Sorry but that's rubbish. Even if you play by the rules they'll just change them via some obscure FTC policy or congressional rider.
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.
The rules in this case are "don't enter into a drug based money laundering business", which is allegedly what went on here. It's certainly not new or obscure.
I can't think of many people less deserving of sympathy than the people in the linked article (even the Bitcoin money-launderer deserves more), and the world is unequivocally a better place for the FTC moving the goalposts to catch them.
Frankly, you shouldn't need to read FTC guidelines to understand that peddling lies and then not honouring promised refunds might get you into trouble, and conmen whose businesses get suspended by court 12 months after the FTC introduces explicit guidelines banning their business practices are not victims, unlike their paying customers.
Seems like they were arrested for selling bitcoins to silk road users en masse. Is this just a US law oddity or is that what passes for money laundering these days?
Not quite. The US gov is accusing these men of putting wealth through the Silk Road (which was believed to be untraceable) in order to get this wealth off the books to avoid taxes and investigations of the source of this wealth.
Where does it say that they used it for personal wealth laundering? As far as I can tell it was only for providing a service for purchasing BTC anonymously with cash.
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.
Basically this, also surprised anybody would buy Bitcoins from a SR vendor. Also another reminder for companies to encrypt their internal emails this is also how they busted Megaupload because of stupid things they emailed each other 'hey where is Batman uploaded?'
Speculating, but I imagine it has to do with US requirements on financial transaction reporting. Financial institutions and securities traders have certain requirements on which transactions and activity they report.
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.
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.
I did 5 years for money laundering under 18 USC 1956(a), and I don't even know how to launder money. Sometimes they choose to charge you with money laundering because they can't actually catch you for another crime. Other times they choose money laundering because it carries a higher sentence than the underlying crime.
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.
The sentence you quoted is mostly accurate. It says a "series of falsified bank accounts" - I'm not sure what they mean by a series. There were either 2 or 3 bank accounts under fake names. But this doesn't do anything to conceal the source of the funds, or make them appear legitimate. And I thought money laundering was all about making illegal money appear legal, by "washing" it. This is one of the problems with the money laundering law - it is pretty vague. The prosecutors in my case could have easily charged us with interstate transportation of stolen property, and then my sentence would have been half of what I actually received. If you do some more googling, you will find that the US Sentencing Commission investigated this sentencing disparity, including my own case. My prosecutor was pissed.
Seems like solid evidence that the reason the US govt is so comfortable with Bitcoin is that they have a handle on anonymizing the blockchain as needed.
government loves bitcoin. credit cards are very traceable. cash is fairly traceable, but the moment bitcoins are used to get real goods theyre completely traceable. add redlisting and upcoming ca authorities to the mix and bitcoin is a governments wet dream
This had nothing to do with the blockchain, read the indictment: the undercover agent bought from BTCKing, was given a bank account, and looked up the bank account's info. That's pretty much end of story there. The rest is icing or getting Shrem's emails to nail him as an accomplice.
I just read the whole criminal complaint (http://www.scribd.com/doc/202555785/United-States-vs-Charles...) and I don't believe the blockchain is mentioned a single time. Most of the investigation was based on email exchanges between the defendants and inspection of the Silk Road's messaging system.
From the BBC article: ''The authorities said the pair were engaged in a scheme to sell more than $1m (£603,000) in bitcoins to users of online drug marketplace the Silk Road.''
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 ?
It is the literal definition of money laundering dude. If you purchased something illegally with some currency or good or service with the intention of converting that currency, good or service into a different currency, that's called money laundering and it's illegal.
>This is ridiculous! Please tell me how selling Bitcoins to someone is illegal? What that person does with the Bitcoins they acquire not the responsibility of the exchange.
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 it's illegal for actual banks to assist in money laundering right?
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.
From the evidence available to us, HSBC has been a naughty, naughty bank, laundering drug money with impunity. The fines levied against HSBC for these activities have been laughably small.
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.
>This issue was brought to my attention by pals who had investigated Julia and rejected it for this very reason.
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.
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.
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.
