I believe privacy advocates needs to be more involved in the financial sector for there to be any meaningful change and provide counter proposals to balance.
The problem now is that a lot of cryptocurrencies are prime targets for money laundering, financing organized crime and terrorism networks. I often get shat on when mentioning that, especially by loud proponents of cryptocurrencies, but it is a real issue that must be resolved.
Our old-fashioned bank system is far from perfect but it is harder to do illegal things unnoticed, banks report thousands of cases to authorities every year.
Cryptocurrencies is the future, and we should not let our guard down allowing criminal elements to exploit it.
> The problem now is that a lot of cryptocurrencies are prime targets for money laundering
The issue is that you can't actually solve this. It's already over.
The premise of money laundering rules is that you have two conspiring parties transferring illicit gains between one another and the regulations have the bank as an intermediary informing on them to the government.
The existence of cryptocurrency makes it possible to do this without an intermediary party. It has already happened and you can't put the genie back in the bottle. It doesn't matter how you regulate above-board exchanges and transactions in the US because the illicit transaction can occur digitally outside of the sphere of influence of a given country without using any of the intermediaries being subjected to the regulations.
What it means is that all the costs of AML and KYC regulations are no longer buying you anything because actual criminals now have an end-run around them, but they're still costing you something, as the law abiding people trying to comply with the rules, for as long as they remain on the books.
Well, not quite. You seem to be conflating "money laundering" with all "undesired"/illegal transactions.
Laundering implies transition from "dirty" to "clean".
This is the kind of scenario that these kinds of regulatory requirements impede:
"Dirty BTC" transferred to Binance, traded for ETH, sent to Coinbase, traded for USD, and sent outward to a fiat bank account.
Like you say, strictly peer-to-peer value transfer is game over. If every point of contact between cryptocurrency and a regulated entity requires full KYC, those illicit funds can be prevented from entering the regulated economy.
What's happening here is effectively a battle over the fungibility of cryptocurrency. If the transactional history of each UTXO comes under scrutiny for a business to touch a BTC transaction, the practical value of each satoshi differs. This was actually brought up many years ago as an argument for why bitcoin in its current form (sans untraceable transaction) may lose the "fungibility" property and thus will lose its utility as money.
This was early on a main selling point for Monero; "truly fungible cryptocurrency".
> Laundering implies transition from "dirty" to "clean".
But this doesn't really work directly with fiat anyway. If a million dollars suddenly appears in your bank account and the IRS wants to know where it came from, and your answer is "I sold some Bitcoin" their next question is where you got the Bitcoin.
Money laundering works with front companies. Your front company is e.g. an electronics retailer. Your foreign supplier is in on it. You transfer money to them for a truck full of televisions and game consoles, but when the truck comes, it has twice as many as you could ordinarily get for that amount of money because you paid for the rest under the table.
Then you sell the products and get clean money. It used to require a truck full of cash or diamonds going the other way, now it's cryptocurrency. That's what they're complaining about. They used to be able to catch that truck crossing the border with a hundred thousand dollars in cash, now they can't. But you can't stop that by regulating exchanges or anything else that law abiding people are doing.
> If every point of contact between cryptocurrency and a regulated entity requires full KYC, those illicit funds can be prevented from entering the regulated economy.
You can't get there when cryptocurrency is used internationally. The foreign entity selling the criminal organization the televisions isn't subject to KYC regulations in its own country. Or it is on paper but that country's government is corrupt and looks the other way.
It also doesn't actually solve the problem even if you managed to do that. Suppose the cryptocurrency of unspecified origin is prohibited from being used above board in the US. So then it isn't worth as much. Great, then it can be acquired for a lower price; doesn't impact its utility as a medium of exchange. And then the criminals still use it for that and the electronics wholesaler in Russia doesn't really care that the cryptocurrency it receives can only be used in Russia because that's where it is anyway.
All the regulations do is make things harder for people who follow the law.
Oh, I agree that these measures are futile, counterproductive and won’t stop organized crime. That being said, you seem to underestimate the global reach and compliance of banking regulation. Check out FATCAs travel rule.
Also, the difference with a truck and a UTXO/address is that the latter can be reliably and deterministically tracked. Assign identifiers once and bob’s your uncle, if you want to surveil economic activity.
