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The author misunderstands the current bank regulatory environment.

Banks are not only obliged not to participate in criminal activity, the way the laws work is that they are increasingly required to do the policing themselves. If a bank does business with some guys and it turns out the guys are money laundering, that can be the bank's fault. For instance, one of the charges against HSBC is that they built up a backlog of fraud alerts. Another charge is that they didn't tune their fraud alert levels in a manner requested by the government. HSBC is also charged with actual money laundering but these two charges I mentioned are not money laundering in the sense understood by most people. And the more ethical reg execs at the more ethical banks have, among their top priorities nowdays, avoiding charges like these. There's even been a sort of reverse regulatory capture: top bankers see among their ethical responsibilities the job of being the world's money police.

This is a natural consequence of voters demanding politicians "hold banks responsible" when their accounts are used for nefarious purposes. Many HN commenters, I've noticed, share the same view. Well, be careful what you wish for. A regulatory environment in which banks are liable if they handle digital cryptomoney from who-knows-where is a regulatory environment in which they will refuse to do so. The knee-jerk urge to paint big banks as shady criminals will only intensify, not mitigate, the regulatory pressure.




This is correct. They are also not singling out Bitcoins either. It has been in the news recently with banks closing accounts of money transfer businesses [1] due to the risk of money laundering. Therefore if money transfer businesses dealing with "conventional" currency are too much of a risk it is no surprise they'd not allow a company dealing in Bitcoins to hold an account.

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[1] http://www.theguardian.com/global-development/2013/jun/24/so...


There's even been a sort of reverse regulatory capture: top bankers see among their ethical responsibilities the job of being the world's money police.

So, given the right culture and flows of information, the mechanisms of regulatory capture can also do the right things?

EDIT: Nice, HN. Someone asks an interesting question, so it's immediately read as a position then downvoted. How about taking this at face value as a question?


If you think big banks should be the world's money police, then yes.

Honestly, I would rather have that than have the federal government do it with a giant NSA-for-banks program. But my inner libertarian finds this arrangement suboptimal. And the government is probably watching it anyway. They certainly have an enormous amount of subpoena power, to the extent that big finance companies have IT systems just for satisfying subpoenas and ever-increasing regulatory data requirements.

Edit: the answer to your question, supposing it's not rhetorical, is "yes". Elites and their subordinates have the same ethical incentives as everyone else, but are closer to the political source. This can be good or bad. I think a lot of history happens because of elites realigning their moral goals in response to incentives.


There is no reason for money laundering to even be a crime. Rather than cracking down hard on everyone's freedom, we should just go to proper war (not a 10-year occupaiton, I mean get in it to win it) when we have to to destroy enemy governments or terrorist training camps.

This is a root cause analysis.


So basically, the US government should spend even more money and kill even more people to prosecute the "war on drugs" and "war on terror" whilst not impinging upon the "freedom" of regulated financial institutions to intentionally fund the mafiosi and terrorists they're fighting against. Really?


The "war on drugs" is a massive self-sacrifice for America and should not be prosecuted.

The "war on terror" is also an improper "war" that has no victory/termination condition, ever.

So neither of those points are valid objections to my argument.

The alternative to the "war on terror," which also allows America to be safe, is to draw a bright red line: Any government that harbors terrorists will be deposed via a very swift war using the full brunt of the American military. (We would probably only have to wage such a war once; repeated examples would be unnecessary, presuming we don't elect weak presidents.)


Do you think the Somali government could actually do something about their terrorist problem even if they really really wanted to? Do think the terrorists in Somalia would in any way be opposed to the US invading their country and toppling the government? And finally what do you think should happen the week after the US finishes toppling said government and withdraws and how will that negatively affect the terrorists?


The US government has only one proper purpose, and it is to protect Americans from physical force.

I think that if a country harbors terrorists, the US should depose the government, and withdraw. The US should threated to come back and do it again, repeating as necessary, until the government stops harboring terrorists.

In fact, that it the only way to stop terrorism. And it would be incredibly effective, since the US would only have to do it once or twice in the whole world (or maybe even 0 times), to prove that they will do it.

I don't believe in the use of initiated force. But a government that harbors terrorists is initiating force against the US, and it's morally proper for the US to use retaliatory force to resolve the problem.

Force will be met with force. Don't use force, and you won't be subject to it.

