
U.S. Alleges $6 Billion Money-Laundering Operation Using Virtual Currency - sethbannon
http://online.wsj.com/article/SB10001424127887323855804578511121238052256.html
======
DanielBMarkham
"The system allegedly was designed to give criminals a way to move money
earned from credit-card fraud, online Ponzi schemes, child pornography and
other crimes without being detected by law enforcement."

This is like saying Henry Ford designed the modern automobile to be used in
bank robberies, drunk driving murders, hit-and-run maimings, and kidnapping.

Yes, virtual currency is attractive to criminals. It's also attractive to law-
abiding citizens, many of whom do not like to be lumped into one big morass
with "organized crime" stuck on top as a label. We're stepping dangerously
close to "If criminals like doing it, it must be bad" reasoning.

ADD: I also note this section: "...On Tuesday, in the first use of the 2001
Patriot Act against a virtual currency, the Treasury Department invoked a
section of the law to choke off Liberty Reserve from the U.S. financial
system..."

Well, there's your terrorism act, used to control crime via virtual currency.
We get scared of one thing, pass a law, and then see it used in a completely
different context. The current American kerfuffle involving investigating
reporters is tied to a _WWI_ -era law that's almost never used. Amazing the
tools American prosecutors have available to them. One could say overbearing,
even.

ADD2: Nobody is saying they are innocent. The point here is that these guys
are being shut down (and they probably need to be shut down) by procedures
that have broad application to all kinds of legitimate use as well. These are
very broad and powerful tools we've given the state. We should take some time
and think about if they need to be more narrowly-focused. The initial Patriot
Act had an expiration date. For a reason.

~~~
friendcomputer
It's really hard to claim that the LR guys are innocent. The comparison with
Ford is completely out. If you read the indictment itself it's fairly clear
that they were knowingly building a system to work around money laundering
laws (including the Patriot Act) and went to great difficulty to do so.

If they come after bitcoin and you make the same comment, I'll be more
sympathetic.

~~~
AnthonyMouse
> If you read the indictment itself it's fairly clear that they were knowingly
> building a system to work around money laundering laws (including the
> Patriot Act) and went to great difficulty to do so.

Reading an indictment to determine whether the accused did something wrong is
about as sensible as watching Fox News to determine whether Barack Obama is a
socialist. All indictments paint the defendants as guilty.

And since when is working around the law a crime? It's almost by definition
not a crime, because the whole idea is to accomplish the goal you set out to
achieve _without_ breaking the law.

~~~
pyre

      | And since when is working around the
      | law a crime?
    

Finding a loophole in the law, may make what you did technically legal, but it
doesn't make it all of the sudden a 'good' thing. If I found a loophole in the
laws that let me defraud you of all your money, while technically staying
inside of the law, would I not still be a fraudster/conman, even if I didn't
run afowl of any 'fraud' laws?

~~~
AnthonyMouse
Your scenario is assuming the conclusion. Defrauding someone will cause you to
be guilty of fraud, because that's what "defraud" means.

What you mean to say is that there are some things which are contemptible but
still technically legal. But the converse is also true: Some things remain
legally prohibited that would otherwise be morally unobjectionable. Legality
and morality are independent variables.

Whether doing a thing is 'good' or not has nothing to do with whether that
thing is legal, "technically legal" or totally illegal. All its legal status
tells you is whether you can expect to be convicted of it if accused.

~~~
pyre

      | Defrauding someone will cause you to be
      | guilty of fraud, because that's what
      | "defraud" means.
    

The legal definition and the 'common' definition of something don't always
match up.

------
fragsworth
HSBC got away with paying a fee of under $2 billion for not monitoring $60
trillion worth of wire transfers. They made a profit of something like $15
billion during that year, so their fines barely even touched their profits.

The moral of the story here is if you're going to launder money, you should
launder a whole shitload of it. Because then you only have to pay a tiny
percentage worth in fees. If you don't launder enough, you'll end up broke and
in prison.

Imagine if this kind of logic applied to other crimes. You could have a sex
slave operation with one prostitute and get caught and go to jail for the rest
of your life. But if you run a massive sex-slave industry with tens of
thousands of slaves (children for the hell of it), and made $10 billion a
year, you'd occasionally get a fine of 10% of your profits that year and be
allowed to continue on as if nothing happened...?

~~~
taliesinb
> if you're going to launder money, you should launder a whole shitload of it

Yes. Or rather, if you're going to launder money, make sure you're making
healthy campaign contributions, hiring ex-politicians and their staffers as
lobbyists, oiling the great lobbying machine, etc...