> Also, the difference with a truck and a UTXO/address is that the latter can be reliably and deterministically tracked. Assign identifiers once and bob’s your uncle, if you want to surveil economic activity.
That seems a lot more useful if people were using it like a bank account. Once you figure out that a given address belongs to Alice, if that address starts paying for hotels and cloud services, now you know what Alice is up to.
But anybody who would be interesting to surveil would know not to do that. So you get an address that keeps receiving transfers and then sending it to an unregulated foreign exchange because they're using the cryptocurrency to buy their local currency. From there the cryptocurrency goes into the hands of various uninteresting randos with no connection to the original party.
Bitcoin has a public transaction record but the parties are nameless. All you see is times and amounts. And cryptocurrency mixers make those not very easy to trace.
Also, "solving" it by doing anything that would only cause criminals to switch to something else that already exists doesn't really solve anything, does it?
Bitcoin transactions are not nameless in practice because people will nearly always interact with exchanges and merchants. There is so much information from that. Mixers and CoinJoins don't work well enough when used by a small percentage of people, and they will cause redflags in AML analysis systems. Privacy is already being priced out as the transactions fees rise, too. With strong regulations it will enable surveillance on scale greater than anything we have seen before.
Terrorists and such will just use something else, sure. However, lack of liquidity and network effect will be problematic. I would be comfortable saying that stopping them is an excuse rather than the real goal - mass surveillance on citizens. Same with how the government is intent on complaining about end-to-end encryption apps like Signal when the real terrorists will just use PGP.
they have to clamp down on financial privacy because they invented financial crimes
the federal crime of "money laundering" requires the state to use public resources in whitelisting every transaction, and having the entire population stigmatize the concept of ever having money themselves let alone actually moving it
and that 50 year old absurdity is pretty much what they are doubling down on
If you’ve seen the real harm that caused in the world by money laundering, you would be less inclined to condemn its prevention.
I’ve personally seen cases of money laundering where the money comes from sexual exploitation, human trafficking, modern day slavery, organ trafficking, high value thefts (petrol, or digits bank robberies), standard social engineering scams etc
These aren’t special one of events, this happens in small bank on every day ending in y. Most fincrime teams don’t have the energy to deal with normal people moving their cash, or even high net wealth people moving their cash. They’re too busy tracking down and cleaning up after some really nasty people.
> sexual exploitation, human trafficking, modern day slavery, organ trafficking, high value thefts (petrol, or digits bank robberies), standard social engineering scams etc
That kind of logic can be used to justify putting government cameras and microphones inside everyone's homes too.
Having laws requiring the state to get a warrant from a court to conduct a search, is not an extreme. Instituting warrantless mass-surveillance, like monitoring every transaction above a certain size, is the extreme.
You’re not wrong. There’s clearly a balance to be made, but financial institutions are good choke point for detecting and preventing a great number of different crimes. After all few engage in criminal behaviour just for fun, without the profit motive most serious crimes just wouldn’t be worth it.
I don’t advocate for wholesale financial surveillance, and I certainly think the rules advocated by FinCEN here are both naive and an overreach.
But I do think banks should have an obligation to detect, prevent and report financial crime, if only to make sure banks don’t become complicit. Providing financial services to criminals is incredibly lucrative, far more than providing services to ordinary consumers.
Giving government agents the ability to conduct warrantless dragnet surveillance on the population's private financial transactions is extremely dangerous, even if it is a tool government officials can use to combant malevolent criminal behavior.
This type of mass-surveillance concentrates power in the hands of the few, and gravely endangers both private property rights and political freedoms.
No one should have this power in a free society. Not you, not me, not the most trustworthy individual in society. And with all due respect to the countless men and women who honorably carry out their duty in law enforcement agencies, we don't even have law enforcement agencies with unblemished reputations, to be giving awesome illiberal powers to.
In the Silk Road case, two agents, from two different agencies, conspired to steal BTC, and they only got caught because of the mistakes they made due to the novelty of the financial technology. It's any one's guess how much corruption goes undetected.
Giving mass-surveillance powers to a select subsection of society is just asking for massive corruption and abuse.
