Mt. Gox Dwolla account frozen by DHS

https://bitcointalk.org/index.php?topic=205396.0

by manacit • 13 years ago

380 240 13 years ago

bitcointalk.org

dylz2• 13 years ago

Took long enough. Magic the Gathering: Online Exchange needed to be shut down long ago.

jstanley• 13 years ago

I realise I'm probably feeding a troll, but why do you think that?

rrouse2• 13 years ago

It's a play on the name of the site. Mt. Gox -> MtG: OX

dylz2• 13 years ago

I was one of the earlier adopters. I made a LARGE amount of money cashing out.

MtG:OX is terribly insecure, still using a shit codebase patched together for bitcoins, emphasising centralisation of BTC, which is dangerous.

At one point they controlled and hosted (and had access to the database) of the largest bitcoin forum, largest bitcoin exchange, which makes for a terrible monopoly.

It is dangerous to BTC ecosystem, it is dangerous to users' personal information being leaked repeatedly, getting hacked repeatedly, etc.

yid• 13 years ago

I'm guessing there are some sweaty brows at Coinbase today...

sdoowpilihp2• 13 years ago

I am hoping that this will pan out well for them. This may be a blessing in disguise. I suppose time will tell though!

Kiro• 13 years ago

Well how? I think they will be shut down.

dangrossman2• 13 years ago

Incidentally, I transferred some BTC from MtGox to Coinbase when I heard this news. It might be safer to have it in my own wallet somewhere, but if there's no way to get BTC back into USD, it doesn't matter where the BTC is to me; I'd consider it written off.

trevelyan4• 13 years ago

I will happily purchase from you at a discount.

i_am_dead• 13 years ago

There are always ways of getting USD for your coins, even if you have to sell them on eBay or whatever.

wmf2• 13 years ago

Only for one hour a day; they're closed the rest of the time.

quackerhacker3• 13 years ago

I'd love to see coinbase's network traffic right now as this spreads through the net. I really wish coinbase would allow currency exchange from bitcoin to any currency (hint hint coinbase).

I remember one of the first algorithms I wrote was to pattern trade the exchange rates (USD -> CHF -> EUR -> DNK -> USD), but then I realized that the fees would kill any potential gains from the imbalances.

dsimmons• 13 years ago

Already a thread going on here: https://news.ycombinator.com/item?id=5707537

jonathanmarcus2• 13 years ago

According to Aaron Greenspan in his recent lawsuit "a vast sum, if not the majority, of Dwolla’s transaction volume is the result of Bitcoin speculation."

So it should be interesting to see what impact this has on Dwolla's business.

sachingulaya• 13 years ago

Considering it cost me exactly $0.25 to send $30,000 to mtgox through Dwolla I imagine the impact is minimal.

Although, now that I have a Dwolla account I am more likely to use it in the future.

joezydeco3• 13 years ago

And how many FinCEN forms did you need to send that 30K?

That's mostly likely why DHS has shut them down.

wiredfool5• 13 years ago

I can't believe Dwolla took a 30k risk for $0.25. Their risk management just isn't priced into their fees.

jonathanmarcus2• 13 years ago

The main impact will be on their gross processing volume, which is in some respects a vanity metric because of their pricing model. Revenue will be impacted, but as your example illustrates, not directly or proportionately.

mindcrime2• 13 years ago

Somebody should freeze the DHS.

base698• 13 years ago

I think that was what Libertarian-Socialists thought bitcoin would accomplish :)

mindcrime2• 13 years ago

Well, strictly speaking, I suppose that the combination of Tor and Bitcoin is still a bit subversive from an anti-government perspective. But the problem is, obviously, not everything can be done in Bitcoin at the moment. And as long as we need to exchange between USD and BTC, this kind of thing is going to be a problem.

If BTC ever gains enough acceptance to (largely) eliminate the need to convert in and out of USD, it could be a real problem for governments who want to control all financial transactions.

