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U.S. Alleges $6 Billion Money-Laundering Operation Using Virtual Currency (wsj.com)
119 points by sethbannon on May 28, 2013 | hide | past | web | favorite | 100 comments



"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.


> 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.

That analogy might be valid if 50-90% of Model-Ts were used for bank robberies, and all those other things, and exclusively.

At some point it crosses the lines of being a legitimate business and becomes a caterer for criminal enterprises.

Having 1 legitimate customer does not excuse you from willingly servicing the needs of 9 criminals.

LR went out of their way to hide the tracks of money transactions.


Not to mention, if your product has theoretical legal uses but is exclusively used for criminal purposes, that doesn't get a pass either.


Yes

But apparently if you signed up to them and put as a reason "to buy cocaine" this was fine by them


In order for a this analogy to work, we'd also need to imagine henry ford launching the model T into a market that was dominated by a monopolist whose product was carefully manipulated to serve as the basis for all of their society and much of the world, who had a track record of carefully and aggressively guarding that role for decades, and who had the nukes to back them up.

basically - I don't think the US gov't is going to cede the digital currency space quietly.

more important than the anonymity issue facilitating money laundering (which is a consideration) - is preserving the sanctity of the US dollar in world trade. to give one example - most oil is priced in US dollars, around the world. the dollar, including all the manipulative tricks we can pull with the fed, is the basis for our economic power and likely a key driver in all the shenanigans we pull around the world so the government would be complete fools to allow bitcoin or similar to turn into anything other than a science project.


It's a very tricky situation.

It sounds like there's considerable evidence that the owners were fine with supporting illegal transactions. So, no one really contests their arrests.

The problem is that the service they created is/was used by many people to store and transfer legitimately earned money.

The end result is that many cybercriminals are no longer able to access the money they illicitly earned, yet many regular working people, often in foreign countries where they can't use Paypal or otherwise, can't access their actual funds. Those people had nothing to do with LR's management, nor the criminals who were using the service.


Obviously few people are going to pipe in and say that they used LD for illegal purposes, but I've read a lot of comments today from people who used it simply because it was cheaper than other options. It makes sense, you could easily make an account and could use it globally and there are a lot of countries without strong banking sectors.

It's nuts that the US can step in and shut down a foreign company like this. I understand cracking down on any of the exchangers that operated in the US, but it's really not the US's business if foreign parties in foreign countries exchange money with a foreign company.


>it was cheaper than other options

What if the only reason it was cheaper for legal uses is that they were being subsidized by the illegal uses? What if the pricing LD offered would not have been a workable business model if they hadn't allowed money laundering?

(I don't know the facts here. I'm just offering a possibility.)


I don't think it's wild to assume thinking a 1% transaction fee is enough to fund an exchange. It seemed about as inconvenient to get funds in and out of as Bitcoin is and with similar fees.

Dwolla has a $.25 fee for example and while I'm sure a bunch of criminals use Dwolla, it would not stand out as suspicious.


Fees for LR were generally much higher, because the way they structured it was to have 3rd party companies[1] handle transactions in and out of LR - who usually charged somewhere around 3-5%.

Liberty Reserve wasn't in the business of actually converting money in their system to or from real-world currencies, and handed off tasks such as indentity verification and anti-fraud to the companies who actually exchanged those bits for real money.

In some regards, LR was very similar to a protocol.

1. http://web.archive.org/web/20130424151449/http://www.liberty...


Obviously this is a stepping stone towards pushing for harder legislation against anonymous online transactions.

That is why this is blowning up that strong in mainstream media which unquestionable accepts the idea that all the over 1m users are just money launderers.

My guess is that current legislation is not strong enough to bring Bitcoin down and cases like these help to propagate the only-pedophiles-and-terrorists-want-anonymity meme.


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.


> 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.


Leaving aside the question of whether evading a law through a technicality is alright (and surely the court will decide whether they were successful at that or not), but the indictment indicates they misled financial regulators, submitted a fraudulent verification system to regulators that falsified data, and indicated they sold the company to a foreign entity then continued to operate it surreptitiously through shell companies. This doesn't sound like squeaking by on a technicality.

I really don't see why everyone is assuming these guys are in the right. I don't see much to support that claim.


The indictment is just a list of the stuff the prosecutor thinks will make the defendants look like bad people. They haven't actually proved anything yet.

