Operators of Coin.mx arrested by the FBI | Hacker News Reader

Operators of Coin.mx arrested by the FBI

fbi.gov

56 pointsfru201359 comments

Interestingly, these charges are published on the same day that the first decentralized Bitcoin exchange opens its public beta [0]. And, yes, the whole point of a decentralized Bitcoin exchange is to circumvent the laws that the FBI accuses Coin.mx of breaking:

Coinffeine takes advantage of the P2P model to avoid accepting deposits in bitcoins or fiat money, making it unnecessary to identify users or fulfill costly money laundering laws in each country. ... “Not having to identify users or enforce KYC laws has allowed us to design a much more scalable exchange model. [...]”, said Alberto Gómez Toribio, CEO of the company.

For good and for ill, one of Bitcoin's core value propositions will always be its promise to vitiate governments' attempts to control their citizens' money. It's hard to tell who's winning so far, and harder to tell who's likely to win in the end.

0. http://blog.coinffeine.com/2015/07/21/coinffeine-launches-wo...

The government is likely to win in the end. It's not yet regulated because of it's small circulation and young age. If it were the first thing in history the government could not figure out a way to regulate I would be surprised. http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?...

And failing that, government could declare "war on cryptocurrencies".

The surest way for the government to lose.

The things most bitcoin proponents dream about are... crazy.

* No, you’re still going to pay taxes on your bitcoins.

* No, if you fraud someone, you’ll still have to give them their money back.

* No, bitcoin is totally meaningless if you can’t pay for food in it.

I have gold at my house. None of the local markets will except gold at the register for food. Is my gold meaningless?

I guess you would have no problem exchanging food for gold, but not at the rate you would like (or the market rate).

In my town, gold buyers buy gold at market rate, with cash. They sell gold at premium. It is quite easy and effortless to change your gold to cash, and then buy food from the market.

With bitcoin it is a little different, bitcoin ATM's have usually quite ridiculous premiums. I think the most used one in our town has 5% both ways.

> In my town, gold buyers buy gold at market rate, with cash. They sell gold at premium.

Who are they selling it to? Or by "market rate" do you just mean "the same rate that other gold buyers in the same town will pay"?

Since gold buyers are large/frequent market participants who deal with rare/sporadic market participants, I would have been strongly inclined to bet that gold buyers would buy below market and sell "at market". The guy walking into a gold buyer's shop to sell his gold probably isn't just testing to see what kind of price he can get. The gold buyer will happily wait to sell his gold until the price is right, though. That's his job.

Check out sites like localbitcoins. You can sell Bitcoins in cash pretty much anywhere in the world, even at a small premium. (How the Bitcoin ATMs survive in that environment I don't know.)

* Presumambly there are political solutions to tax problems.

* Do "bitcoin proponents" dream about defrauding people at a disproportional rate? This has been the opposite of my experience.

* It's already pretty easy to buy food with bitcoin.

Do "bitcoin proponents" dream about defrauding people at a disproportional rate? This has been the opposite of my experience.

The levels of fraud in Bitcoin are vastly higher than in other money systems like credit cards. Even if you count just one incident, Mt. Gox, the % of bitcoins that have been stolen is immense.

So, yes there are definitely lots of Bitcoin proponents dreaming about (and actually carrying out) fraud!

Why do you think the people stealing bitcoins are proponents? Bank robbers are rarely dollar proponents in the US, or yen proponents in Japan. Muggers generally aren't cash proponents or jewelry proponents. Conmen might be proponents of certain financial schemes, or they might just be charismatic.

A lot of the Bitcoin proponents are anarcho-capitalist – "I don’t want to have governments building streets from my tax money, I’d rather have every road be a toll road".

Check #bitcoin-assets on freenode, I hung out there for a few weeks, and it’s... crazy.

"How will the government force me to pay taxes? I don’t own bitcoins, I merely happen to have the piece of knowledge that is required to spend them"

* No, bitcoin is totally meaningless if you can’t pay for food in it.

In my town there were couple of regular markets accepting btc. However I heard they stopped accepting it, because of transaction speeds. I guess there is still one left.

> * No, bitcoin is totally meaningless if you can’t pay for food in it.

Thuisbezorgd, the largest site for ordering take-out food in the Netherlands accepts bitcoin.

Yes, but it’s not widely accepted.

And it probably never will be – transactions speeds are horrible (even international wire transfers through SEPA are faster than Bitcoin transactions) and the energy usage of the mining systems is growing exponentially.

I can buy food with bitcoins just fine. And pretty much everything else too.

Because of all the successful drug regulation going on? :-P

>The government is likely to win in the end.

Do you realise that there is more than one government in the world?

To be fair, when it comes to financial regulations and banking, there are very few governments that would hold their ground and stand firm against U.S pressure.