ALL the major banks in the US are involved in handling money for criminal enterprises. Washovia (now Wells Fargo), US Bank, and HSBC have been caught doing this yet nobody was arrested of course. Those are just recent examples too!
Guess how Wachovia got out of criminal charges? They settled!
Selling Bitcoin isn't illegal, and the indictment actually says something to that effect. What got Shrem in trouble was conspiring with BTCKing to deliver him Bitcoins that bypassed BitInstant's anti money laundering controls, for the specific purpose of facilitating illegal activity on Silk Road.
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.
I'm guessing we'll find out that the government thinks they were somehow specifically and knowingly facilitating money laundering for the silk road to hide drug trade profits. Again, thats just a guess.
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.
Selling bitcoins (or any other currency or asset) to someone for money that they have obtained illegally is money laundering.
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.
This seems to me like the US government is just getting started regarding Bitcoin exchanges. Government authorities always move slowly, and usually go after the most egregious cases first. This reminds me of the US arrests that occurred regarding overseas poker sites when their executives got pulled off a plane that was making a stopover in the US en route to Central America. This sort of thing does make you wonder if any Bitcoin exchanges and their employees can ultimately avoid US charges of money laundering?
Yes it's not unlike what happened with Poker sites but... Pokerstars, who had its Pokerstars.com seized (for a few weeks IIRC) by the FBI/DoJ is still, today, raking million of dollars daily in rake (and tournament fees) totally legally (and often with business deals with brick'n'mortar casinos) in nearly the entire world... Except the U.S.!
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.
None of the servers for Pokerstars we in the US, and none of their bank accounts were either, however the DOJ was still able to seize those accounts. The US is not trying to stop online poker worldwide, they are trying to stop online poker sites from offering their services to US customers.
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.
Don't get too optimistic. They'll get there eventually, just as they are getting there with international money transactions. There was a time when keeping money in Swiss bank was a sure way to hide it from US authorities. Not anymore.
> Well, since they were arrested for "money laundering" it can easily be generasiled to any Bitcoin exchange...
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.
>How? Are you saying that BTC exchanges necessarily fail to comply with money laundering laws in the way the offenders here are accused of?
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.
> > Are you saying that BTC exchanges necessarily fail to comply with money laundering laws in the way the offenders here are accused of?
> 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.)
It sounds like Shrem was allegedly engaged in un-kosher business directly with a Silk Road exchanger.
"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."
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.
I suggest you read the e-mail exchanges in the indictment, for example starting on page 15: http://www.scribd.com/doc/202555785/United-States-vs-Charles.... There is a huge difference between having controls that were too weak to catch money laundering activity in Mexico, and the CEO deliberately bypassing money laundering controls in order to sell BTC to Silk Road users.
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.'
That content of that cited email is ambiguous as to whether the banker in question had any reason to believe the client was guilty of anything (as opposed to operating a legitimate business inconvenienced by his country of origin)
Regardless of what he did and didn't know, or the intricacies of legislation around letters of credit, he was smart enough not to write "cool" in response to an email to the effect "so many of his transactions smell like fraud or money laundering", never mind negotiating a "kickback" by email. It's kind of hard to plead innocent when you do that.
From your article: "HSBC did so, they say, by not adequately reviewing hundreds of billions of dollars in transactions for any that might have links to drug trafficking, terrorist financing and other criminal activity."
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.
I really don't see the difference here. Some of the allegations against HSBC are extremely damning. It is hard to believe they did anything other than deliberately ignore laws to facilitate money laundering.
The only thing they didn't do is advertise directly to drug kingpins. Then again, we don't know that they didn't.
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.
This is the information missing both from the article and the comments here in order to understand what's really being objected to. This should be the top comment.
From reading the complaint; it seems that the BTCKing guy was advertising his services on Silk Road and was active on the forums. Which means that he was knowingly violating the laws on money transmission and specifically the know your customer aspects.
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.
> 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.
It is a political question. What happens if the government restricts access not only to drugs, but phones without key escrow, or media players without DRM and uses the money laundering tools to go after the "pirates and tax evaders" who for some reason don't want to share their every communication with the government?
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.