>I really don't see why everyone is assuming these guys are in the right. I don't see much to support that claim.

You don't see much to support that claim in the indictment? No kidding.


  | 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?


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.


  | 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.


I think theres a rather large difference between finding away around the law to defraud/steal from someone and finding a way to send money cheaper/easier then existing methods.

Its very much like how urber or air bNb are finding ways around existing constrictive regulations designed to protect existing incumbents.

I mean really, what business is it of the governments is it who i send my money to??


  | I think theres a rather large difference between finding away around the
  | law to defraud/steal from someone and finding a way to send money
  | cheaper/easier then existing methods.

  | I mean really, what business is it of the governments is it who i send my
  | money to??
My response about fraud was an example to highlight how 'working around the law' doesn't necessarily mean that you are or aren't doing something. You may not be doing it by the legal definition, but you can still be doing it by the 'common' definition.

  | designed to protect existing incumbents
So, you're saying that tenants breaking their lease agreements is a good thing. Because the tenant is 'disrupting' the landlord (the 'incumbent')?

If I have a house that I want to rent out, am I an evil person that needs to be put in my place by the tenants that rent it from me? Is there someone wrong with me wanting to vet the people that will be living in said house (especially since damage done to the house can be hard to recover in some municipalities)?


> So, you're saying that tenants breaking their lease agreements is a good thing

That is not what i was referring to, I was talking about the laws the city passes to prevent it and protect hotels.


You didn't answer his question. He didn't ask if it was morally ok, but when it started being an actual crime.


Costa Rica is a foreign country, why should it not try to work round US laws? It has no responsibility to the US taxpayer or government. I don't understand how the US legal system has an jurisdiction there at all.

OK, I assume that they would be leant on and "persuaded" to give this thing up, but that just big bully boy tactics. Not a moral or legal thing.


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.

An indictment is not a reliable source of objective fact or unbiased interpretation of fact. It's an accusation, written to make the accused sound as deplorable as possible.


First they came for the communists, and I didn't speak out because I wasn't a communist.

Then they came for the socialists, and I didn't speak out because I wasn't a socialist.

Then they came for the trade unionists, and I didn't speak out because I wasn't a trade unionist.

Then they came for me, and there was no one left to speak for me.


You mention automobiles. The historical example you could have mentioned was fully automatic shoulder arms like the "Tommy gun," which was banned after it was discovered that almost all users were criminals.

I have no opinion about the allegations against Liberty Reserve. That needs proper judicial resolution, which takes time. I will note, in light of some of the other comments here, that the United States has international treaty agreements with most other countries in the world mutually to regulate money exchange from one country to another. Once in my work as a Chinese-English interpreter (this was back in about 1997), I had occasion to accompany a Chinese official to the offices of FinCEN

http://www.fincen.gov/

so that he could discuss with United States officials how his country (NOT an "ally" of the United States) and ours could cooperate in fulfilling their mutual treaty obligations.

I'm largely with you, Daniel, in desiring government to have narrower rather than broader powers to regulate individual behavior around the world, but I'm not so sure governmental power is too broad or being abused in this case.


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...?


> 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/...


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


Go out in the desert with one captive and torture them and we'd try to stop you.

Enslave a few million and successfully arm yourself against potential rescuers and you meet all the accepted standards of a sovereign nation.


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.


> 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 $$$.


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


http://www.ij.org/policing-for-profit-the-abuse-of-civil-ass...

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.


Reminds me of the original charges in the Madoff case: "you lied and told people they had $N made-up dollars in their funds, so now you owe them $N, even though $N never did exist."


Yes, the fact that they used his made up numbers to describe his fraud (and continue to do so!) is very annoying. I expect that out of the media, but in the actual legal charges it is nonsensical. He stole a lot of money, but he didn't steal what he had simply made up.


Well, that't the whole point - if $x of your daily transfers are money laundering, then you are liable for the full laundered amount, even if you don't have the money anymore and took only a couple percent fee. If the laundered money is 0.01% of your turnover, then you just pay the fee; if the laundered money is 10% of your turnover and more than your assets, then tough luck, you were legally required to prevent that in the first place, you didn't, and now owe everything you got.

