How to Launder Billions of Digital Dollars

http://www.theatlantic.com/technology/archive/2013/11/how-to-launder-billions-and-billions-of-digital-dollars/281091/

by kitcar • 13 years ago

51 56 13 years ago

ck2• 13 years ago

Ah they now have an angle to go after bitcoin.

keyme• 13 years ago

Difference is, there is no one behind bitcoin. No one to arrest. The only "real people" "behind" it are the Exchanges. However, they(usually) hold proper documentation for transactions and comply with the law fully.

dragonwriter• 13 years ago

Difference is, there is no one behind bitcoin. No one to arrest. The only "real people" "behind" it are the Exchanges.

No, the real people behind it are the miners. You know, the people that create bitcoins and validate every bitcoin transaction?

dublinben• 13 years ago

That's a pretty new situation, and not nearly as certain as you make it sound.

gwern• 13 years ago

Incidentally, Preet Bharara is also in charge of the Ross Ulbricht trial (the NYC one). So LR is wrapping up just in time to focus on SR.

peteretep• 13 years ago

Bitcoin makes money transfer easier to monitor. Why do they want to go after Bitcoin?

driverdan2• 13 years ago

LR's most basic criminal offense is simple: It didn't know or want to know the identities of its clients. They allowed people to transfer big sums of money without checking their identification.

That this is a crime disgusts me. I should be able to do whatever I want with my money without anyone knowing who I am. That's how it worked up to the past century.

rayiner4• 13 years ago

The crime isn't transferring the money. The law applies to the payment processor, who profits from often criminal activity.

aric2• 13 years ago

Operating a medium of trade for profit that others use consensually shouldn't be illegal. The act of people trading value consensually also shouldn't be illegal. The parent post is likely affirming both of these positions.

Smirnoff• 13 years ago

Umm, no, you shouldn't be able to do everything you want with your money.

A payment processor has a fiduciary duty for its customers. So if you are sending $100,000 to Nigeria to pay for puppies, the Payment processor better stop this transaction to protect you form being scammed.

Now maybe you are smart and savvy enough to be not scammed but an average joe isn't.

There are many rules in the payment industry but KYC (Know Your Customer) is pretty high up in the Payment Processor's Bible. From the article it seems that Lib.Res. didn't just commit minor sins; it was designed to disregard the bible all together.

loopdoend2• 13 years ago

In actuality it's way worse than just being scammed out of your property. People are being deprived of their freedom and dignity, something even the most die-hard libertarian will find challenging about this "total freedom in moving my money anonymously" position.

http://blogs.aljazeera.com/blog/americas/face-human-traffick...

Glyptodon2• 13 years ago

Fiduciary duty should be to prevent customers from being scammed themselves, not to prevent them from purchasing things they want. IE Nigerian puppies is probably a scam, but of, "Hi, we're Paypal and we've decided to just keep your money because you ordered a reproduction Civil War cavalry saber and it's against our TOS" is just bull.

It's one thing to have some sort of fiduciary duty to protect customers from scams. It's another to impose government or public morality on the commerce a service is gatekeeping.

Especially when said laws prevent access to the marketplace without going through said gatekeepers.

anoncowherd• 13 years ago

A payment processor has a fiduciary duty for its customers.

Oh? This time the fiduciary duty is towards customers and not shareholders? :p

Funny how most times it's trotted out as an excuse for some scumbaggery by a corporation, but now it's a reason to "protect" customers.

jnbiche4• 13 years ago

Agreed. The entire concept of "financial crimes" has only been applied in a widespread manner with the advent of the war on drugs, which many of us oppose for a variety of very valid reasons.

rayiner4• 13 years ago

Actually, the Bank Secrecy Act was passed alongside RICO. The target was organized crime, not drugs. Nixon coined the term "War on Drugs" in 1971, but aggressive drug prohibition in the U.S. dated back long before that, and the explosion in imprisonment as a result of drug prosecutions didn't really kick in until a decade later: http://en.wikipedia.org/wiki/War_on_Drugs#Arrests_and_incarc....

While "financial crimes" are a key part of the drug war now, their primary use has been to attack the kind of organized crime that turned New York into Gotham City in the 1970's.

Watch the movie Donnie Brasco and also the various documentaries about the Mob Commission Trial. National Geographic has some good material here: http://channel.nationalgeographic.com/channel/inside-the-ame....

gizmo• 13 years ago

The trade-of here is individual liberty vs what we know the consequences will be from allowing truly anonymous exchange.

