Topic: Is "Money Laundering" with Bitcoin really "Money Laundering"? (Read 5469 times)

Not really, The ethereal part is when you get a "loan" from a bank, You didnt just loan money from them, They created money, Gave it to you, And billed you a creation fee

Actually, the majority of the fiat money supply is in digital database form.

Only approx. 10% exists as fiat paper and muck-metal coin form.

i.e. 90% of Western society's monetary wealth exists as govt. fiat in plain-text digital databases.

Ethereal huh?

NO MORE FIAT PAPER!

You mean like lawyers and attorneys donating their time and services for free to the community ..... good luck with that.

The only reason "Bitcoin is raising serious AML concerns within the banking system " is because the regulatory capture provided to the banking cartels by the whole "money-laundering" ruse is being challenged by a competing monetary information technology that has the potential to make the dinosaurs extinct.

The CIA, FBI, FinCEN, and every other alphabet agency are aware of Bitcoin, even if they have no idea what it is. I think they need some help. Maybe we need to start an open source bitcoin regulatory software project. They will need to be able to trace address histories, IPs, and have access to an alert channel. Products could be developed and sold to law enforcement agencies.

This.

From another thread:



FinCEN has not said much about Bitcoin other than that they "are aware of [it]".  Former Federal Reserve economist David Barker likes it.  Former U.S. Treasury Secretary Larry Summers likes it. Google Chairman Dr. Eric Schmidt likes it.   Citibank's Global CTO jokes about it. At the most recent AML conference, there was only a single 1 hour session on it, and there was little interest reportedly.  Traders and analysts at Morgan Stanley and Goldman Sachs trade it on their personal accounts.

Where might these serious concerns be originating?

This is really interesting. I can see the argument for both the closed loop and open loop with Bitcoin.

Even though bitcoin is a currency-like commodity and not a currency, Money Service businesses (MSBs) are a type of financial institution under the law.

A business is an MSB if it Provides Money Transmission Services.

“Money Transmission Service” means the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means.
(Revised July 2011 by FinCEN).

A Principal MSB must register with the Financial Crimes Enforcement Network (FinCEN) and maintain certain records regarding its Agent and/or foreign counterparty relationships.

In January 2012, FinCEN has issued a Final Rule revising the definition of a Money Service Business (MSB) in order to clarify which entities are covered by the definition.

Foreign-located MSB’s doing business in the United States now have the same registration, reporting, record keeping and other requirements as MSB’s physically located in the US.

The business models of many third-party virtual currency service providers qualify them as money transmitters, and therefore MSBs under 31 CFR Part 1010.100(ff)(5).

Obviously this depends on your understanding of the word "money."  Since BTC does in fact fall under "any object or record that is generally accepted as payment for goods and services"  I would argue it IS money.

Don't assume "money" only refers to government-issued currency.  Money is a more general term.

Another point.  Professionals frequently engage in what's called "service swapping."  e.g. a lawyer represents a doctor in a malpractice suit in exchange for the doctor giving the lawyer's wife a boob job.  No money changes hands at all but the IRS still views the doctor and lawyer as having received income.  This sort of thing is done all the time off the books but if the IRS finds out, you're both charged with tax evasion.

Is a service money?

sub, although its for Tangible's FinCen query, so maybe another thread for that would be useful?

-bgc

interesting thread, watching...

Usually nothing at the local level (not that I am aware).  Most states do require MSB to register.  Some states (roughly 10) require MSB in other states to register with their state if they offers services to residents of their state.  Many states only regulate some of the MSB categories.  If your business is classified as a Money Transmitter by FinCEN expect to pay a quarter million easy in fees, audits, licensing, and bonds.

Subscribing, interesting topic and I hope more of it gets answered soon.

Are there any state laws to worry about as well? Or possibly even smaller governments that you may have to answer to (county, city, etc)

That is what we argued and are waiting for FinCEN to rule on.  We stated reasons that our product would not be considered prepaid access or if it was it should fall under closed loop exemption (which would be a lesser victory as it would require us to exclude foreign buyers).  The point of demanding an Administrative ruling is to get FinCEN to rule on the issue.  It doesn't matter what "we" think but what standard we will be held up against.  As a matter of due process we need to at least know what regulations apply.  If they determine that it does constitute prepaid access then we have standing to challenge it further.  If they rule it doesn't, even if they later change that determination, we can use the AR as evidence we have been acting in good faith.

It certainly is our posistion that a card containing a private key does NOT constitution prepaid access but FinCEN has been known to mangle and butcher their own regs in order to squeeze a round peg into a square hole.

I am not sure which "this" is the this you are asking about.  We are asking about the issuance of a product which contains a Bitcoin private key.  Redemption doesn't require any act on the part of TC LLC.  We did not make any mention of other product types such as a "Coinapult" like product.