Mass-surveillance makes government in general too powerful even ignoring employee-level corruption by those who administer the surveillance programs.
The government should not have so much information on the populace that it could enforce any conceivable law. There should be widespread use of privacy-enhancing technologies, like end-to-end encrypted communication, cash and cryptocurrency, so that some laws are hard to enforce, and the government's ability to micromanage people's lives is inherently limited. Absent that, dystopia is only one bad election away. Non-political checks on government powers, like widespread use of cash and its electronic corollaries, are an important institution of a free society, as a failsafe in case of a failure of the political system.
Capital Gains Taxes + Inheritance Taxes (more so in the UK) + Inflation means that all wealth is gradually eroded. The stigmatisation is to prevent transactions occurring outside of the taxation and government credit system.
Hard limits to cash transactions exist in most countries around the world. For example, in France, as a business, you can't accept payment in cash above 1000€. Between consumers, you need to produce an invoice.
I personally deeply disagree with the EFF regarding FinCEN. From my point of view, the obligation imposed by the regulation strikes a good balance between protecting private life and fighting tax dodging and money laundering. Records only start at $3000 and reporting at $10000. This puts most transactions between individuals in the no reporting zone.
As someone that works in financial crime prevention, I think these rules are a very blunt instrument that will almost certainly do more harm than good.
There have been banks in the past that have operated similar policies, and regulators have raked their senior leaders over the coals for implementing such naive rules.
Transaction size alone tends to be an extremely weak signal for money laundering, but does tend to be a very strong single of high net wealth. Any criminal worth their salt will split up illicit transactions into smaller ones to avoid these types of rules, it’s money laundering 101.
> Any criminal worth their salt will split up illicit transactions into smaller ones to avoid these types of rules, it’s money laundering 101.
FinCEN mandates that all transactions conducted by or or on behalf of the same person during the same business day have to be aggregated and the $10000 dollars limit is per individual not per account.
So if all >1000€ transactions need to be reported, that means that they need to be recorded in an electronic system. That data is recorded for the purpose of sharing with various institutions and agencies, and you do not know who will see that data or how long it will be shared for.
There is basically no privacy for transactions above 1000€.
Worse, that data can be hacked and leaked to the internet. Eg. Criminals will be able to see that last summer you bought an expensive watch, and know that you may be a good target. Such data has often been leaked to the internet before.
There was a recent incident where the sales data for the Ledger cryptocurrency hardware wallet was hacked and leaked to the internet. Including names and addresses of people. I guess this stort of stuff will happen more frequently in the future.
> you do not know who will see that data or how long it will be shared for.
Of course I know, these things are regulated separately. Sure, my bank could share it illegally but they could already have done that even without mandatory recording.
> Worse, that data can be hacked and leaked to the internet.
As could my fiscal declaration, my bank statement or all records of my transactions with any sellers.
I personally am fine with my state mandating that large transactions between individuals have to be recorded for fiscal purpose in the same way that I'm fine with it imposing accounting standards to corporations and asking people to fill tax declarations.
You're personally fine, until your transactions are posted to the internet along with the address to where you live. Period.
As for the regulation, things like the recent GDPR helped a little - if you are an EU citizen, you can now legally request them to provide a list of the time someone accessed your details. I recently did that with a financial provider and had a very unpleasant experience when I found out who they share the data with - basically companies and institutions I've never heard of, like credit score providers & other financial information data mining companies.
The idea of fiat currency only works when people are forced to participate in it. The petro-dollar was fairly obvious in the late 20th century, but now things are more subtle.
The key thing is ensuring that all exchanges of wealth only occur within a currency controlled by the authorities. They are not really concerned about minor instances of tax avoidance; the primary concern is that large scale economic activity could start occuring outside of a government controlled credit market place.
The goal here is to ensure that Bitcoin is financed in USD, and that the finance of this asset remains in government controlled credit. You can borrow bitcoin sure, but its in USD credit markets.
You can't at this stage get a bitcoin-mortgage, or a bitcoin credit card that never references USD. Imagine if you could transact in bitcoin all the time, and post assets as collateral to get bitcoin loans with interest pay-able in bitcoin. This would be a point where people stop measuring bitcoin in USD and start measuring things in bitcoin, and is something the US regulators seek to avoid at absolutely all costs.