And those nations capable of standing their ground against the U.S (China, Russia, etc) wouldn't stand against them because it's in their best interests too. In fact, it appears Russia and China are becoming more strict on Bitcoins than even the U.S is. China and Russia don't like not having total control.

For those that don't know the acronym 'KYC' is 'ķnow your customer' and a core principle of Anti-Money Laundering (AML) laws. The idea is that if you know your customer, for example age, occupation etc, than you can--and are obligated by law to--flag suspicious financial activity to authorities.

For example, large and infrequent international wire transfers to say Bermuda may look suspicious if your 'KYC' information tells you the account is owned by a teenager in Utah with no ties to Bermuda. This wouldn't look suspicious for someone in their 50s who has a business and family based in Bermuda.

From the press release:

MURGIO and his co-conspirators have also knowingly exchanged cash for Bitcoins for victims of “ransomware” attacks, that is, cyberattacks in which criminals (here, distributors of the ransomware known as “Cryptowall”) electronically block access to a victim’s computer system until a sum of “ransom” money, typically in Bitcoins, is paid to them. In doing so, MURGIO, and his co-conspirators knowingly enabled the criminals responsible for those attacks to receive the proceeds of their crimes, yet, in violation of federal anti-money laundering laws, MURGIO never filed any suspicious activity reports regarding any of the transactions.

MURGIO and his co-conspirators allowed & enabled business owners to reclaim priceless data from their computers quickly as legitimate exchanges like coinbase would process transactions in a scope far outside the ransom window.

Banks Contributing to Crime as well, however the people in charge don't get persecuted. Why is this different.

1. Wachovia laundered $378.4bn in drug money. Fined $160M[0]

2. HSBC £78 billion in dubious assets, £1.2 billion in fines[1]

3. JPMorgan Chase violated the Bank Secrecy Act and failed to file a Suspicious Activity Report after red flags about Madoff were raised at the bank. Madoff's Ponzi scheme totalled $65B[2]

4. Bank of America had money funneled through it by a Mexican cocaine-trafficking cartel, where it was laundered by buying US Racehorses[3]

5. CitiGroup facing federal inquiry about Banamex a mexican subsidiary, expects legal costs of $4B[6]

US Government & Bitcoins

1. US Federal Agents extorted Ross Ulbrict and diverted seized funds to personal accounts[4]

2. Regulators "easing up" proposed "BitLicense", firms need only maintain adress information for their own customers and keep that info for 7 years instead of 10[5]

WHAT IS THE POINT

Murgio was using a well known "scheme" in the bitcoin world where one sells some cheap innocuous object for bitcoins. Having registered a transaction of incoming currency and then transferring bitcoins. Often a collectible is still shipped to legitimize the transaction[6]. So they were actually transacting collectibles and sending BTC with those collectibles. It is speculated on bitcointalk that the govnerment took control of their twitter[8][9] and used it to spread disinformation.

So we have a regulatory framework that allows banks to transact with known drug cartels and create, distribute and short assets with no criminal liability, however an exchange transacting in approximately 1.8M dollars via collectible sales has been shut down. The exchange and parent company were "legitimate" businesses and the money transmitted was for actual goods sold. Similar to the JP Morgan/Madoff charges Murgio and Lebedev are being charged with failure to support suspicious activity.

The US Gov't has shut down 70 "scams" some of which were likely actual scams[11], but this pattern is to consolidate bitcoin exchanges into as few entities as possible, force them to keep detailed information about their customers and have the ability to map transactions to actual people. This defunds lower level drugs transactions and allows them to keep control of a competing currency. Also, through some of these raids they became owners of bitcoins, which they sold or were stolen by agents working for them.

In summation, the government is tightening control on BTC, while largely ignoring larger problems of big banks transacting with drug cartels and terrorists. They even named COINMX as being party to hacking as they facilitated transactions for the hacked parties. Big banks collude with drug cartels but no one is named criminally, small btc exchange is cited for money laundering.

Edit 2: The arrests in Florida were tied to JP Morgan hack. It is not specified in what capacity and numerous people were named in the article, so while Murgio is mentioned by name as being arrested, it is unclear if he was one of the parties involved[12]. Coinbase also tieing them to hacking of JP Morgan[13]

[0]http://www.theguardian.com/world/2011/apr/03/us-bank-mexico-...

[1]http://www.businessinsider.com/stats-hsbc-money-laundering-a...

[2]http://www.forbes.com/sites/nathanvardi/2014/01/07/jpmorgan-...

[3]http://www.wsj.com/news/articles/SB1000142405270230329220457...

[4]https://www.fbi.gov/sanfrancisco/press-releases/2015/former-...

[5]http://www.cnbc.com/2014/12/18/bitcoin-lawsky-softens-bitlic...

[6]http://www.reuters.com/article/2015/02/25/us-citigroup-banam...