> And they reveal the hand they'll use to shut it all down.
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.
Interesting that they charged them with the money transmitting and laundering charges. I suspect it is hard to get someone indicted for just trading in coin since to the average lay person that probably seems like baseball collector cards or something.
If my understanding is true, then bitcoin isn't really relevant here. They could have been selling hand written money tokens to people that they then used to pay their drug dealer with. The allegations are about intent and money laundering.
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.
> If my understanding is true, then bitcoin isn't really relevant here. They could have been selling hand written money tokens to people that they then used to pay their drug dealer with. The allegations are about intent and money laundering.
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.
> 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).
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.
There's never been any question about whether the government will see it as a currency for the purposes of buying drugs, or avoiding taxes, or anything else it perceives to be you using BitCoin to avoid its laws. There's oodles and oodles of precedent on that front, not least of which is the fact you still must pay taxes on barter transactions, for instance, in which there is definitely no "currency" involved on either side. The question is whether it will ever see it as something that, in addition to being bad, is also at least neutral or potentially good as well. Or, put another way, when the government finds out you used BitCoin for something, is it going to see that as as neutral as using an Amazon giftcard, or is that going to be a presumption that there's something else shady going on? Perhaps even to the point of considering that fact alone sufficient to start issuing warrants?
Did you watch the recent Senate hearing on cryptocurrencies? They seem to have already admitted that there are legitimate uses for Bitcoin, etc. I think businesses in general are more scared of it than the government is.
The Federal government is a big thing. A couple of Senators orally agreeing BitCoin might be useful isn't much consolation if the law enforcement branch decides to start treating it as de facto evidence of drug involvement.
(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.)
I'm not saying that would be impossible, but I just don't see the evidence as clearly-cut as others appear to. There's a 'desire' among some in the cryptocurrency community to see themselves on the front lines of a war against the state and regulated commerce as well.
> It is also good for bitcoin because suddenly the government admits by its actions that it is indeed a currency.
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.
I wonder how central figures in Bitcoin feel about this. The headlines aren't helpful but in the longer run if the Feds drive down or out the number of bad guys using Bitcoin that would seem to help it's image over the long run.
"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."
It's not surprising at all that the press releases are written in advance of arrests. Preet Bharara, the US Attorney responsible for this, is a symbol of everything that is wrong with the US justice system. His every action is designed to maximize his PR and advance his political career. If on occasion he happens to perform his actual job in the process, that is only incidental. If you look closely you'll see that he actually has professionally applied makeup during his press conferences - these are manufactured dog and pony shows. He was looking for a case that would allow him to ride the PR coattails of Bitcoin, and he found one.
In my opinion, prosecutors like this are as despicable as many of the people they prosecute.
I'm not sure why he needs to be on TV in the first place. His job is to prosecute whatever crimes happen to be occurring in his district. Instead, he cherry picks those that will make headlines in order to further his career. He is in the news vastly more often than any of his counterparts in other jurisdictions have ever been in the history of the DOJ. In short, he is abusing his office for personal gain.
I think its more that the application of professional makeup is indicative of a prosecutor overly concerned with appearance. Its not the touch up here and there to avoid looking like an overworked zombie, its the going to the extreme to look like a hero. The suggestion is that such vanity can get in the way of facts, truth and justice. I don't agree with this perspective, but I sympathise with it.
Apparently your comment is being derided because you criticized the guy for wearing makeup, but I think your overall point is quite valid. Prosecutors that are more interested in self promotion than justice are not a rare thing. I'm more curious in peoples' ideas for how we could disincentivize this type of behavior.
Given that everyone involved was an American citizen, the NSA would not have been authorized to use their database to look up this information. Based what we know of the 1,000 or so instances of illegal access by NSA employees of their database, there is no evidence that the NSA has ever been involved giving database information to an IRS Special Agent investigating American citizens. There is no evidence that the IRS or FBI has NSA style capabilities to circumvent internet encryption. So your rampant and incredulous speculation has no standing and borders on conspiratorial.
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.