Whether or not that will happen is anybody's guess. It's something of a chicken or egg problem, as BTC is less likely to gain mainstream acceptance if you can't easily convert to/from other currencies (USD probably being one of the more important ones). If BTC remains relegated to only black-market transactions on sites like The Silk Road... well... that makes it a bit less useful. :-(

liquidise• 13 years ago

As someone who follows politics very closely, i found the term "Libertarian-Socialists" borderline oxymoronic. I am upset to learn that it is in fact a well documented philosophy. How i would love to have a political debate with a self-proclaimed member of this way of thinking.

http://en.wikipedia.org/wiki/Libertarian_socialism

steveklabnik2• 13 years ago

That's what libertarians thought. Libertarian socialists generally have ignored Bitcoin.

quackerhacker3• 13 years ago

Guess it was only a matter of time before "the man," got involved in bitcoin somehow.

Side Note: if we think we actually own the dollars in our wallets...remember that it's illegal to deface government property (like writing on it)...so no we don't.

dangrossman2• 13 years ago

Defacing paper money is not illegal, only defacing it with intent to render it unfit for circulation is. Those "where has this bill been?" websites where people write/stamp the address onto the dollar are completely legal. Those machines at tourist cities that smash your pennies into local images are legal too; it's only illegal to destroy coinage for fraudulent purposes or to melt it down for the raw metals.

quackerhacker3• 13 years ago

Great point on the pennies, that totally skipped my mind.

In regards to melting, this is funny to admit, when I was young, I used to believe that coins should be worth more than dollars, because if they ever lost their value, I'm pretty sure I'd have more use for the metal than paper.

Domenic_S• 13 years ago

> it's only illegal to destroy coinage for fraudulent purposes or to melt it down for the raw metals.

It's more nuanced than that.

Back in 1965, the Treasury prohibited exporting or melting of silver coins, but that prohibition has long since been rescinded.

Currently it's unlawful to melt pennies or nickels, but not silver coins. Although silver coins (talking pre-1965 stuff here) trade for somewhere around and above spot value anyway, so melting is pointless.

qdog2• 13 years ago

Seems likely this has to do with money laundering. Even if bitcoins themselves aren't regulated, the exchange of them for illicit goods is. While the Silk Road or whatever to buy drugs is something I can see being frowned upon, profits from sex slavery and other human trafficking or mob activities would be the real problem. Also taxation. I suspect the exchange of bitcoins for goods in the US isn't going to be as easy as some people thought.

wiredfool5• 13 years ago

Since it's DHS, I'd bet it's Customs related, and from there, Silk Road.

If it was money laundering/ofac, you'd see Treasury or Secret Service involved. Widespread fraud would add the FBI and AGs.

declan4• 13 years ago

Actually DHS takes the lead on money laundering investigations. That would be ICE, part of DHS. And remember that the Secret Service is also part of DHS.

But DHS/ICE/HSI's mandate is so broad it's difficult to know what they're targeting here. Could be money laundering, could be something else. Their mandate also includes drug smuggling and computer crime, for instance.

zanny4• 13 years ago

While I understand they are just nuking the biggest fish in the pond, I don't know of many people using their gox accounts as wallets. Most people I know had personal wallets they would move gox money into and out of if they wanted to spend it.

minimax2• 13 years ago

Using bitcoin as a way to launder dollars requires the ability to turn USD into bitcoin and back again, which, incidentally, is exactly what Mt Gox does.

  dirty money -> mt gox -> bitcoin -> mt gox -> clean money

I'm obviously speculating here, but this seems like a logical reason for the DHS to come in and shut things down.

eurleif• 13 years ago

Wouldn't you still have to explain who was paying you BitCoin, and why?

jlgreco4• 13 years ago

"I do freelance [whatever] over the internet in exchange for bitcoins."

Where "[whatever]" is something relatively unverifiable. Programming, essay writing, whatever. Declare it properly as income and you probably won't have issues unless somebody actually decides to look closer.