If a civilian "easy work form home!!!" money mule forwards 100 payments of $1000 stolen money, then he's also liable for the full $100 000 even if he transferred away most of it and doesn't have so much money at all.


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

Were are you getting that from?


http://www.documentcloud.org/documents/704540-liberty-reserv...

43.a ... The defendants, shall forfeit to the United States, pursuant to Title 18, United States Code, Section 982(a)(1), all property, real and personal, involved in the offenses and all property traceable to such property, including but not limited to: a. A sum of money of at least $6 billion in United States currency;


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.


The key detail here is that Liberty Reserve (Like MtGox) was operating an unlicensed money transmitter. Let's be honest, if you're transmitting money without a license, you're gonna end up in jail once you hit scale. It's inevitable; the only companies that evade capture are the small potatoes.

So I think companies like MtGox have a lot to worry about, but companies like Tradehill, which have gone and done the regulatory dance, will be fine.

This is not the US versus Bitcoin, this is the US versus dumbasses who try to cheat the money transmitting rules and know damn well what they're doing is illegal. I happen to sympathize with these folks because I don't think the government should have its hands in every monetary transfer, but regulatory concerns are always a part of any business plan and ignoring them is a plan too (albeit not necessarily the best one).


Are you sure about this? It was my understanding that MtGox meets the legal requirements of its jurisdiction (Japan), and I know they require identity verification depending on how much money you're moving around(1).

What I would like to know definitively is whether MtGox is openly flaunting the rules, or is just doing their best to operate in a legally untested area.

1. https://support.mtgox.com/entries/20919111-AML-Account-Statu...


Well, AFAIK they didn't seize MtGox LLC's money per se, they seized the accounts of Mutum Sigillum, which appears to be a subsidiary company in the USA set up to facilitate transfers through Dwolla which only offers services to US entities.


It doesn't matter if they meet Japan's rules as long as they have US customers. Liberty Reserve was not a US company either...


Yup, hardly sufficient to operate in the USA under Japan's rules. For the same reasons you are subject to the local laws when visiting another country; their roof, their rules.


Lots of people have been commenting about Tradehill doing all of the regulatory work needed to by completely in the clear, yet, a cursory search for a registered MSB[0] going by Tradehill, inc. or Tradehill didn't turn up any results.

Tradehill alludes to the fact that they are doing some simple "know our customer" type verifications, but that won't satisfy FinCEN when they come knocking.

[0]: http://www.fincen.gov/financial_institutions/msb/msbstatesel...


I have some friends in tradehill and while I can't speak to their precise regulatory actions, I do believe they registered as a money transmitter.


They don't appear to have registered as a money transmitter in CA. http://www.dfi.ca.gov/Directory/money_transmitters.html


> 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".


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.


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.


'Anti-money laundering' isn't the government tracking your every purchase in a big 'ol database. This is you withdrawing $20,000 from the bank and the government making note of it.

The only time they actually interfere is when they believe crime is going on, which is how things always go.

Are you saying they should be blinded so that they don't accidentally accost people who are not engaged in crime?


And when do they believe crime is going on? When you're driving with cash, no more evidence and no conviction needed to confiscate that cash, says the law. Search for: Eighth Circuit Appeals Court ruling says police may seize cash from motorists even in the absence of any evidence that a crime has been committed.

> should [they] be blinded so that they don't accidentally accost people who are not engaged in crime?

Given the law above, yes. So they don't intentionally accost people to get their cash.


That seems like "solving" the wrong problem. How is preventing the government from tracing very large transactions going to do anything to stop them from conducting random searches of your car and seizing cash you had on-hand?


It prevents the gov't from conducting nonrandom searches of your car to seize your cash they know you just withdrew.


Ok, I would really like some evidence that the government is tracking your withdraws and dispatching police cruisers to pull you over and confiscate the money.


I didn't say they were. I'm saying they shouldn't be allowed to track your withdrawals as long as they can legally confiscate the money you withdraw, no evidence of a crime needed.


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.


> 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.


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.


The statistics behind A/B testing only works if things are uncorrelated and independent.

If criminals do know know whether they are A or B, then the existence of the A group can deter crime in the B group. Given the increased scrutiny on A, you're likely to catch more crimes there. That doesn't mean that B doesn't have uncaught crimes though.

Thus your test is fundamentally messed up both coming and going.