> The key thing is ensuring that all exchanges of wealth only occur within a currency controlled by the authorities.
I don’t think even this is a requirement. Really all you need is all large transfers of wealth to be reported to central governments so they can collect tax, and enforce money laundering prevention rules.
Don’t think a government really cares what currency you use, fiat or crypto, as long as they get their cut in a currency of their choice.
They care a lot about control over credit markets. The entire premise of central banks controlling inflation via the money supply becomes precarious when people are able to issue and access credit outside of the controlled money supply.
You're entirely right that they want their cut, but they also don't want to end up like a country such as Indonesia or Vietnam where all the financing has to be organised in the USA. The US FED can print money during a recession to ease credit conditions; many non-western countries have no such luxury because while they might have a sovereign currency, all the serious enterprise in their country is financed in New York and cities in Western Europe.
I'm way behind on my news and weak on understanding. I thought I had read that the total number of bitcoin has an upper bound. How can you have interest when there's an upper bound?
I mean, I could lend you 500 sheep and request 500 sheep + 10% per annum for each year you hold my flock. If you held for 1 year, it would be 550 owed. 2 years, 605. 3 years, 665.
With sheep, you might approach this by breeding them with the aim to produce more sheep than are owed, or selling the wool to buy more sheep or whatever.
However, we could also do this with a scarce and inorganic resource such as palladium ingots. In this case there can still be interest but you would have to exchange other resources in order to acquire more palladium to pay back the loan. It is still functional provided the market for palladium has good liquidity.
EDIT: for more clarity, you could borrow bitcoin with a bitcoin-interest component in order to acquire an asset. Then if you could get paid a salary in bitcoin as well, you would be able to pay the loan back.
While you may not be wrong with your conclusion, you're likely wrong withe the argument behind it. Something being done "like this" in the past is not an argument for or against continuing.
Counterpoint: Throughout all of human history people warred, raped, pillaged, and enslaved.
Because it's cumbersome enough to use cash. My main problem with cryptocurrencies isn't that it's used by organized crime, but that it risks eroding public trust in the tax system. In high tax/high trust systems, that can be disastrous.
Is it a bad thing? Maybe taxes shouldn't be a thing, or should be low enough that it's easier to pay them than to dodge them?
One of my problems with taxes is that it's essentially a free, automatically-replenishing pool of money for stupid politicians/government officials to spend recklessly (often prioritizing short-term wins that give them the most political clout) without the "pressure" a typical business in a competitive environment faces to use their money in the most efficient manner possible.
Very few low-tax countries are pleasant to live in for the average human being. Clamors for low tax are inevitably made by millionaires or misguided people that believe they might one day be millionaires. Taxes exist for a good reason and have a demonstrable positive effect on the societies where they are levied. Trust in politicians doesn't factor into that, as taxes are generally spent by government officials.
> taxes are generally spent by government officials
By politicians I meant to include government officials; I've edited my comment to reflect that.
> Very few low-tax countries are pleasant to live in for the average human being
I agree, but I don't see the current situation being great either; I think the countries where high taxes are demonstrably increasing quality of life are outliers, and similarly you can increase QOL without a significant (or any?) raise in taxes.
My point is that in my opinion taxes break the typical market dynamics (that private companies are subjected to) that incentivise the entity (the company, or in this case the government) to spend their money in the most efficient way possible. Instead, taxes are seen as a near-infinite pool of money you can afford to burn with no ill effects because it'll just keep replenishing itself forever.
A recent example in the US another scam going around is the "Solar Roadways" which the electronics engineering community has debunked years ago and yet they recently secured yet another grant from the DOT to burn public funds on something that is known to not work (give this fact, the only reason it was chosen is because someone in power wanted to take advantage of this opportunity to show their support for sustainability/renewable energy/eco-friendliness to gain more political support).
If you pull up a list of countries by tax rates and some quality of life index they seem to be pretty corrolated so I would not say it is an outlier, where as the outliers are those with low tax and high QOL for example UAE, Oman and Qtar, but all those have a pretty significant income in another way compared to most countries.
I think you have the causation backward. The poorer the country the less of a cut the government can take without bringing everything crashing down. These places are low tax because they cannot afford to be high tax.