Not all that different from "selling" heavily marked up drinks at your bar in exchange for cash, then pouring said drinks down the drain. It will work for a while so long as you avoid suspicion.

joezydeco3• 13 years ago

I would think DHS is more worried about

   (any) money -> mt gox -> bitcoin -> groups not aligned to DHS interests

mpyne• 13 years ago

This "threat" already exists with cash though (and with cash you can throw it into an ocean or burn it, but the blockchain will forever record your Bitcoin ID and you have to hope DHS never figures out which ID is yours).

jff• 13 years ago

who then need to go -> mt gox -> money in order to get any damn use out of it.

chez17• 13 years ago

It's not about logic, it's about power. Banks routinely (once every couple years it seems) get caught rigging rates, laundering money, financing dictatorships or terrorism, etc... In the US, when it comes to banking it's really not about logic but about power.

phyalow• 13 years ago

Money Laundering is a serious risk banks face, you only need to look at HSBC's recent debacles to see why. AML/Compliance at contra Dwolla Banks would have flagged this and quite rightly so. I disagree with your last statement. Could you please elaborate?

outside1234• 13 years ago

How is this different tho from USD -> Swiss Franc -> USD? I don't see how that cleans the money...

minimax2• 13 years ago

Bitcoin crosses borders more easily than CHF. Try this:

  Money in Saudi Arabia -> mt gox -> bitcoin -> mt gox -> terrorists inside the USA

cynicalkane2• 13 years ago

Banks are under the same political pressure as Mt Gox is, they're just better at handling pressure and playing nicely with politicians, so you don't hear about it as much.

Ever tried to send money to Somalia? If you think that's a silly question, there are a lot of Somalians here in Minneapolis who would like to feed their families back home (and a lot of banks who would like to make money by helping out). But politics makes that very, very hard. This is just one example.

elemeno• 13 years ago

Pretty much every step of USD -> CHF -> USD for large enough denominations is dealt with by firms that have strict requirements regarding recording transactions and verifying the identity of their customers due to anti-money laundering laws.

gph2• 13 years ago

Because that first step of USD(cash) -> Swiss Franc has to go through a bank and/or Forex exchange which has to follow U.S. anti-money laundering regulations. If you attempt to place a large amount of cash into a bank or forex account you will have a lot of paperwork to fill out to reasonably prove that it isn't illegitimately gained money.

Whether those regulations are actually effective is questionable (see HSBC, BoA, etc.), but that's the rationale.

nwzpaperman6• 13 years ago

Bitcoin doesn't launder money, but does enable the barter economy to be more liquid and scalable. Barter is very difficult to tax, so there is the issue.

I have personally discussed this with a friend that is a federal reserve spokesman, so anyone that wants to argue otherwise should consider that first.

ig1• 13 years ago

If you try and change a significant amount of currency banks will require you to go through "know-your-client" verification and anti-money laundering checks. I'm assuming Mt Gox didn't do that.

dragonwriter• 13 years ago

> How is this different tho from USD -> Swiss Franc -> USD?

It isn't, which is why there are big stacks of anti-money-laundering regulations that governments impose on banking and forex.

nazka• 13 years ago

This exactly why I think Bitcoin has no future. Soon or later it will be regulated and we will go back to the same thing.

camus2• 13 years ago

it will not be regulated , it will be shut down , plain and simple , unless everybusiness out there accept bitcoins , one needs to convert it to a sound currency in order to use it.

sneak3• 13 years ago

I realized yesterday that the number one non-speculative use of Bitcoin (to be specific: buying stuff on SR) is already a felony in the US today.

Even if it's regulated, it can't possibly be more illegal than it is now.

I doubt the regulatory environment in the US will have much effect on Bitcoin adoption curves.

crisnoble• 13 years ago

I have exactly 1 bitcoin and no silk road experience, but IF I sold drugs I might do it like this:

drugs->bitcoins->mt. gox->USD->Dwolla->Bank Account

A buyer would do the above actions in reverse.

As it stands today there are many, many ways to perform that chain of actions. I personally funded my Mt. Gox account with Dwolla because it seemed like the only above the board operation out there.

wildgift2• 13 years ago

I think a more typical chain is:

drugs -> USD -> mattress -> grocery store

fnordfnordfnord6• 13 years ago

If all it takes is a little bit of money laundering to get your bank shut down, we're going to run out of banks pretty fast in this country.

jpdoctor3• 13 years ago

> If all it takes is a little bit of money laundering to get your bank shut down,

Don't be ridiculous. You have to both launder money and not give any of it back with campaign donations. Only then do you get shut down.

nwzpaperman6• 13 years ago

Money laundering is about legitimizing the source of money and isn't facilitated by the unit of exchange: dollar, yen, rupee, peso or bitcoin.

