation, fire, water
With Bitcoin. I buy Bitcoins in cash (localbitcoins). Or use third party accounts (same used for buying gold or property).
1. I have full access to the money
2. Can take it anywhere and convert it to local currency
Only downside would be if Bitcoin crashes i.e. loses all value or a lot of value within short span. But if more and more businesses start using it. Virgin, Overstock etc. then chances of that happening would get lesser and lesser.
I define significant here as $50,000 or more.
It is not easy to buy BTC in cash through LocalBitcoins. I know first hand how intimidating the process is (even after the 10th time) because you don't know who you're meeting and what their intentions are. Secondly, there aren't a lot of people willing to transact $50,000+ in BTC. This is usually a supply problem as these people don't have hundreds of BTC to sell.
Using third party accounts is also silly as that leaves a paper trail. If any of your cash goes through someone else's hands, it is most likely recorded.
To take this further with your 'solution', you can't simply convert this significant sum of money into local currency easily. There is still going to be a paper trail of you converting the money from BTC and if you have done any selling on exchanges, you'll know you need your identity verified.
If I were someone shady, I would NOT turn to BTC to launder my money, it doesn't make a lot of sense.
People often confuse cryptocurrencies and BTC in general with being totally anonymous. They're not.
I guess a follow up question, then. Internet geeks seem to really be pro- bitcoin. Do you think money laundering is not a big deal compared to the benefits of bitcoin? Do you think there is anything that should be done to try to fight it?
I think Bitcoin can fix this. Money with every transaction identifiable. Which can't be counterfeited. Can't be created out of thin air.
From where I see, it solves more problems (or other problems).
If some criminal elements run away with the money. Solution will be to dedicate huge amount of resources to find them and recover the money. Instead of creating new money, which is like tax on everyone else holding it.
They get together and trade cash for BTC. Now the dealers can go on any exchange, and convert the BTC back to digital currency, then can transfer into their bank.
I agree with you until this point. Banks will still be able to apply the same safeguards they use when customers deposit large amounts of cash (reporting large transactions, "suspicious" activity, etc)
Same goes with certain type of merchants such as precious metal dealers.
I don't know if other merchants that deal with large transactions need to report large cash transactions (casinos, car dealerships, etc?)
Bitcoin is really no different than cash in this respect, except it's easier to move but actually more traceable since the blockchain is entirely public.
Either way I don't think places like Dubai or Switzerland have any problem with Russian drug money.