For those who haven't read it, Lessig has written a rather nice book on
exactly how this kind of "soft corruption" works:
[http://www.amazon.com/Republic-Lost-Money-Corrupts-
Congress/...](http://www.amazon.com/Republic-Lost-Money-Corrupts-
Congress/dp/0446576433)

~~~
contingencies
For a more visual equivalent (lower attention span required) check out
<http://topdocumentaryfilms.com/money-lobby/>

------
jonknee
Bizarrely, the US is demanding the charged parties to forfeit $6B USD. I'm
sure they know that the $6B doesn't exist, but it seems that it should be
illegal to demand that it be forfeited.

The $6B total appears to be each transaction added. If $100 got transfered
within LD 10 times the government says there should be $1,000 (and is
demanding it be given to the US gov't), but in reality only $100 ever existed
and it's quite likely that after being transferred internally it had been
transferred out of LD.

~~~
maratd
> Bizarrely, the US is demanding the charged parties to forfeit $6B USD.

It's not bizarre at all. This is regular practice. They name a ludicrous
figure, freeze assets, and seize absolutely everything they can get their
hands on.

1\. Most prosecutor's offices in the US are funded by criminal asset seizures.

2\. If you had your assets frozen, guess what? Can't hire an expensive defense
attorney that can actually get your ass out of trouble and potentially keep
all that $$$.

~~~
temphn
Regarding the first point, not that I don't believe you, but do you have a
cite?

~~~
Spooky23
[http://www.ij.org/policing-for-profit-the-abuse-of-civil-
ass...](http://www.ij.org/policing-for-profit-the-abuse-of-civil-asset-
forfeiture-4)

Whenever you see a press conference when a bunch of police agencies are
crowing about a big bust, the brass are all there to accept credit, and their
agencies portion of the take.

------
swombat
A big warning side for Silk Road and MtGox, I would guess.

If you let a large proportion of Bitcoin transactions become linked with
illegal things like drugs, credit card fraud, and money laundering, the law
will certainly figure out a way to shut it down.

So I guess the interesting question is how the Bitcoin community can police
itself to ensure that these types of transactions (while ultimately not
avoidable altogether) remain a minor part of the whole.

~~~
jonknee
> If you let a large proportion of Bitcoin transactions become linked with
> illegal things like drugs, credit card fraud, and money laundering, the law
> will certainly figure out a way to shut it down.

That hasn't happened with cash [yet]. Humorously, if the idea of cash was new
today like digital currencies are it would be outlawed for our "safety".

~~~
necubi
This is a rather tired argument. Try to get $50,000 of cash from a bank--you
won't be able to without going through some anti-laundering rigamarole. Try to
transport $50,000 of cash to another country--if you get caught, you're going
to be answering a lot of questions about it.

This is not a crackdown on virtual currencies--it's a crackdown on unlicensed
money transmitters. If they follow the law, they can trade bitcoin without
issue.

The only problem I can imagine having with this is if you don't believe in
anti-money laundering legislation, which is one of the best weapons
governments have against organized crime, human traffickers and terrorist
groups.

~~~
waterlesscloud
There are a lot of things that are great weapons against organized crime,
human traffickers, and terrorist groups that are unacceptable as law
enforcement techniques. The fact that something is a good weapon against crime
is not sufficient justification.

It also needs to be shown that such weapons are not unduly harmful to law-
abiding citizens.

Honestly, it's not something I'd thought about much before all the recent
government crackdowns on money transmitters. But when I stop to take a look at
it, it seems to me that the freedom to exchange money without government
interference is close to a fundamental human right.

When I look at it carefully, it seems very very strange that we've accepted
that governments have the right to minutely examine what we do with the fruits
of our labors.

I get that it's a good tool to stop crime, but so is listening to every phone
call. So is recording every move every person makes in public. We're starting
to see resistance to movement in those directions, why should our economic
actions be subject to the same level of scrutiny?

I'm not ready to throw out the whole shebang, but I've started to think there
should be some firm limits.

~~~
vecinu
I don't agree with you.

This should be a simple A/B test in my opinion.

Inspect every single monetary transaction. Measure the results.

Do not inspect every monetary transaction. Measure the results.