NSA policy is very explicit in stating that if they come across evidence of domestic criminal activity in the pursuit of foreign intel, they are free to share that with law enforcement. Given that tracking money laundering is a key approach to attacking terrorism, it's certainly possible that information related to this arrest could arise from that activity.
So while its most likely that this went through a subpoena, it's absolutely not conspiratorial to suggest NSA involvement.
> Given that everyone involved was an American citizen, the NSA would not have been authorized to use their database to look up this information.
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.
Where does this 1000 estimate come from, and how is it calculated? Having all the calls from the District of Columbia recorded - is that 1 illegal access?
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.
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:
They could have got the information from the NSA, in which case they would also need to successfully obtain the emails through a legal warrant. Otherwise it would be inadmissible.
I read it as the opposite - that safe-mail didn't cave in. All the messages are from Shrem's work account and unencrypted private messages between BTCKing and clients on Silk Road.
The ???btc@safe-mail.net patterned addresses came from the 'cash processor'.
That was my reading too - at no point do they seem to have access to Safe-mail.net. Even later when pointing out that the IP embedded in email headers matched BTCKing's home address... That's a rather roundabout way of doing things if you can ask for anything you please from Safe-mail.net.
Excellent point. Re-reading it now, it looks like the emails were addressed to/from safe-mail.net but the actual collection was from the cash processor's email, not safe-mail.net.
"If all that is alledged is true, that's pretty damning and this isn't just a general bitcoin crackdown."
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.
I predicted how they would take down bitcoin a while ago. Anyone transmitting bitcoin to another party through anything but a KYC compliant licensed money transmitter will be considered a de-facto money launderer.
> a sympathetic test case to establish that operating a bitcoin exchange == money laundering
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."
This arrest is much more about Charlie Shrem than Bitcoin itself. While no one had any idea that this specific activity was happening, Charlie and Bitinstant were incredibly reckless and cash hungry for quite a while. About a year ago BitInstant became more Ponzi scheme than Bitcoin brokerage - see the last few hundred pages of complaints here:
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.
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.”
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."
I wouldn't expect the Winklevi to react any differently, and they are quite likely telling the truth. It would still be interesting to see if their BTC wound up being sent to this BTCKing character, since apparently a signficant percentage of the Bitinstant's BTC (at some points, all of their BTC) were being sent to BTCKing.
I don't see why selling BTC in SilkRoad is illegal. How so? by association with other things that happen there? By that standard working for the government would make you a criminal.
From all the reports I've seen, they seem to be equating the selling of BTC with money laundering. No other activity related to money laundering is being reported.
> From all the reports I've seen, they seem to be equating the selling of BTC with money laundering.
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.
It's illegal operate an unlicensed currency exchange, and it's illegal for a licensed exchange to knowingly facilitate illicit transactions.
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.
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.
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.
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.
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"
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.
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.
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.
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."
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.
(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?
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?
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.
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.
>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?
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.
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.
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.
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'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...)
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".
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.
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.
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).
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.
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 am sure this will get down voted, but I can't help but find it interesting (Gov going after them after this recent HSBC news) HSBC was involved with drug cartels and much more and just had to pay a 1.9 billion dollar fine (sounds like a lot, but keep in mind its about 5 weeks of profits) http://www.reuters.com/article/2012/12/11/us-hsbc-probe-idUS...
> "It is unfortunate Silk Road continues to make the headlines in association with Bitcoin - this is the dark side of Bitcoin, which the vast majority of digital currency users have no association with."
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.
For me, the biggest shock is that Shrem is on the board of the Bitcoin Foundation and was involved in this stuff. The Bitcoin foundation is one of the strongest voices in Washington about Bitcoin.
This is a big hit to the credibility of Bitcoin in the near to midterm future.
>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.
>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.
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.
>Bitcoin isn't an "operation" that a government can 'shut down.' It may yet fail by some measure but not directly by government edict.
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.
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.
It's probably not a shock for anyone who was following the controversy within the community about the Bitcoin Foundation when it was originally set up; there's several shady characters on the board.
There seems to be a general lack of understanding here on HN that money laundering is incredibly harmful to society. It allows organised crime to operate with great ease. It facilitates the corrupt in any walk of life, be it political, corporate, or even law enforcement.