For all things in life: cui bono. Illegal operations (the vast majority of which are doing tremendous damage to society) stand to gain the most from anonymous money exchanges. So that's who end up using the service.

So even die hard libertarians who value personal freedom such as anonymity a great deal have to acknowledge that the real life consequences of exchanges like Liberty Reserve are a net negative to society. Leading to less bottom line Freedom compared to the current situation where society tries to make life difficult for gangsters and enterprises that harm us all.

nostromo2• 13 years ago

Isn't cash more popular than Liberty Reserve and just as anonymous? (Albeit more cumbersome to transmit around the world.)

So isn't your argument also that cash encourages crime? And if so shouldn't it be abolished so that we can prevent activities that damage society?

alasdair_2• 13 years ago

So even die hard libertarians who value personal freedom such as anonymity a great deal have to acknowledge that the real life consequences of exchanges like Liberty Reserve are a net negative to society.

I'm not sure I agree at all with this statement. Replace "liberty reserve" with Bitcoin and I certainly don't agree that it's a net negative to society.

Unless by "society" you mean the current status quo, in which case I'd agree but this changes the tone of your message significantly.

driverdan2• 13 years ago

Illegal operations (the vast majority of which are doing tremendous damage to society) stand to gain the most from anonymous money exchanges.

If we ended the war on individual freedom that is the drug war it would eliminate the vast majority of these illegal operations and the "tremendous damage to society" they cause.

loopdoend2• 13 years ago

Crimes against facilitating human trafficking and terrorism disgust you?

bencoder• 13 years ago

We should ban trucks too, because people can be carried in trucks. And you're against human trafficking, right?

aric2• 13 years ago

Money laundering is, indeed, as deluded of a new age crime as are most other nonviolent actions made into crimes under a heavily corporatist or domineering system. It's as deserving of punishment as is the harvest and trade of plants; or as is an entrepreneur who dares to create in a world where others, for a fee, can claim total national dominion over trade in prior intellectual "inventions" (patents: one of the most top-heavy, anti-small-business systems in US government); or as are the sexual actions of consenting people.

Societies that learn to solve problems -- what some people see as problems -- by using violence and the threat thereof (i.e. law) will, of course, be societies that have a propensity to engineer even the tritest of cultural aspects they want to change by using more violence.

Glyptodon2• 13 years ago

The idea that the state has a right to know what I do with my money and can force me to give up my privacy just because the amount in question is 'large' is disgusting.

Wanting privacy shouldn't make you a criminal just because many criminals also happen to want to remain on the down low.

Further, the appeals of "oh, but drugs" or "oh, but human trafficking" or "oh, but child porn" and so on are empty.

They reflect an abject laziness from society and law enforcement: they want problems to be easy and they want to play lip service rather than solve them. They reflect the notions that it's 'good enough' for something to be done however ineffective and worthless it is.

strick• 13 years ago

Many of the largest banks in the world launder much greater sums and get away with the lightest slap on the wrist. Wherever money changes hands you will find ethically challenged people making a profit.

Gangster Bankers: Too Big to Jail http://www.rollingstone.com/politics/news/gangster-bankers-t...

billmalarky• 13 years ago

This is what I was thinking. Sounds pretty much like big banking as usual.

cynicalkane3• 13 years ago

I think https://en.wikipedia.org/wiki/HSBC#Money_laundering might be more interesting to a hacker.

As I've discussed previously[1], Taibbi is not noted for being a reliable systems expert on the international banking system. The simple facts are damning enough without layers of editorializing cruft from an unreliable source.

For example, consider the assertion that people need to go to jail for fraud in the HSBC case. Most of these bad things are instances of the bank systemically not monitoring transactions closely enough. You can't pick individuals and throw them in jail for responding to bad institutional incentives--you have to pick out a specific criminal act that's punishable by jail time and pin it on someone, beyond reasonable doubt. Truth be told, if you start doing this in an equitable fashion with the goal of "punishing" bad banking behavior, you'll target a lot of lower-middle-class mortgage brokers from the 2008 mortgage crisis who knowingly committed fraud, which seems like an undesirable result. Or maybe you could pick a few politically convenient scapegoats, but that would be unjust in a different way. That's why we fine banks billions of dollars instead.

[1] https://news.ycombinator.com/item?id=5616805

criley22• 13 years ago

For the life of me, I don't understand why the biggest investors and executives, who are rich because "with great risk of captial comes great opportunity for success". So they get the 99% of the profit, they get the big paychecks, because they took the big risk in the beginning.

But on the flip side, they don't accept the risk for the behavior of their company.