Has money laundering and crime increase or decreased? If it has increased,
inspect every monetary transaction, assuming all other variables stay
constant.

~~~
AnthonyMouse
> assuming all other variables stay constant.

This is where you fail.

Let's suppose that monitoring all monetary transactions actually does reduce
crime.

But the apparatus for doing so legitimizes similar actions by oppressive
governments, which use it to suppress democracy activists rather than
terrorists, and in so doing use the tools we built which they would not have
had the funds or local knowledge to build themselves. And if you don't care
about those people, imagine what happens if our own government should ever
turn malicious, or fall under foreign control, and have this ability to
prevent our citizens from funding a resistance.

Then there is the danger of all this data falling into the wrong hands.
Requiring it to be collected creates a secret which in the aggregate amounts
to a national security threat. If you know who is paying whom for what and in
what amount, you can commit industrial espionage on a massive scale. You know
where strategic weaknesses are because you know which company doesn't purchase
reinforcing materials for its products, you know how much capital an important
defense contractor has in reserve before it goes into financial straits that
impair its ability to operate effectively, you know who isn't insured against
specific risks and could be bankrupted if they were contrived to occur, etc.

This is effectively the same trouble as mandating lawful intercept backdoors.
The damage you cause by creating immensely powerful surveillance tools that
inevitably fall into the wrong hands by far outweighs the cost of requiring
law enforcement to use the more traditional methods of catching criminals.

~~~
genwin
Good thoughts. Our own government couldn't be trusted with this today. The US
has a recent history of thwarting and toppling democracy, ignoring our
Constitution while supporting oppressive governments.

------
mattbarrie
Looks like they are circling MtGox. Technocash is the bank account mentioned
here: [http://www.smh.com.au/it-pro/security-it/westpac-caught-
up-i...](http://www.smh.com.au/it-pro/security-it/westpac-caught-up-in-worlds-
biggest-money-laundering-sting-20130529-2naa8.html)

Not many ways into MtGox now.

From MtGox:

Transaction Limits

Deposits

All methods below do not have deposit limits:

Bitcoin - For everyone.

LibertyReserve - Through AurumXchange and Bitinstant only

OKPAY - For everyone has an OKPay account.

Japanese Domestic Transfer - For Japanese residents who have a "verified"
account with us.

Technocash - Only for Australian residents who have a "verified" account.

Wire - For "verified" or "trusted" account status. Please note that we are
unable to accept funds coming from any entity or country listed by the OFAC*

SEPA - In order to make Euro deposits you need to have a "verified" or
"trusted" account status.

To check if your account has been "trusted" or "verified" please visit:
<https://mtgox.com/forms/verification> to apply.

------
billions
It seems this is a direct step towards putting the brakes on Bitcoin. You can
bet the new Bitcoin startup investors are recalculating their risk. And that
was the goal with the timing of this takedown- to slow future institutional
investment in BTC. The govt knows it cannot take down the protocol itself,
much like bit torrent, however it can make local corporations through a straw.
On the same token, savvy bitcoin startup investors also realize that bitcoin
will be around until Star Trek as a sound mathematical model cannot be
destroyed by any govt.

~~~
dmix
I'd personally look to how governments around the world have tried to deal
with Bittorrents.

1) Shutting down big torrent sites by modifying laws (for example, making
linking to torrents illegal)

2) ISPs blocking the big sites domains like piratebay

3) Fining consumer users (who failed to be anonymous with VPNs and other
tools)

4) Attacking the big users of the network (seed boxes, pirate groups or in the
context of BTC: miners)

The other approach is make the conversion of state currency into BTC illegal.
But the implications of that are unclear. Would people adopt a different
crypto-currency? Would all crypto-currencies be banned? Could a BTC black
market still exist like drugs?

~~~
skcin7
> The other approach is make the conversion of state currency into BTC
> illegal. But the implications of that are unclear. Would people adopt a
> different crypto-currency? Would all crypto-currencies be banned? Could a
> BTC black market still exist like drugs?

I think more than likely it would be like torrents are now: a large amount of
the tech-savvy population uses them and loves them, but a lot of people are
afraid they'll get sued or have a letter written to their house from their ISP
(which means nothing), and would rather just pay $7.99/month for a worse
selection on Netflix and maintain a peace of mind.

------
DigitalSea
I knew once the likes of the Wall Street Journal and New York Times started
writing about Bitcoin it was only a matter of time before the Government
initiated its plan to discredit and eventually make the anonymous and
decentralised currency illegal.