Those were more hypotheticals.  Even in FinCEN rules in our favor now we find it implausible that the US govt will continue to allow Bitcoin to remain in this "unclassified" gray area.  At some point they are going to want to put it into a box even if forming that box requires future legislation.   i.e. the definition of foreign currency could be expanded, new definitions such as digital commodity could be formed, etc.

If the key is only on the card, then it's arguably not prepaid access.  If you didn't keep the keys, then you're not holding the funds and you don't provide access.

A coinapult-style system where the customer receives a code that can be redeemed for bitcoins could be considered prepaid access, if it did not qualify for the closed-loop exception.  Is this what you asked FinCEN about?

I suppose one could unsuccessfully try to argue that bitcoin as a whole is a "prepaid program", but this would require a "provider of prepaid access".  Since no participant "agrees to serve as the principal conduit for access to information" then per section 1010.100 (ff) (4) (ii) "the provider of prepaid access is the person with principal oversight and control over the prepaid program".  This person, of course, does not exist.  (BTW, there are other situations where there is no provider of prepaid access.  For example, banks are exempt from MSB regulations and thus not deemed a provider of prepaid access, even if exercising principal oversight and control.)


Bitcoin is not foreign currency per FinCEN rules, since "currency" is defined as "The coin and paper money of the United States or of any other country that is designated as legal tender and that circulates and is customarily used and accepted as a medium of exchange in the country of issuance."

I don't think "digital commodity" has a specific legal definition, and "intermediary" refers only to banks and financial institutions.

The interesting thing about Bitcoin unlike virtually any other prepaid card is that the "coins" can be encoded on the card themselves.  So redemption no longer requires the original merchant's access (or for the original merchant to even exist).  That puts another wrinkle in FinCEN nice neat rules.

The more fundemantal question which would provide a more comprehensive legal framework (and the question I am almost certain FinCEN will bypass at this point) is  ... "what IS a Bitcoin?"  Does the US govt consider it is foreign currency?  A digital commodity?  A transaction intermediary? 

Eventually the Federal Govt will be forced to confront these issues head on.  Bitcoin isn't going away.

I wonder what their response will be.  I suppose it depends on exactly what you asked.

Bitcoin itself is not a prepaid access program.  “Prepaid access” is defined as “access to funds or the value of funds that have been paid in advance..."

When someone sells bitcoins for dollars, they do not guarantee access to the original funds (dollars) nor do they guarantee the future value of the bitcoins.  It's a sale, and the seller's obligations end once the bitcoins are delivered.  This is quite unlike phone cards where there is an ongoing obligation to provide phone service up to a certain number of minutes of talk time.

Moreover, a prepaid access program requires the designation of a “provider of prepaid access” which is “the participant within a prepaid program that agrees to serve as the principal conduit for access to information from its fellow program participants.”  With bitcoin there is no entity which meets this definition.

The only way bitcoin cards could be considered prepaid access is if you sell cards which can later be redeemed for bitcoins.  Arguably that would be a closed loop system since the prepaid cards can only be redeemed at one merchant for one product (bitcoins).

If you suddenly start owning flashy cars and living beyond what your declared income is there will be questions whether you bought stuff with bitcoin or cash

The question is  can the feds prove how you got the bitcoins you are using ?

Money laundering -> Bitcoin is not money !

Very simple answer:  No. 

Money laundering is concealing the source of money, or rather making the source look "clean".  For example, I could declare some cash as income from my restaurant, when in fact it was stolen.  Or, I could declare some cash as income from my bank, when in fact it is counterfeit.  Changing cash into other cash might make the serial numbers unrecognizable, but it is hardly "clean", it is still cash.  Bitcoins don't make money laundering any more easy than cash does.  A bitcoin is a bitcoin, in no way indicative of "clean" income.  In fact, it looks dirtier.  People who say bitcoins enable money laundering clearly have no idea what they are talking about.     


Slightly more complex answer: Yes, there is a new kind of laundering one can do with bitcoins, but it is not the same as what most people mean by money laundering. 

Because bitcoins have a public transaction history, one can trace them.  Because of this it becomes desireable to move them around and make this tracing more difficult.  This can be referred to as "bitcoin laundering", for example the bitcoin tumblr, moving from wallet to wallet a few times before sending them to a vendor, etc.  Keep in mind that at no stage in this process is the money disguised as a legal income stream, thus this is not laundering money in the conventional sense. 

Good question  

The ability to convert back to hard currency is not a a requirement for a product to be considered prepaid access according to FinCEN.  While the store selling you bananas is a purchase, the store issuing you a "banana card" is considered prepaid access and subject to MSB regulation.

The key thing is that in the case of "Banana card", it would most likely would be considered "closed loop" by FinCEN (my opinion and should not be taken as anything more than that). The requirements and regulatory requirements for a closed loop system are much less restrictive than open loop systems.   Obviously things like the hypothetical banana card and phonecards, wireless pins, etc clearly fall into the "closed loop" category while products like "reloadable debit card, greendot moneypaks, etc" clearly fall into the "open loop category".  Bitcoin kinda falls in the middle.