There's a number of interests outside that potentially usurp efficacy of crime reduction. The cost of 100% monitoring, or moral/ethical interests (I deserve some degree of privacy)


It seems natural that methods of exchanging money are constrained by methods of property preservation.

Neither money nor property exist without government. Sure, you can say that bottle caps and a fence might do the trick, but those don't have the same force.


Money is simply what everyone agrees is money. It can certainly exist without government. It would probably not be a fiat currency, but rather something like gold or silver.


Your counter-argument doesn't rebut jonknee's point. Try to buy $50k of Bitcoin from an exchange--you won't be able to, without going through the same anti money laundering processes, providing your ID, etc.

And, just like Bitcoin, you have alternative illegal ways to obtain cash without going through these AML hassles: trade goods with a individual on the black market.

The point is, cash is comparable to Bitcoin in terms of enabling anonymous transactions. And there are legal as well as illegal ways to obtain both.


Try transporting $50,000 of cash within the US--if you get caught, the money is confiscated. In the US, no conviction is required to confiscate presumed drug cash. The police dept. gets to spend it.


Doesn't need to be that much, or even have drugs. $3700 is enough for thieving police: http://www.aclu.org/blog/criminal-law-reform/easy-money-civi...

Police regularly abuse forfeiture. It's a horrible and very un-American thing they have going on. Yet because the money ends up in the police pockets, there's little incentive to fix the law.

http://reason.com/archives/2012/08/10/why-asset-forfeiture-a...


> 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".

The key word here is "proportion." Cash is used in a lot of illegal stuff, but its used legally far more than the illegal. I don't know what the proportion is for Bitcoin, but this answer doesn't that fact. Its a rather poor rebuttal to the issue of Bitcoin being used for illegal activity.


What about 100 dollar bills in particular? I would be curious to see what percentage of transactions using these bills involve tax evasion, drugs, or other illegal activity.


That's an interesting thought. Yes, it'd be very nice to see detailed statistics on various US dollar denominations, and Bitcoin as well.


If it's US cash it's safe. Non-US currency that can be shut down by the US without major penalty to the US is not safe. Even a small proportion of illicit transactions will suffice for pretext. Bitcoin's best bet is to become widely used as quickly as possible. At this point it could be shut down (indirectly) with the vast majority of the public believing that was needed to stop the bad guys.


Here is an interesting article talking about the $2 Trillion underground economy of people using cash to avoid paying taxes as part of the economic recovery.

http://www.usatoday.com/story/money/business/2013/05/12/2-tr...


Perhaps Mt. Gox should be worried. Silk Road on the other hand is clearly illegal with or without the bitcoin part.


Well, it is not a difficult question. There already are existing laws and regulations that spell out what you have to do. The thing is that whatever exchange follows MtGox in the us, they should follow those rules and not pretend that because they deal with bitcoins, the regulations do not apply to them.


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...

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.


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.


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?


> 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.


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.


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.


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.


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


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.


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.


"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.


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

Yes we did, in reaction to the fear of organized crime, especially in urban areas. Anti-money laundering laws were the direct result of efforts to combat organized crime (the Bank Secrecy Act, the Organized Crime Control Act, and RICO were passed in the same year, 1970).

And you know what? It was extremely effective--so effective that we've got a generation of people who don't even remember what a huge problem it used to be.


> "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."


"Wall Street" is large enough that it effects the regulatory system that effects it. Think of big finance and government as a binary star system each orbiting and effecting the other. Tiny objects simply get sucked in by virtue of their puny size.

Above street level, all justice is politics.


Liberty Reserve didn't have the critical mass of pure cash to finance campaigns and install representatives that were dependent on their support. (Yes, I'm still upset that Occupy Wall Street didn't coalesce into an electoral reform movement.)


They are big enough to pay the money laundering tax.

http://www.salon.com/2012/12/11/hsbc_to_pay_1_9bn_to_settle_...


Very different. People "money laundering" using virtual currencies are just trying to make private transactions without reporting each one to the government.

Wall Street is getting massive funds directly or indirectly from the government/taxpayer.


transactions between private individuals vs public companies, banks and the goverment


The cynic in me would suggest that Wall Street pays its dues in donations.


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.


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.


"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...

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


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.


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.


You should have kept reading. This might be a blurry sentence, but the rest of the article is pretty clear.


All I can say is "ouch".




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