Topic: Bitcoin and international crime

[Pez]

Bitcoin and international crime

U.S. law enforcement officials have been shutting down giant illegal marketplaces that do business in "bitcoin" and are beginning to lay out plans to regulate such digital currencies — like we do any other kind of money — by requiring that money laundering controls be applied to the transactions.

The virtual bitcoin currency is not backed by any central bank or government and can be transferred "peer to peer" between any two people anywhere. It is created through a complex computer mining process that allows people to earn new bitcoins by solving certain mathematical problems.

Most other non-cash financial transactions go through some kind of intermediary, such as a bank or wire transfer service, which monitors large financial transactions for money-laundering risk. If they identify risk factors, the intermediaries are required to either file a suspicious activity report with law enforcement, or sometimes refuse the business all together. By largely eliminating intermediaries, bitcoin allows individuals to conduct transactions without being subject to anti-money laundering controls, which makes it an attractive currency to criminals — particularly those who prey on the weak.

Sex slavery and human trafficking generate $9.5 billion yearly in the United States alone, with each trafficked child yielding between $150,000 to $200,000 to her pimp, who controls four to six girls on average. Illegal rhinoceros poaching generates hundreds of millions of dollars for criminal rings in Africa, China and Vietnam, and is quickly driving the rhinoceros back toward extinction. In sum total, Global Financial Integrity estimates that transnational crime is a $650-billion industry built on poverty and corruption.

That kind of money does not end up under a mattress, and it can't be handled solely in cash. There's just too much money, and too many people to pay, to deal in brown paper bags and briefcases. Criminals need bank accounts, cross-border transactions, and — mostly importantly — anonymity, to execute large-scale transnational crime. Bitcoins essentially allow criminals to make peer-to-peer cash transactions at enormous scale.

Although bitcoin was initially touted as an anonymous system, law enforcement is generally able to track breadcrumbs left behind by the currency. You'd normally expect criminals to adapt once law enforcement figured this out, and they likely did. But you don't expect professors of computer science at Johns Hopkins University to be doing them a favor.

According to the New York Times, Matthew D. Green and a "team of researchers" at Johns Hopkins University are hard at work at a new system, called Zerocoin, intended to make bitcoin transactions truly anonymous. Mr. Green insists that he's not trying to assist criminals, but rather, according to the article, "he believed in the promise of letting people communicate and perform transactions in an anonymous and completely democratic way — much like using cash."

What he's doing is going to help criminals launder massive amounts of money. More girls will be sold as sex slaves, more rhinos will be poached, and every other large-scale transnational crime that you can name is going to become a lot easier if criminals have a way to transfer very large amounts of money completely anonymously.

Mr. Green may believe that he is democratizing online transactions, but what he is really doing is creating an anarchic system of payments. Democracies have rules, and rules have to be enforced. We attach identities to transactions so that law enforcement can deter bad people from making money off things that we deem impermissible, like sex slavery and rhino poaching.

There is by definition no reason to avoid anti-money laundering controls other than to commit a crime, and absolutely no way for Mr. Green to prevent his system from being used for horrific actions. Johns Hopkins University should determine if its resources are being used for this project, and they should have serious reservations about allowing it to continue, just as they would have reservations about allowing a biochemist to develop a vaccine that could also be used as a bio-weapon.

E.J. Fagan is Deputy Communications Director at Global Financial Integrity, a research and advocacy organization based in Washington, DC dedicated to studying and curtailing illicit financial flows. His email is efagan@gfintegrity.org.

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Original article: By E.J. Fagan 2:00 p.m. EST, November 25, 2013

[Samker]

Here is one interesting article regarding this subject - "Will Bitcoin Go the Same Way as Liberty Reserve?": http://www.zerohedge.com/contributed/2013-06-03/will-bitcoin-go-same-way-liberty-reserve

"Now, it’s Bitcoin that has its knees knocking. Bitcoin is in the same sort of business as Liberty Reserve. It’s a cryptocurrency (digital currency, with no inflation). It has been around for a few years now (since 2009) and it’s now trying to get its act together and prepare the rocky road ahead just in case it goes the same way as Liberty Reserve and gets bumped out of the market by being busted. How? It has just announced that it will ask for all account holders to prove their identities."

Also, here is more information about E-Gold case: http://www.justice.gov/opa/pr/2007/April/07_crm_301.html