Post-2001 and the Patriot Act, bank tellers, stock brokers and insurance agents have all become lay intelligence officers under "Know your customer" compliance requirements. Informal value transfer systems, barter/black-market, are only a problem in terms of taxation.

Mt. Gox and money exchanges were functionally brought under these KYC compliance regulations and it is only a question of time until bitcoin users will have to speak about the source of the money. Sources are important because that's how taxes are levied.

If you can show you have paid taxes on your money, it's rare to have a problem.

We have systemic trillion dollar annual deficits, so tax collection efforts are being ramped up. It's why you get 10,000 IRS officers hired instead of 10,000 doctors for a national health care system reorganization.

SageRaven• 13 years ago

> We have systemic trillion dollar annual deficits, so tax collection efforts are being ramped up.

Funny. In renewable energy circles, the first, and most efficient, optimization is "conservation". Converting the 50 incandescent bulbs in your home to their LED or CFL counterparts yield more long-term value than spending the money on the ability to produce the power those original bulbs consumed.

Likewise, our government needs to quit pretending it actually needs money and cut spending. The TSA and middle-east war machines are the first places I'd start with.

prirun• 13 years ago

Why was Mt. Gox shutdown but HSBC wasn't? The last thing the Fed wants is a currency they don't control and can't debase.

shitgoose• 13 years ago

- mt gox and BTC generally volume is miniscule, nowhere near to accommodate money laundering - cartels probably make mt gox's monthly volume in one hour - 'dirty money': is it cash or bank account? i presume cash. how will you sent million of $$ to mt gox? fedex a suitcase? how mt gox will deposit million $$ cash into their back account? good luck with that - BTC transactions are public (see blockchain faq); tracing significant amounts of BTC entering and leaving mx gox is a matter of technicality - etc

mehwoot3• 13 years ago

Mtgox monthly volume from bitcoincharts.com: $454,693,733 USD.

I'd be impressed at any cartel making $454 million in an hour!!

ry0ohki• 13 years ago

Shouldn't it be the FBI or DOJ then, not DHS?

declan4• 13 years ago

DHS typically takes the lead on money laundering investigations. To unpack the acronyms: that would be HSI, part of ICE, which in turn is part of DHS.

wildgift2• 13 years ago

That's not how laundering works. MtGox is tracking all the transactions, and will work with the police.

There are laundering services that will take your money, then send it to a recipient in dribs and drabs over time. They basically say they won't work with police.

Dwolla was probably stopped because there's some regulation regarding converting money between currencies.

rms• 13 years ago

It seems like it should be a reason for DHS to force Mt. Gox to share information about their customers and agree to help DHS prevent money laundering, but shutting things down seems like an overreach that will likely be temporary.

mattmaroon• 13 years ago

That is not how money laundering works. The whole point is to provide an ostensibly clean source of the revenue. If you must first deposit the money into something traceable (a bank presumably, since Mt Gox probably doesn't take cash) your cover is blown. Also converting it to bitcoin and back again does nothing at all.

runeks4• 13 years ago

Mt. Gox has anti-money laundering policies. They have a withdrawal limit of $10,000 per month for non-verified accounts, this is utterly useless for laundering money by any serious actor. I feel fairly certain claiming that you can launder $10,000/mo. a lot easier, and more privately, than by going through Mt. Gox.

jpdoctor3• 13 years ago

With the various shutdowns of US-based exchanges (and US purchase mechanisms for foreign exchanges), it is driving the bitcoin biz offshore from the US.

I don't think it takes too much of a crystal ball to figure out this strategy is a bad idea. Conversely, I hope all of our foreign friends remember to send a few bitcoins our way for putting this generous gift of a multi-billion dollar finance industry into their laps.

jlgreco4• 13 years ago

Are we sure that bitcoin originated in America? Maybe they gave us this gift, and we promptly mishandled it and lost it.

jpdoctor3• 13 years ago

> Are we sure that bitcoin originated in America? Maybe they gave us this gift, and we promptly mishandled it and lost it.