In the 1 case in the world of a failed state---Somalia---I think a reasonable strategy would be to pick a winner and provide them with funding and weapons to establish a government over the territory.


That would be the greatest present ever to the terrorists. Current government not backing your crazy interpretation of sharia law strongly enough? Don't bother launching some kind of arduous civil war to topple them. Simply launch the laziest possible terrorist attack against the US or maybe just a nearby US embassy if you don't feel like traveling (don't worry too much about it, it doesn't really matter if you succeed or fail), make sure to leave enough evidence about your country of origin and then just sit back, relax and wait for the US to do the hard work for you. Once they're gone, move in and take over.

You seem to be under some sort of delusion that most terrorist groups would see the toppling of the government of the country they are operating out of as a bad thing.


The terrorists taking over the government won't do any good for the terrorists. It will just lead to the US having to once again unmercilessly completely demolish the country's government and let someone else step into the power vacuum.

If that someone is more terrorists, rinse and repeat.

There is not an infinite supply of terrorists. And if more terrorists fill the power vacuum, you're likely to eventually get a groups that decides they'd rather keep being in power than be aggressively wiped out.

Moreover, this greatly incentivizes all non-terrorists to cooperate and work together to form a government that will not be subject to US attack and will not cause their country to stay in a permanent state of war.

I think these incentives are so strong, that only 1 country would ever need to be made an example of.

If it weren't for Obama destroying American credibility to act on its threats, it would likely take 0 actual examples. But since nobody believes America will enact its own foreign policy anymore, it would now probably take 1 example.

There are only two ways to deal with force: cower in fear forever, which is what the US is doing now, to the massive detriment of its citizens' safety (mainly due to overgrowth of government such as the NSA), or just eliminate the threat.

And there is nothing morally wrong with responding with force to someone who threatens you with force.

Foruntately, the US military is so overwhelmingly dominant that pretty much any "terrorist threat" is like a fly to a giant. Even eliminating Saddam, a professional warload with a whole country at his disposal, was a sure thing---it was just a question of how few lives the US could lose.

Unfortunately, the US leadership will not adopt this doctrine in the short term, and probably never. The current Republicans and Democrats are totally opposed to using the kind of rational, moral clarity that is necessary. They would prefer to waffle and "negotiate." It would take a sea-change in the structure of the Republican party for America to ever adopt this doctrine, and is even less likely for the Democrats.


fuck you, seriously fuck your self


> This is a root cause analysis.

Colour me impressed. I'm comforted to learn that the US and its various allied countries did not go to Iraq and Afghanistan to "win it", and did not prosecute a "proper war" in Iraq. Presumably, Saddam's military will emerge any time now. I look forward to the US invading various parts of South America, and escalating to the "proper" level of violence in Afghanistan.


> I'm comforted to learn that the US and its various allied countries did not go to Iraq and Afghanistan to "win it", and did not prosecute a "proper war" in Iraq.

Those wars were massive self-sacrifices for America, just like Vietnam. For instance, Saddam was defeated very easily, in the very beginning.

> I look forward to the US invading various parts of South America

That's not an argument against what I said. We have no reason to attack South America.


> Those wars were massive self-sacrifices for America, just like Vietnam. For instance, Saddam was defeated very easily, in the very beginning.

Self-sacrifice? These wars were strategic failures, in spite of the US' best efforts, simply because you can't defeat guerillas the same way you defeat regular armies. You sound like you haven't been paying attention to what has been going on since, well, WWII. How many asymmetrical conflicts have been won by large modern armies since? The various decolonization wars, Vietnam, Afghanistan (you can't really accuse Russia of playing soft, there) ended up the same way. The UK were successful in Malaya, and the French had effectively destroyed the operational capabilities of the FLN by the end of the war in Algeria, but even this was not enough to ensure victory. Hell, even in Northern Ireland, it took decades to turn the IRA away from terrorism (and that after it managed to kick the UK out of the rest of Ireland).

Asymmetrical warfare is hard. Moreover, suggesting that a "proper war" should be prosecuted, presumably with heightened levels of violence, after hundreds of thousands of people died or were maimed for life is insulting.

> That's not an argument against what I said. We have no reason to attack South America.