[7][from linked article]front-company, “Collectables Club,” and maintaining a corresponding phony “Collectables Club” website. In doing so, they sought to trick the major financial institutions through which they operated into believing that their unlawful Bitcoin exchange business was simply a members-only association of individuals who discussed, bought, and sold collectable items, such as sports memorabilia.

[8]https://bitcointalk.org/index.php?topic=1131070.0 [9]https://twitter.com/coin_mx/with_replies

[10]http://www.coindesk.com/70-bitcoin-scams-shut-new-york-law-e...

[11]http://www.coindesk.com/70-bitcoin-scams-shut-new-york-law-e...

[12]http://www.usatoday.com/story/money/2015/07/21/jpmorgan-chas...

[13]http://www.coindesk.com/coin-mx-arrested-operating-illegal-b...

Those are all examples of a legal, licensed banking entity breaking banking rules. Coin.mx took over a credit union and operated it without such a license. That's reason they've been arrested rather than just fined.

So money laundry is legal if you have a banking license and pay the fee (fine). In HSBC's case that fine is less than my credit card APR.

Money laundry is legal if the government and judges say so.

And for most banks, they say so, or at least just give them a slap on the wrist. For bitcoin, or any independent individual doing it, they don't, and they never will.

It's that simple.

Money laundering just results in a fine when it happens in a Mexico branch and there is no evidence that someone higher up actually knew it was happening.

This may answer why the banks get off easy-

Eric Holder, Wall Street Double Agent, Comes in From the Cold.

Barack Obama's former top cop cashes in after six years of letting banks run wild.

http://www.rollingstone.com/politics/news/eric-holder-wall-s...

Wow. That article doesn't try to be objective and man do I not blame them. That is appalling. This is why I am so apathetic about politics, how can anyone even stand up to this. He was appointed to his position from a firm that defends wall st as an occupation, puts kids gloves on during the biggest defrauding of America in recent memory and then goes back to his old firm for pro bono work. The non-elected officials have no accountability.

Interesting charges. Are they ever applied to companies that allow money to be wired or otherwise transferred between banks?

I assume that banks religiously file suspicious activity reports, especially if you go to them and say "Hey, please wire this ransom." Given where the FBI put the words "in violation of ... laws," my guess is that the charge is not for facilitating the money transfer itself, it's for doing so without reporting to the federal government.

"The rich are different from you and me." -- F. Scott Fitzgeral, "The Great Gatsby"

It's F. Scott Fitzgerald, and the quote is actually from another story of his, The Rich Boy. http://www.nytimes.com/1988/11/13/books/l-the-rich-are-diffe...

HSBC penalized $2 billion for allowing HSBC Mexico to continue doing business with local currency exchanges which were likely also doing business with drug traffickers, etc etc. http://www.bbc.co.uk/news/business-20673466

I think they buried the lede there, it should have been FBI finds bitcoin exchange that still knows where all of the bitcoin it exchanged went :-)

I have a question about a sentence from that announcement: """[...]and every fact described should be treated as an allegation.""" (towards the very end)

Is this standard phrasing? As a non-native speaker this sentence seems odd. I'd have guessed that fact and allegation are xor. The sentence implies that there can be facts that are also allegations (or treated as allegations).

That's just poor wording. What it means is "Everything described as a fact in the complaint should be treated as an allegation."

Criminal complaints are written as if everything in them is a true fact, unlike, say, newspaper articles that use phrases like "the alleged thief."

For example, a newspaper article about this complaint would say things like "The FBI's criminal complaint alleges that..." - even though the complaint itself states it as a fact.

That means the statements are presented as facts, but are not yet proven and thus are technically only allegations.

Generally, one shouldn't present allegations as facts (use phrases such as 'allegedly'), but doing so is standard for criminal complaints.

Fact and allegation are indeed xor. Saying that facts should be treated as allegations is.. well... strange.

The phrasing probably comes from the legal-style-wording in which I imagine they are trying to ensure they are not able to be sued by the defendant under e.g. defamation by presenting their facts (by saying they are all allegations not facts, they cover all of their bases).

One of the rules I live by: if I have to lie to a bank in order to accomplish a thing, I do not do that thing.

If only banks had such a compunction.

I know that this is a troll throwaway comment, so forgive me in advance for responding to it. But:

If you have ever actually been lied to by a bank, it's likely that there's some law that penalizes that lie. You can probably have the situation corrected. Personally, no bank has ever lied to me. Expected me to read documents carefully? Yes. Lied? No.

I voice unpopular opinions on my own account, novel, I know.

edit: banks are regularly fined for lying, cheating, stealing or laundering. Some of it is "legitimately" the cost of doing business. Some is quite obviously nefarious. JP Morgan was fined 13B for lying about mortgage risk and bundling knowingly dangerous securities[1] I removed the first link as it was proven to be, well, a lie. However, I think there is enough evidence of banks lying not spend ages posting links.