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 is part of the criminalization of victimless drug use. That's why they were created, and that's how they're used. Nothing more, nothing less.
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.
Yes, because when all drugs were legal, slavery wasn't a thing, right? No one has ever been sold into prostitution for a reason that doesn't relate to drugs.
No, because drugs being illegal pushes the drug trade into criminal hands. I don't do drugs (often) but I don't see why revenue should go to criminal cartels and war lords when it can be controlled and regulated by government, especially if the government is able to charge taxes- and I'd imagine, seeing how rich drug dealers are, that they can bring in a lot of tax revenue and still keep it less than street price.
The reason people are sold into prostitution in Western countries is because of restricted immigration. If they go to the police, they get escorted back to where they came from - so they don't.
Most modern organized crime is a result of drug trade. So yes, it's all related to victimless drug use, as I said.
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.
> Most traditional organized crime groups were focused more on vice than drugs. Vice being gambling, prostitution/human trafficking, and loan sharking.
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?
PLENTY of organized crime has nothing do with drugs. A huge subset of organized crime is involved in counterfeiting - which is a billion dollar industry by itself. Counterfeiting consumer products (designer purses, shoes...) medication, and even FOOD. Yes, food is a big one. https://reportingproject.net/occrp/index.php/en/cc-blog/1758....
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.
The argument wasn't that drugs were the only area in which organized crime operates; it was that it is by far the biggest one (although I have even harder time considering prostitution to be a crime).
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?
If one could walk into a store and purchase pharmaceutical-grade recreational drugs (manufactured by a company), as one might purchase alcohol or cigarettes, then there wouldn't be drug-related organized crime or human trafficking.
"then there wouldn't be drug-related organized crime or human trafficking."
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.
You have failed to parse my sentence. Of course there would still be human trafficking. There would not be (drug-related human trafficking.) There would not be (drug-related organized crime.)
This no long has anything to do with drugs. The same could be said for fireworks smuggling, or smuggling anything that is taxed differently in different jurisdictions. The fact that the thing being smuggled is a psychoactive substance has no bearing on the issue at hand.
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.
Quite wrong about the history. Vigorous drug enforcement took off in the 1980's. The Bank Secrecy Act was passed in 1970, the same year as RICO. The target was the Mafia and other criminal organizations that are a lot scarier than Silk Road.
You realize that this argument justifies anything even tangentially related to the drug war because they are just the side effect of the 'criminalization of victimless drug use' right?
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.)
I strongly agree that human trafficking and gang violence are not only reprehensible, but truly sickening.
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..
It was my understanding that at least in some parts of Europe, like the Netherlands, drugs were considered more of a health problem than a criminal problem.
> 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'.
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.
I'm not doubting that US drug policy remains the driving force. It pushes people who would consume drugs legally or illegally into a black market where they inevitably do business with some extension of these powerful criminal organizations. I agree with all that - and it needs to change.
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.
What you say feels right intuitively, but I can't figure out the logic behind it. Does participating in a marketplace automatically make one partially responsible for the crimes of others who participate in it? That doesn't seem quite right. There's a lot of violence in poor inner city areas, is it morally wrong to own a gun shop in such an area? Are we morally responsible for the actions of the corporations we buy from? What about our nation's foreign policy? To take an extreme example if you sell food to enough people, you know that eventually you'll feed a murderer. But intuitively there's a big difference between selling food and money laundering. I don't know.
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.
> Money laundering is part of the criminalization of victimless drug use. That's why they were created, and that's how they're used. Nothing more, nothing less.
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.
Perhaps you or someone else could clarify, is BTC even considered a currency by the US government? I know there has been some crackdowns upon Mt. Gox and now these arrests which would suggest it is. However, could it not be argued in court that these people were just exchanging US currency for a bunch of crypto hashes?
If it's used for money laundering, why would it matter? You could use beans or pieces of pasta, the effect would be the same and the medium irrelevant.
Since the charges that have been brought that involve bitcoin (including this one, in which transactions were structured to avoid US dollar limits in AML policies) have usually involved illegal things being done with dollars, the "declared status" of bitcoin as a currency or not is mostly irrelevant.