If you look at local taxes and fees between US cities the same pattern emerges.
I think this is exactly right. Low tax jurisdictions are also often desperate to attract business. Mobile people are willing to pay high tax only when they get something else like stability and high quality of life
>> If you pull up a list of countries by tax rates and some quality of life index they seem to be pretty corrolated
Try correlating restrictive immigration policies and quality of life index. Should we tax people a lot and make it very hard for immigrants to become citizens? Scandinavian countries do precisely both.
Compared to the US almost every country has lax immigration policies. Specifically for Sweden, I would say that it doesn't have significantly more strict immigration policies (language, job skills that are required) than any other EU country that someone would actually want to emigrate to.
Low government spending as a percentage of GDP is strongly correlated with higher rates of economic growth [1], which is a strong indication of a well-functioning society.
Maybe in the nice countries taxes are high because it's possible for them to be high, what with it being a nice country full of nice rich people that accept to be taxed.
Maybe in not-so-nice poor countries (which again means the people, we're not talking about the landscape here) the goverment would love nothing more than to raise taxes but it's impossible for them because the people just won't take it.
Oh, and if you're still thinking the other way around: No, starting with high taxes doesn't work to make your not-so-nice country into a nice one (Google "Communism")
Taxes are corrupt. I profited from a publicly funded project in CA and the abuses were atrocious. You should minimize your tax burden as much as possible.
What exactly is this scary crime that is supposively happening with money? They didn't need much money to do 9/11 besides some airline tickets and box cutters, I'm sure it wouldn't trip any bank report flag that would have allowed them to stop it from happening. Organized crime, is that even a thing? If no one is even going after obvious ico scams that have defrauded investors out of hundreds of millions of dollars and other similar things operating out in the open then what exactly are they so scared of that they want to track every transaction? It's just money, what's wrong with someone buying something?
To put it more succinctly, no part of the Patriot Act would have flagged the 9/11 terrorists.
The Bank Secrecy Act and every expansion of it (like the Patriot Act) is just some data broker's pet project to fill some lucrative government contract.
So much of this feels like someone invented a teleporter and now reactionaries are condemning teleporters because they can be used by smugglers to evade customs enforcement.
But the cat is out of the bag. The smugglers are going to keep using it regardless of what rules you impose on law biding citizens.
and otherwise law abiding citizens are the only ones ensnared by this.
most of the time its because they are paranoid about triggering government reporting requirements that they don't understand, and avoiding that is a crime too!
its always the people without money trying to act sketchy about $10,000 so they can avoid being seen as sketchy
Terrorist acts are only part of it though. Sure 9/11 was cheap but implementing punitive sanctions across countries hundreds officials requires an awful lot of tracking and monitoring.
As regulators catch up you can expect same forms and reporting for any crypto account as a regular account. If you ignore the rules expect big penalties until you comply- just like how banks have been paying billions in fines and are now tarpits of paperwork.
> The problem now is that a lot of cryptocurrencies are prime targets for money laundering, financing organized crime and terrorism networks.
I'd argue otherwise. A good (or successful) cryptocurrency should allow such transactions and be safe from the government. A good cryptocurrency should be ready for adversity and if it is censorship-resistant and really private, the government shouldn't have much power over any transaction.
> Our old-fashioned bank system is far from perfect but it is harder to do illegal things unnoticed, banks report thousands of cases to authorities every year.
We are happily open to suggestions on ways to stop crime that don't involve collecting any additional data, but I think you'll find it very difficult to come up with systems that satisfy both stakeholders here, as the way I see it they are at a constant impasse.
Capitalism will sort it out. There are perverse incentives for violations of privacy in almost all consumer verticals. When the surveillance stops being profitable we will be free.
The problem now is that a lot of cryptocurrencies are prime targets for money laundering, financing organized crime and terrorism networks. I often get shat on when mentioning that, especially by loud proponents of cryptocurrencies, but it is a real issue that must be resolved.
Our old-fashioned bank system is far from perfect but it is harder to do illegal things unnoticed, banks report thousands of cases to authorities every year.
Cryptocurrencies is the future, and we should not let our guard down allowing criminal elements to exploit it.