[1]http://www.washingtonpost.com/blogs/wonkblog/wp/2013/10/21/e...

To be precise, JP Morgan agreed to settle a case in which another bank they purchased did insufficient due diligence. The charges in the article you link speak of negligence, not lying.

In the other case, I assume you know the difference between errors and deceit, so I'll withhold any comment on that.

I didn't mean to say I thought your account was a throwaway. Just the comment -- in other words, I found it thoughtless, seeking of thoughtless upvotes, and still do.

Banks practicing willful fraud as the subjects of this press release did remains a fairly rare phenomenon.

Except for the LIBOR scandal, of course. And the ISDAfix mess. But those only involved most of the world's largest banks, and combined, likely only affected anybody seeking credit, anywhere, for any reason.

Man just the idea of frozen assets freaks me out. Like I got people to feed here, how is someone just going to block my access to funds. That's why LTC and BTC are so appealing to me. Its like I'm god with my money.

You replied to someone asking if you had been lied to by a bank, by linking stories that...don't involve you. Or banks lying to customers.

The first link clearly indicates an accidental accounting error, the second talks about banks being negligent in conducting due diligence. The difference between "you knew this was false" and "you should have known this was false" is more than a merely pedantic distinction.

> banks are regularly fined for lying, cheating, stealing or laundering.

Untrue. Banks are regularly fined for a variety of things, but there is a material distinction between failing to properly vet clients, some of whom (as it turned out) were laundering drug money, and knowingly laundering drug money. You link to stories about the former, yet describe it as the latter. If your case is strong, it can be made without inaccuracy.

I guess you could try and focus on the LIBOR scandal, but that's a pretty weak tea. It also didn't involve banks lying to customers (which was what was originally asked). Besides, by many estimates, benefited customers (who got lower interests rates on balance than they should have done) at the expense of wealthy investors. Terrible, no doubt, but not really the same thing as knowingly aiding criminals.

> You replied to someone asking if you had been lied to by a bank, by linking stories that...don't involve you.

The parent almost certainly meant you broadly as a third person pronoun akin to something like, If [one has] ever actually been lied to by a bank

>Untrue.

I disagree. Banks often lie and it is well public.

He was given a 200K fine and lied to the world about it.

http://www.theguardian.com/world/2014/mar/07/abortion-servic...

https://www.reddit.com/r/unitedkingdom/comments/3dtx6y/did_a...?

I actually took a deeper look and it is possible you are correct. However, the article you liked indicated that, even though it was a public charity and was hacked, The UK's main abortion provider is to appeal against a £200,000 fine imposed. So it seems, for some bizarre reason, the fine was levied agains the BPAS.

Jeffery stated that after a few days it was resolved and posted his bank account. Given the article you linked was from 2012 and he had a 3 year sentence, it is quite possible he is the same person posting as /u/jamesjuk. I have removed the link above.

However, it does seem that the bank froze his assets and lied to him. It remains unclear whether he has restitution leading to his assets being frozen.

The fine was levied against the BPAS for failing to secure the data properly.

The incident drew the attention of the Information Commissioner's Office who found BPAS's security didn't meet the legal requirements.

I've have had banks lie to me and to my parents, and more than once. There are certainly laws, but unless it's on record, it's very difficult to prove. Nowadays I ask for written confirmation of everything they tell me in presence or on the phone.

> no bank has ever lied to me.

Were you born after 2008? Or what?

I have. On more than a few occasions by Santander.

I longer bank with them.

An example where you cannot avoid lying to a bank: if you move to the UK, banks require a proof of residence in the form of an electricity bill or similar with your name and new address on it. But the electricity company requires a UK bank account in order to send you the first bill. How do you break the loop? The easiest way is to fake an electricity bill.

The easiest way is not to go to a bank that has its head up its arse (pardon my french)

Case in point: I opened a bank account with Lloyds, and I just showed them my work contract (but apparently the only information they needed was my passport)

I know very well that some banks are terribly unfriendly to recently relocated people... and the whole system is quite fucked up, example: Three.co.uk rejected a contract for a 14£(fourteen)/month mobile contract with me, after a credit check (that was back in December, after I already got salary after relocating, paid my bills, etc.)

Now the situations changed... but I find it terribly laughable how a company has a whole set of people and systems to prevent fraud for the whopping incredible amount of 14£ (after a month, if I don't pay they could simply cut off my service) fraud prevention is obviously serious business...

but you cannot trust a consumer for 14£, really?

'The easiest way' is not the same as 'you cannot avoid lying'. If you are happy about taking an easy way when it involves crime, you are scum.

one time I forged an eyeglasses prescription

now that my soul is under new management, I no longer feel remorse for anything I do

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