Our inquiry to FinCEN is on if a Bitcoin prepaid card would be considered closed loop or open loop as that radically changes the cost, regulatory, and information gathering requirements.  Our argument is that Bitcoin stored value card should be considered closed loop as the issuer provides no mechanism for conversion to fiat.  The counter argument is that Bitcoin ease at being converted to fiat makes it an open loop product even without issuer providing an explicit mechanism to convert back to fiat.  Hopefully we will have an answer soon.

You may find this interesting:
http://www.fincen.gov/news_room/nr/html/20111102.html

Their response will be interesting.   Because instead of acquiring bitcoin with the expectation that it has no value unless it is converted back to fiat, it really isn't a prepayment of value.  It is instead just a purchase, just like if I were buying bananas.  If I buy bananas at the store to trade them with you for whatever you are selling then there's no prepayment of value.  The seller of the bananas to me is not asserting that those bananas will have any value.

Once you convert the btc to fiat then the real launder begins. Anything worth buying right now (car, house, boat, ect) you need your countries currency rather than btc. When you cash out the btc then go buy those things you'll be setting off flags all over the place.

btc launder is a bit different. It's only really useful to separate the money from a crime. Like theft, extortion or ect. But I don't really think it's on the same level as fiat laundering, where you end paying taxes on the income to legitimize it. So you can deposit to your bank account big numbers, no questions asked. I guess you could use a btc business to launder the fait, but the end result is actually launder fiat, doesn't matter where the btc came from really.

A unique argument that I think complicates the question is, unlike regular currency- you can "mine" bitcoins. You can't Print your own money, but in Bitcoin you can (at least for now while there are still coins to mint). And because we are turning energy into 'coin' (electricity for miners) were are in essence saying we can 'create' money. This complicates the argument that Bitcoin can be a real currency for purposes of Money laundering because one could argue that the coins are in fact someone elses "made-up printed" money. As there is no central authority it would be a little bit like us hoarding self printed "monopoly money" bills and assigning them collectively value. Want more money? Go make some more. So it would be hard to say what money an individual "made" and what he/she "laundered".

I think we would all be very interested to see what they have to say about it.

It also seems that FinCEN is catching up with the times.

They have changed the wording of a lot of key terms.
"Stored Value" has gone away and is replaced with "Prepaid Access".
"Foreign Currency Exchanger" has been replaced "Foreign Exchanger".

I don't think FinCEN has produced any written declaration on Bitcoin but TangibleCryptography LLC has asked for an administrative ruling on the "Application of the Money Services Business Rule to a Company that Issues Prepaid Access to Digital Assets".

They are required to issue a response within 60 days and a redacted version will be available to the public.

The interesting thing is, the outcome of such a real-world-legal challenge would open up Bitcoin in so many ways. If you lose, IE: it is considered money laundering, then it essentially validates Bitocin as a currency. If you win IE: it's not a currency, then essentially Bitcoin wins freedom from government oversight and regulation. Either way it would be a considerable win for Bitcoin.

This is definitly somerhing worth chatting about...
I vote that it is Not leagally classifyable as money laundering, Altough thats pretty much what it is.
I think a lawer would just be like "Dude, This isnt money, Im basically lending someone 50000 WoW Gold with a intrest rate and payment plan for him to pay me back 55000, This isnt acutally Money. (but yet you can still sell WoW gold for real money)

The UK's Money Laundering requirements of businesses: http://www.hmrc.gov.uk/mlr/your-role/resposibilities.htm

That is a good point. Clean coins!

Perhaps the large pools could be engaged already in something like that?

There might be a market for freshly mined coins. Someone could sell them at a premium auction style....

Actually I am aware of what constitutes "Money Laundering", as it relates to real world currencies and financial transactions. My question is: if Bitcoin is considered a Virtual Commodity, and it is never converted to Fiat, is money laundering in Bitcoin really money laundering at all?

For example if the thief of Bitconica (no it's not me) were to say, "Hey Crazy Rabbit! Can I give you 18K of bitcoin and you give me 18K of clean bitcoins? Or Litecoin?" and I did it, would that be money laundering?

Or does money laundering and the associated regulations only come into force for the individual that converts the BTC or LTC into real currency? IE: the exchanges.

Is Bitcoin a virtual commodity, or is it a currency? As long as no government recognizes it as a currency, is it not our geeky version of trading baseball cards?

Also, just as cash has no owner (It can be in your possession however it can not be owned) are Bitcoins not ownerless? Certainly if you forget your private key, you lose "possession" of your coins, but the coins themselves do not disappear. Much like how if you loose cash, you lose possession (and thus the idea of 'ownership')


So! Is Money Laundering with Bitcoin's really Money Laundering?