Yep we mishandled it certainly... When there is a new technology which is about to change the face of the planet, the usual response is to bring as much of the industry for that tech into your own country.

The US response has been the opposite. I suspect later generations are going to regret it.

gwern• 13 years ago

No, we're not... The default assumption for anything cryptography is American, yes, but Satoshi's original claims of being Japanese (which no one believes given his great English and complete absence of any displayed Japanese phrases, allusions, references, knowledge, or anything) aside, the timing of his posts and some phrasing suggests he may've been in the United Kingdom.

godgod• 13 years ago

DHS (US govt) is deathly afraid of bitcoin.

wmf2• 13 years ago

Discussion from a few months back on "how Bitcoin dies": https://news.ycombinator.com/item?id=5109961

vijayboyapati2• 13 years ago

So the outcome looks something like this:

1. holders of dollars at MtGox will buy as many btc as possible and remove them from MtGox, because there's no other escape for their dollars

2. holders of btc at MtGox will presumably send them elsewhere because selling them for dollars doesn't make sense if you can't get the dollars (although perhaps it still makes sense for euros/pounds/yen etc)

3. There is a loss of liquidity at Gox from all the btc being pulled from there

4. The dollar price at other exchanges starts falling because they are still exit points for dollars

Most of the trading volume is in dollars at Gox if I'm not mistaken, so this might be the death blow for them. Although given their history of incompetence, it was kind of sad the network effect was protecting them. Perhaps a phoenix will rise from the ashes.

chadzawistowski• 13 years ago

Interesting analysis. I've heard a lot of pontificating about how MtGox's utter dominance of USD-BTX exchange was bad for the Bitcoin ecosystem as a whole; I'd like to see how the Bitcoin community reacts to this change over the next coming months.

3pt14159• 13 years ago

Here is the actual outcome:

1. Holders of dollars at MtGox that live outside the US and have already had successful withdraws to their home-country banks withdraw now. (Source: I just did)

2. Then we sell a large portion of our bitcoins (essentially just leaving the, "if I'm wrong" fund of bitcoins, about 20% of what we bought way back when it was $1 or $5 or whatever).

3. Then we withdraw that amount to our home country bank.

4. Then we wait for the next 2 months as speculation of DHS swings the price down then up then down until DHS stikes against MtGox and the price collapses to about $20 or $30.

5. Then we figure out a way to buy back in.

6. We wait 2 years and start selling out at $1000 / BTC while people scream "currency of the future".

changdizzle2• 13 years ago

If we have money in MtGox what are our options for cashing out now?

fnordfnordfnord6• 13 years ago

BTC transfer to CampBX and then out through Dwolla or any other method they offer. BTC trade for services or goods. BTC trade with private party. BTC to another exchange with different banking arrangements.

zanny4• 13 years ago

This, you can still transfer bitcoins between any exchange service offering transactions.

Though I have to fear for both campbx and coinbase - they are the next two biggest ways to convert USD to BTC.

changdizzle2• 13 years ago

thanks! that's what I ended up doing - I looked at creating an OKPAY account, which MtGox can transfer between but I would have to wait the X days to get my account verified and re-submit all my personal documents. bought the BTC on mtgox, transferred to campbx, broke even, and started my dwolla transfers

i'm not pulling my cash out because i don't believe in BTC, but with the uncertainty and volatility at the moment I'm going to take a wait and see approach

sneak3• 13 years ago

Transfer to Bitcoin. Go to localbitcoins.com and sell those bitcoins to a private party for local currency. Done.

declan4• 13 years ago

A Department of Homeland Security representative confirmed the investigation a few minutes ago and told me this:

"In order not to compromise this ongoing investigation being conducted by ICE Homeland Security Investigations Baltimore, we cannot comment beyond the information in the warrant, which was filed in the District of Maryland earlier today."