Your argument was that in order to defend "freedom" (because, really, these money-laundering rules are just too repressive), the US should attack the issue at the root. Guess what? Most of the money being laundered is drug money. It's an absolutely astounding amount of cash. Most of the world's cocaine comes from Colombia and Bolivia, while the opiates come from Afghanistan.


> Self-sacrifice? These wars were strategic failures, in spite of the US' best efforts, simply because you can't defeat guerillas the same way you defeat regular armies.

These wars were self-sacrificial because they had no valuable objective for the American people (i.e., to secure their safety). Trying to "democratize" them is a futile act, and is not worth spending trillions of dollars on, and killing thousands of American soldiers.

> Your argument was that in order to defend "freedom" (because, really, these money-laundering rules are just too repressive), the US should attack the issue at the root. Guess what? Most of the money being laundered is drug money. It's an absolutely astounding amount of cash. Most of the world's cocaine comes from Colombia and Bolivia, while the opiates come from Afghanistan.

Right, and the "war on drugs" is also self-sacrificial, because, again, it has no value for the American people. Again, it is a war that can't be won, that simply calls for sacrificing unlimited amounts of money and some lives, and turns northern Mexico into a war zone as part of a perverse side-effect.

So I'm saying: Let these countries produce as much coke and opium as they want; we will be happy to import them freely.


Money laundering is a crime for exactly the same reason that destruction of evidence is a crime.


> There is no reason for money laundering to even be a crime. Thats a funny idea, have you ever heard about criminal organisations ? what should US do about criminality, attack its own land ?


> The knee-jerk urge to paint big banks as shady criminals will only intensify, not mitigate, the regulatory pressure.

It may not be money laundering, but if past history is any guide, it certainly looks like your average Goldman Sachs high-ranking executive thinks "ethics" is something that happens to other people. Or, closer to home, the recent Libor scandal. Big banks may not be shady, but they should probably come out of the dark corners they're standing with big bulges in their pockets.


> The knee-jerk urge to paint big banks as shady criminals will only intensify, not mitigate, the regulatory pressure.

This knee jerk urge is an excellent heuristic: big banks seem to act in shady, criminal ways whenever they think they can get away with it.


It's even worse than this. They actively pay compliance companies to make their criminal activity look legitimate enough to pass audits or find out where they can ship it to that has a more favourable legal environment.

I'm disgusted to say that I work in the financial services sector in the UK. Every time the FCA introduces regulations, many people bail out of the financial services market because the loopholes and illegality they built their businesses on are no longer usable. God forbid any legitimacy.


Rather than "be care what I wish for", I'm more inclined to see a warning that holding banks accountable for criminal activity is a bad thing for cryptomoney as a reductio ad absurdum argument against cryptomoney.


Your statement is ambiguous between "holding banks accountable for their crimes" or "holding banks accountable for the crimes of others".

Cryptocurrency advocates mostly dislike the result of the latter, but I don't think most people even understand that the latter is what's driving bank actions, precisely because anti-banking rhetoric tends to conflate the two in the same way.


> precisely because anti-banking rhetoric tends to conflate the two in the same way.

I don't think that people conflate them as much as you suggest. All the things I hear people complaining about are to do with misselling of insurance and mortgages, excessive overdraft fees, creating and trading insanely complicated derivatives at insane levels, foreclosing on property they don't actually have an interest in, cavalierly playing with the interest rates that the rest of the world are forced to treat as a fact of nature, insider trading, selling financial products to companies without revealing that they were created with the express intention of failing, breaking sanctions, actual money laundering, running and falling victim to ponzi schemes, paying giant sums of money to people who as far as anyone can tell from the outside failed in their duty and job, unduly influencing elected officials, deliberately manipulating the books so as to cripple entire countries and profiting in the process and then being caught on tape laughing about it.

I pretty much never hear people complaining about banks because they offer a good service to criminals.

Even if some of those criticisms are misguided, all I'm saying is that there is plenty of direct guilt that people impute to banks and bankers without having to start complaining that they are imputing indirect guilt too.


The question is whether banks should be a "common carrier" for money, just as the postman carries no responsibility if you send drugs through the post.


They also from my reading misunderstand VAT. If they bought BC at £1 and sold at £1.20, then the VAT would be effectively only on £0.20 as they could claim back the VAT from the purchase when they sold. VAT would only scupper them if they were selling BC they had mined themselves, but their talk of trying to set up a bank makes it sound like this isn't the case.