I don't understand how the system operates whereby they accept all the profit from their risk, but successfully mitigate almost all of the negatives of their risk, reducing jail time and criminal penalties to fines and loss of investment.

If a man earns profit from an investment in his control, to me, he also is responsible for the legality and behavior of that investment.

This seems obvious: Take down the executives. And keep on doing it, keep throwing them in jail until banks hire executives who don't let this bullshit happens. How many millionaires in jail would it take to change the culture? I'm betting not many.

bradleyjg• 13 years ago

Truth be told, if you start doing this in an equitable fashion with the goal of "punishing" bad banking behavior, you'll target a lot of lower-middle-class mortgage brokers from the 2008 mortgage crisis who knowingly committed fraud, which seems like an undesirable result.

I think it a very desirable result. When it came time to break up the mafia, the prosecutors didn't say "we can't get the dons right off the bet, oh well let's not bother". Getting the triggermen is both a good in itself and a strategy to both starve the organization of foot soldiers and to work up the hierarchy.

No one seems to have any compunctions about putting outright lower class street drug dealers in prison.

Specicially with respect to HSBC, there were several avenues available for criminal prosecution of individuals both low level (i.e. the actual tellers and bank branch officials who recieved the ilicit funds) and high level. Irene Dorner, President HSBC Bank USA, for example signed the 2010 consent decree with the Office of the Comptroller of the Currency[1] and could have been held in contempt of court for refusing to carry out the agreed changes. Also conspiracy and RICO don't require every member of the corrupt organization to be aware of all the details of the criminal acts imputed to the entire conspiracy.

The Justice Department had no problem securing a prison sentence for money laundering against Vladimir Kats[2] as well as lower level employees of Liberty Reserve, but I bet he didn't go to Oxford. Can't a women that looks and sounds like Dame Judi Dench in prison, that would be uncivilized!

[1]http://www.occ.gov/news-issuances/news-releases/2010/nr-occ-... [2]http://www.informationweek.com/security/government/liberty-r...

lhc-2• 13 years ago

You can't cite your own post as evidence that Taibbi is not reliable. Taibbi is an accomplished journalist who is credible enough that he is routinely featured on radio and TV programs as a worthwhile guest to discuss financial systems and crimes. I'm not sure what part of that suggests he should not be trusted to have knowledge of international banking.

TomGullen• 13 years ago

Seems like Liberty Reserve just wasn't big enough to protect itself. If they had been bank sized they could just pay a few fines every now and then and continue to operate:

http://www.bbc.co.uk/news/business-18880269

at-fates-hands• 13 years ago

Banks are also heavily regulated. Liberty Reserve was attempting to act like a bank without all the government regulations - which is highly illegal for several reasons, one of which just happened to be money laundering.

coldcode• 13 years ago

All you need is a bank, no detergent necessary.

finnw• 13 years ago

Detergent is optional, but it sometimes helps.

https://www.schneier.com/blog/archives/2013/02/tide_becomes_...

smurfy• 13 years ago

Dang, LR has been big in the underground communities forever. Bouncing money between international Paypal accounts and then through LR has always been the way I've heard of it being done. It will be interesting to see what follows it. Also curious if they will try to prosecute any of the LR users they are able to track down.

fsckin• 13 years ago

[...]put things like "your share of the cashout," "for atm skimming," and "for the cocaine," into the memo field (where you'd put "Rent" on a check)

The memo field is not terribly relevant. I've jokingly written things very similar to these examples on real bank checks and never had a problem with someone else cashing or depositing them.

gghootch• 13 years ago

I went to the DPRK (North Korea) past summer. Beforehand we met with a guy who went there a year before. In the payment memo field for his trip he wrote something akin to 'Payment for North Korea'. The bank cancelled his wire transfer and nearly cancelled his account. In the end they only barred him from making other payments to that bank account number.

My guess is everything is monitored but red flags only go off when suspicious activity is frequent or serious enough.

anan0s• 13 years ago

go buy bitcoins ;-)

mindslight• 13 years ago

"Money Laundering" is an oxymoron. The whole concept of money requires that one unit is an equal store of value no matter who possesses it or how it was obtained. Adding conditions on exchanging destroys independent/classless power by making the value of one's liquid assets dependent on their political connections.

FWIW this is something Bitcoin didn't bother to get right, and will be its downfall, starting as soon as brick and mortar businesses are required to register their wallet identities.

Liberty Reserve isn't the first competitor to USD that USG has shut down, and it won't be the last. It's unfortunate that when economics finally prevails against these goons, the market correction will probably cause the collapse of the USA.

How to Launder Billions of Digital Dollars

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