More: http://news.cnet.com/8301-13578_3-57584511-38/homeland-secur...

nullc• 13 years ago

Thanks, Mr. McCullagh, for doing some actual journalism and not just repeating a rumor.

downandout2• 13 years ago

The US government dislikes Bitcoin, and they figure that they can hurt it most effectively by targeting Mt Gox. Whether or not they have a case is almost a moot point. Vague allegations of money laundering will be enough to take a serious bite out of Mt. Gox's business. The feds will accomplish it in the exact same way that they destroyed Megaupload: by seizing their domain.

As part of the case apparently filed against MtGox in Maryland, they will likely soon confiscate the domain (since it is a .com and the US has declared itself the emperor of all .com's). Then, it won't matter whether they actually win the case. Having the domain gone for a long period of time will make a serious dent in their business. It probably won't be the death knell, since Bitcoin users tend to be more sophisticated and used to complications like this, but the filing of this case is probably a sign that Mt Gox will be headed out as the market leader.

tptacek2• 13 years ago

it in the exact same way that they destroyed Megaupload

You mean by filing a case against them and then, in the discovery process, locating the emails in which the founders of Mt. Gox openly admit that the whole enterprise is built on deliberate cultivation of commercial copyright infringement, so much so that the operators of Mt. Gox actually pay their users to upload pirated movies?

That sounds far fetched. If the US is going to try to take down Mt. Gox, I think they'll do it a different way than how they went after Mega.

sdoowpilihp2• 13 years ago

I think the point is that implicating MtGox in a money laundering scheme and showing the possibility of willful negligence on their part will likely be enough to tie them up in a legal process long enough to suffocate the site in terms of finances/operations.

downandout2• 13 years ago

No, it's the same way that they go after any online business. Take away their domain, and the business is dead. Within days, any hope of the domain returning to life is gone and people are onto the next site. Even if the business ultimately wins the case and gets the domain back, the government will have long since achieved its goal of destroying the business. A domain seizure is equivalent to a death sentence for an internet company.

makomk2• 13 years ago

The thing is that Megaupload didn't do that. They were actually well known for refusing to pay uploaders of copyright infringing content, and despite the DoJ carefully selecting the e-mails they presented in court this was even mentioned in one of them.

One of the e-mails presented as evidence Megaupload paid copyright infringers talked about them relaxing their policy and paying someone with copyrighted content uploaded to their account a commission for downloads because none of those downloads involved the copyrighted content. (Presumably they were using their account for backups or something, I don't know.)

jstalin• 13 years ago

Another reason to buy at https://localbitcoins.com/

tocomment• 13 years ago

Why isn't this causing the price of bitcoin to drop?

carbocation• 13 years ago

In the past 6 hourse, the price of a bitcoin in USD on MtGox went from a (previously stable) ~$119 to $105.

iso8859-1• 13 years ago

because not everyone is a US citizen ?

beedogs2• 13 years ago

Sort of hoping and praying for the collapse of the US government. This shit is getting out of hand.

vecinu• 13 years ago

What a bunch of dribble. This comment is so toxic on HN.

beedogs2• 13 years ago

You're right; your comment was crap.

camus2• 13 years ago

"... this is what you get, when you mess with us..."

Uchikoma• 13 years ago

Haha, we have no accounts to trace, bitcoin works differently! DHS: Shut everything down.

tomelders• 13 years ago

Before governments start clamouring (in vain) to shut down Bitcoin exchanges on spurious claims that they're money laundering havens, I thought I'd remind everyone that neither HSBC, Barclays, Credit Suisse, Standard Chartered or ING were shut down when they were caught laundering money.

http://dealbook.nytimes.com/2012/12/10/hsbc-said-to-near-1-9...

"Give me control over a nations currency, and I care not who makes its laws.”

Baron M.A. Rothschild

hisabness2• 13 years ago

this is great, freeze a company's bank account without even serving them:

https://mtgox.com/pdf/20130515_statement_regarding_dhs_court...

chris_gogreen• 13 years ago

Seriously, why not just answer the questions on the form truthfully? I hope that was an oversight. Fibbing to the feds will get you in big trouble.

Mt. Gox Dwolla account frozen by DHS

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