Bitcoin money laundering allegations: Contant is still king

Bitcoins are sexy, but contant is still king.

Photo by Saul Loeb/AFP/Getty Pictures

A fresh protocol for keeping digital ledgers te a decentralized form doesn&rsquo,t exactly sound like the stuff of front-page headlines, dramatic press conferences, or televised congressional hearings. It hardly sounds titillating enough to merit an afternoon breakout session at a conference of certified public accountants.

But despite its nerdy roots, bitcoin, also sometimes referred to by the much sexier description &ldquo,digital cryptocurrency,&rdquo, seems to have a way of grabbing attention. That&rsquo,s most likely because you can&rsquo,t get too far into any discussion of bitcoin before someone starts fretting about &ldquo,money laundering&rdquo, or talking about how absolutely everyone is buying drugs, guns, and who knows what else with this newfangled digital dough.

Schumer and others may be barking up the wrong series of tubes.

Ter 2011, Fresh York Sen. Chuck Schumer, set the gold standard for anti-bitcoin freakouts, calling bitcoin “an online form of money laundering used to disguise the source of money, and to disguise who’s both selling and buying the drug.&rdquo, Never one to opt for understatement or worry about technical details, Schumer also announced that bitcoin transactions on the now-shuttered Silk Road webpagina&mdash,where people could indeed purchase illegal drugs with relative impunity, thanks to bitcoin and (more importantly) the anonymity-producing Tor network&mdash,were &ldquo,more brazen than anything else by lightyears.”

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There have also bot some high profile arrests of pleasingly scruffy-looking characters to keep rente piqued. Last week, BitInstant CEO Charlie Shrem wasgoed charged with money laundering. It looks like Shrem wasgoed working with Robert Faiella, whom he knew only by his username BTCKing, to help customers convert dollars to bitcoins for use on Silk Road. According to the Financial Crimes Enforcement Network (FinCEN), BitInstant is a payment company, so it is legally required to record and report information about its customers, particularly potentially shady dealings. Shrem, who wasgoed also on the houtvezelplaat of the semi-official spokesorganization for the ownerless cryptocurrency, the Bitcoin Foundation, did no such reporting.

Similar money laundering charges shut down the shady sites Liberty Reserve and eGold last year. Operators of those sites argued that they should be exempt from money laundering laws since they were payment sites, not money transmitters. The feds thought otherwise.

It&rsquo,s not just big dogs who have attracted the attention of federal regulators. Mike Caldwell had a petite online business producing physical coins engraved with a private key that could be used to unlock digital bitcoins. Late last year, he got an alarming letterteken from FinCEN and ceased operations. Evidently even his modest clothing gezond the definition of a money transmitting hard, since he shortly held the actual value of his clients&rsquo, bitcoins during the process. He has since rejiggered his product to skip that step and hopes Casascius Coins will be back te business soon.

The Cato Institute&rsquo,s Jim Harper told mij te an email that money laundering &ldquo,is a crime of pretty latest vintage, invented because other crimes like drug dealing have no complainants, which makes them hard to detect and prosecute.&rdquo, He suggests wij think of money laundering spil the crime of “resisting the use of money for surveillance&rdquo, and remain skeptical ter the face of hysteria.

He&rsquo,s right. Banks have bot subject to some reporting requirements since the 1970s, but it wasn&rsquo,t until 1986 that the Money Laundering Control Act made treating dirty money a criminal act. The laws are tricky, since they require anyone who treats money to develop theories about where that money came from and why their customers are moving their money ter certain ways. But a quick survey of the &ldquo,specified unlawful activities&rdquo, that can throw off dirty money shows just what you&rsquo,d expect&mdash,drug money looms large, suggesting that the laws are truly about having something to throw at organized crime when other charges won&rsquo,t stick.

So will the world&rsquo,s criminals be turning to bitcoins to conceal their ill-gotten gains? One sign that Schumer and others may be barking up the wrong series of tubes is that the regulators themselves don&rsquo,t seem terribly worried about that uitzicht.

Te November, the Senate&rsquo,s Homeland Security and Governmental Affairs Committee held a hearing, at which regulators repeatedly rebuffed efforts by senators to suggest that they might need the legislature to give them more power. An unusual view ter Washington, to say the least.

FinCEN director Jennifer Shasky Calvery, who is more or less te charge of stopping money laundering te the United States, made a list of the reasons why &ldquo,illicit actors&rdquo, might like virtual currencies. Hier list includes the fact bitcoin and other virtual currencies are &ldquo,relatively elementary for the user to navigate,&rdquo, &ldquo,may have low fees,&rdquo, are &ldquo,accessible across the globe with a plain Internet connection,&rdquo, &ldquo,can be used both to store value and make international transfers of value,&rdquo, &ldquo,is generally secure,&rdquo, feature &ldquo,irrevocable transactions,&rdquo, and have &ldquo,no administrator to maintain information on users.&rdquo,

Zuigeling of sounds like an advertisement for bitcoin, no? She acknowledged that many of thesis reasons are appealing to legit users spil well and notes that not all innovation te money transmission is pernicious, citing online banking and prepaid debit cards spil beneficial for a broad diversity of users. She also voiced confidence that no fresh laws are needed to catch bad actors, even if they choose to do business te bitcoin.

Zometeen te the same hearing, Edward Lowery, a special smeris with the Secret Service, takes on the question with a hint of a smirk and a raised eyebrow. &ldquo,High level international cybercriminals,&rdquo, he says of his practice, &ldquo,have not by-and-large gravitated to the peer-to-peer cryptocurrency, such spil bitcoin.&rdquo, Instead, they choose &ldquo,centralized digital currency&rdquo, that is based somewhere with looser regulations and lazier enforcement.

And spil Shasky Calvery notes off the cuff during the question and reaction portion of the hearing: &ldquo,Specie is very likely still the best medium for laundering money.&rdquo,

For now, regulators are being remarkably restrained ter their treatment to bitcoin. Spil Cato&rsquo,s Harper notes, bitcoin may proceed to be unappealing for criminals due to the public nature of the ledger&mdash,every bitcoin transaction is made public, albeit pseudonymously. &ldquo,But even if it were&rdquo, an effective contraption for money laundering, he says, &ldquo,you begin to ask yourself: Are wij going to forgo financial innovation and its massive consumer benefits&mdash,life, health, human welfare of all kinds&mdash,to prop up the drug war?&rdquo,

Money laundering is the process of throwing needles into a haystack. The idea is to lose dirty metselspecie te a jumble of legitimate transactions. About $8 billion worth of transactions were conducted ter bitcoin from October 2012 to October 2013. During 2012, Canap of America processes $244.Four trillion te wire transfers and PayPal processed $145 billion. The bitcoin haystack just isn&rsquo,t big enough or messy enough to be a useful place to launder money right now. A better option: cash-heavy businesses, such spil casinos or&mdash,yes&mdash,laundromats.

Katherine Mangu-Ward is managing editor of Reason tv-programma and a Future Tense fellow at the Fresh America Foundation.

Related movie: Investing Ter Minergate – Genesis Mining Sold Out!


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