They can only reclaim the VAT on BTC they bought IF THEY WERE CHARGED VAT ON THEM. They won't be charged VAT on them in 99% of cases because sellers are individuals.


They buy bitcoin at £1.

They add a markup of 5%, taking it to £1.05

Then they add 20% vat, taking it to £1.26

The final customer pays the VAT, which is collected from the OP. They reclaim VAT on things they buy, not things they sell.


This has always confused me - maybe somebody can help me.

I still don't understand how just re-selling something at a profit is 'adding value' in VAT terms. I thought the 'value' added was not monetary but actually doing something to the product(s) to make them more valuable.

http://www.investopedia.com/terms/v/valueaddedtax.asp


The terminology is based around the traditional business model of physical goods. Buy stuff, put them together, sell the result. You reclaim the VAT on your purchases, and charge VAT on your sales. Thus the net VAT you collect is on the "value added". But you collect and your customer pays the full (eg. 20%) on the full sale amount, since he's paying for the complete value added all the way down the supply chain.

This is effectively the same as a sales tax; just the mechanism for collection is different.

For service-orientated businesses, the mechanism is the same; the terminology just makes less direct sense. In general, a business still get to reclaim all the VAT it pays on stuff it buys, and must charge VAT on all the stuff it sells.


With a 20% VAT rate, I buy something at 1.20 (1 + 0.20 VAT). So in effect I paid 0.20 as tax. Then I sell it at 1.80 (1.50 + 0.30 VAT). So I have collected 0.30 as tax. But I do not pass on all of the 0.30 tax to the government, I subtract the 0.20 I have already paid as VAT, and give the government 0.10. In effect, the consumer has paid the 0.30 VAT on the final price of 1.50 excluding VAT.

I find the definitions in the investopedia link you provided very confusing.


Well explained.

Essentially becoming VAT registered turns you into a tax collector :-)


Money is an expression or a carrier of value.

If you do something to the product, that only adds value when you sell it for more than it was worth before.

Adding value to something can be as simple as buying it in a time when no one needs it, and selling it when everyone wants it. Basically you added value by carrying risk or storing the asset.


Distribution is value as well - for example, it's quite clear (and traditional) that wholesalers and retailers add value to product, i.e., a shirt in a store near you where you can try it on is worth much more than the exact same shirt in a container coming out of the factory. But technically, it's exactly the same as simply reselling something at a profit.

In essence, the unstated assumption is that if you bought it at $1 then it had a value of $1; and if you sell it at $2 then you added value, and we don't need to know how that value was added. Did you improve the item itself? Did you move the item where it was needed more? Did you offer it to customers who weren't served by others? Did you advertise&market the item to make it more attractive? These all are valid means of adding value.


Yes, so they reclaim VAT on the bitcoins they bought for £1 (and paid £1.20 for including the VAT).


Firstly they have to be charged VAT to reclaim it, you can't just claim money back from HMRC that was never paid to HMRC in the first place.

Assuming you found a company selling Bitcoins and charged VAT you'd pay £1.20 but claim 20p back from HMRC therefore the total cost would be £1.

Then same same calculation that is in the post you replied to applies. The customer would end up having to pay £1.26 of which ~21p would be payable to HMRC, leaving you with ~6p profit. But who is going to pay £1.26 for bitcoins when you can buy them for £1.05 elsewhere? If the UK based company sold them for £1.05 they'd be losing money every time they sold them due to the VAT they'd owe to HMRC.


I had a read through the Revenue's guidelines, and it looks to me as if he would be exempt from VAT, because it's just FX:

  A supplier of an exempt intermediary service is a person who:
    - brings together a person seeking a financial service with a person who provides a financial service
    - stands between the parties to a contract and acts in an intermediary capacity, and
    - undertakes work preparatory to the completion of a contract for the provision of financial services, whether or not it is completed.
all three of those apply (but IANATaxAdvisor)


Yes, if you only mediate between buyer and seller then you don't need to pay vat. However if he was to do the trading himself (buy from one person, sell to another), then that provision does not apply.


I'll also add that a very similar regulatory environment for banks exists in the US—it's not just the UK.


I think what the blog post is getting at is currencies like USD, GBP, EUR etc. are still better for fraud than bitcoin. Hence the suspicion of anticompetitive behavior.




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