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.
> it is not clear that there was any criminal conspiracy involved
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.
There's a real lack of awareness among these comments that privacy, the fourth amendment, and the fifth amendment are incredibly harmful to society. They allow organised crime to operate with great ease. They facilitate the corrupt in any walk of life, be it political, corporate, or even law enforcement.
Freedom is incredibly harmful to society. It allows organised crime to operate with great ease. It facilitates the corrupt in any walk of life, be it political, corporate, or even law enforcement.
That would be remarkable. At least three, in the same thread, and they didn't make more than a trivial change to the text. I was kind of hoping that the original source of the comment would be revealed.
What you're saying is that the government should have control of any money transaction, because otherwise criminals can use it. I can only notice two things here:
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 first point: The world is not as black and white as you tend to see it. jahewson probably does not think that government should control everything related to money. However, society has a legitimate interest to keep a check on large flows of money [0]. Government law enforcement is a part of that. (edited to emphasize quantifiers)
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.
1. This is not an argument, this is refusal to address the argument by repeating a platitude. The fact is that the argument "criminals can use it, therefore it must be tightly controlled" is applicable to anything. Yes, it is not currently applied to anything, because of political constellations and expediency and current needs of various power groups. But if you support this argument, you are supporting it wholesale, or abandoning logic and resorting to "I like this, but I hate that, logic be damned". You'll be in a big company with the latter, but it is nothing to be proud of. Same argument you are using for money can be applied to information, people, etc. What you are saying basically that everything should be controlled by the government as soon as the government feels it wants it. This is a consistent viewpoint, but you should not be refusing to admit it.
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.
Actually, my response to your first point gives you a very clear and useful test for deciding whether "criminals can use $FOO, therefore $FOO must be tightly controlled" actually applies to $FOO.
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?
Owning large amount of steel or wool or orange juice could make you a billionaire. Billionaires usually have a lot of power.
>>> 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.
Is your argument that "if there is a legitimate use for something, the government has no right to regulate it, even if it might be used criminally?" I think that is equally absurd. There is no rational reason to adopt a dogmatic position such as "Either the government must ALWAYS regulate X or the government must NEVER regulate X". It is entirely consistent (and imo a much better idea) to say "The government should sometimes regulate X, and sometimes not, under the following conditions...". 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.
No, this is not my argument. My argument is that telling "criminals can use X, therefore X should be under right government control" will lead you to a police state very fast, since for every X useful to ordinary citizen same X would be useful for a criminal, because criminals are people too. So this argument allows to justify control over anything. Either you accept that for you it is OK that the state controls everything, or you have to drop that argument.
>>> 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.
I think point 1 is to do with how you understand the argument. Logically the argument "X is bad, Y facilitates X therefore Y is bad" can be applied to pretty much anything. But I think the real justification is meant to be that the reduction in crime that results from regulating large money transfers justifies the loss of freedom involved. I don't know if that's true (I've never seen any statistics on this subject) but I think that's really what is being argued.
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 know if that's true (I've never seen any statistics on this subject)
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.
326 comments
[ 5.6 ms ] story [ 287 ms ] threadhttp://business.time.com/2014/01/27/bitinstant-ceo-charlie-s...
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...
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.
- http://www.fineorsuperfine.com/newyorkpress31.html
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?
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.
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.
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.
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.
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.
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.
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.
"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?
http://www.justice.gov/usao/nys/pressreleases/
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'.
...oh, wait. That's Albuquerque.
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.
https://news.ycombinator.com/item?id=6680062
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.
I guess this bodes poorly for the people who were hoping to get their coins back from Bitinstant: http://bitinstant.info/
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):
Source: http://money.cnn.com/2012/12/12/news/companies/hsbc-money-la...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".
[1] https://en.wikipedia.org/wiki/Whataboutism
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.
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.
http://en.wikipedia.org/wiki/Bearer_bond
1 - https://bitcoinfoundation.org/about/board
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.
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.
http://en.wikipedia.org/wiki/Cigarette_smuggling
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.