"We need a way to publicly discredit this non-controllable currency
alternative without raising suspicion"

"Well sir, I have a plan. How about we tell the public only criminals are
using Bitcoin to launder money, criminals are selling guns and drugs to
students and paedophiles are using it to sell child pornography. We'll make
the public eventually beg us to ban this currency and when people complain we
are being unreasonable or have ulterior motives we can proudly say we are only
doing what you asked us to"

First and foremost money laundering isn't a new practice. Mobsters in the 20's
were laundering money, Laundromats, cafes and nightclubs are perfect fronts
for money laundering operations as well. Yes, no doubt Bitcoin is being used
for nefarious purposes (look at Silk Road for a perfect example), but lets not
lose our cool over this.

What we are starting to see is a coordinated effort by the US to remove the
threat that is Bitcoin. While I have no conclusive proof that is the case,
it's not rocket science that too many people benefit from the current monetary
system to not want to see it become less relevant or have its dominance
threatened in any way, way or form.

The powers that be didn't think much of it in the beginning, but Bitcoin is
starting to gain a lot of traction, not to mention we are starting to see the
currency stabilise.

~~~
chii
i hate to admit it, but where there is smoke, there is fire.

I predicted that the financial elites who owns the banks and control cashflow
(such as the holders of shares of the privately owned fed reserve) would not
want a form of currency they cannot debase at their will. Gold was first to go
in the 70's, and now bitcoin, having similar properties of gold, is on the
crosshairs. I can only just hope the general public has enough sense to see
through propaganda. Bitcoin survival depends on it going mainstream, and its
the one weakness no technology can solve.

------
vvortex3
I think by "money laundering" the governments of the world are referring to
untaxed income. God forbid the peasants transfer money between countries
without being taxed.

------
twasfm
How is this any different than Wall Street's shenanigans? Serious question

~~~
josh2600
Wall Street, however ridiculous it might be, jumps through the necessary legal
loopholes that we, as a society, have deemed necessary to perform monetary
transactions at scale.

Companies like MtGox and Liberty Reserve simply decided to skirt the envelope
and paid the price. The answer is to register as a money transmitter; simple
and plain. The difference is one conforms to the law and maximizes its
potential whereas the other simply willfully ignores the law. The latter does
not work whereas the former is tolerated as a matter of course.

~~~
jacoblyles
When did we as a society decide that anonymous transactions ought to be
illegal? Because I would like to voice my opinion in the other way.

~~~
fragsworth
"We as a society" didn't really do this. The banks, however, really like this,
because it solidifies their economic position. Imagine how much more money
they'd make if everyone is required by law to make all their transactions
_through them_.

Who do you think is trying to convince people that this is the right way to do
things? How long have we associated "anonymous transactions" with terrorism
etc.?

Only recently, we've developed the idea that something must be wrong with you
if you use cash. $100 doesn't even afford a meal for two at a nice restaurant
and people look at you like you're a drug dealer if you carry a $100 bill.

~~~
mbetter
> "We as a society" didn't really do this.

Yes, we most certainly did. Start with the Bank Secrecy Act which was enacted,
by duly elected representatives of the People of the United States, in 1970.
This group of regulations "require[s] 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."

------
bdcravens
If 30 years ago it had been known that the Internet could be used for child
pornography or communicating about blowing up important buildings, I wonder
what today's world would be like if today's mindset had been prevailing then.

------
linuxhansl
Those alleged 6 bn sound a lot like the fictitious $150k per illegally copied
songs or the x bn the music industry allegedly loses due to illegal
downloading.

------
brownbat
"Mr. Bharara said the exchange’s clientele was largely made up of criminals,
but he invited any legitimate users to contact his office to get their money
back."

[http://www.nytimes.com/2013/05/29/nyregion/liberty-
reserve-o...](http://www.nytimes.com/2013/05/29/nyregion/liberty-reserve-
operators-accused-of-money-laundering.html)

Not sure how that would work, you might just be charged with conspiracy.

------
rayiner
Fail, WSJ, epic fail. I stopped reading at: "Officials brought charges against
a group of men who allegedly manufactured an Internet-based currency to
launder about $6 billion in ill-gotten gains, a sign of authorities' rising
concern with digital cash." These reporters seem totally and utterly confused.

~~~
jontas
I noticed a couple of other odd tidbits:

> The rise of virtual currencies has been exemplified by bitcoin, which lets
> Internet users create new money by solving complex math problems.

While technically correct, this explanation would probably give a layperson
the wrong impression as to how bitcoins are mined.

> A transaction would start with one person opening a Liberty Reserve account
> using a false name and address, including what prosecutors said were blatant
> criminal monikers such as "Russia Hackers" or "Hacker Account."

Those are blatant criminal monikers? They sound more like trolls to me--
serious criminals are probably a bit more sophisticated in their fraud.

------
bifrost
All I can say is "ouch".

