b_burmese

Kumar Thangudu

The Things That Go Unsaid — Cryptocurrencies are a Money Laundering Tool and Brute Force Hack on Capital Controls

Photo by Ashkan Forouzani on Unsplash
 

A long form on Cryptocurrency…here we go…

It took me a few years to wrap my head around this…..

and I’m always learning more…..

If anyone tries to explain cryptocurrency to you without talking explicitly about money laundering or capital controls, it might cause you to miss out on the purpose of cryptocurrencies and why 2017 had a meteoric rise in value of them.

This has to start with an explanation of the world’s global systems……

Planet Earth:
195 countries
180 currencies
Fiatmarketcap.com
8% of cash is paper, the rest is not.

You can visualize the macro financial world as 32,220 unidirectional money pipes between countries. (180 Choose 2 times 2 = 32,220)

Roughly speaking, there’s rules assigned to each pipe that regulate:
– Frequency
– Magnitude
– Coordinates (dirty money)
– Speed

Governments don’t want you to be able to seamlessly transfer and convert money between countries and convert between them because of a long litany of money laundering laws.

European banking is speedy because their governments are perfectly fine with money laundering for terrorists, cartels, and more…not because they are more sophisticated….

“Of the almost 60,000 reports of money laundering in Germany in 2017 only 474 cases resulted in judgements, sentences and indictments.”

Source: https://www.thelocal.de/20181017/is-germany-becoming-a-money-laundromat

There’s all sorts of acronyms for this and organizations centered around it.

FinCEN — financial crimes enforcement network
AML — anti money laundering
FATF — Financial action task force

Complying with money laundering laws for financial institutions can be so complicated that many of them pay $150K/year for an entire almanac on the subject, or so I’ve been told.

This is how old-school the backend infrastructure of banking feels. This is the Banker’s Almanac.

It’s called bankersalmanac.com which has:

625K documents
22K banking institutions worldwide represented in it.

Globally, many foreigners look at the USA as a great way to launder money because of asymmetric reporting duties to foreign governments.

Foreigners hide their money stateside. It’s a unique feature of our asymmetric tax agreements with other countries and privacy. Source: https://financialtribune.com/articles/world-economy/35182/hide-money-in-the-us.

If you’re American and you have money in a foreign bank account, they’ll report it to the IRS, the vice versa doesn’t apply.

Fungible Assets

Photo by Viktor Forgacs on Unsplash

Now that you’re somewhat familliar with US laws and how the banking system works — -let’s talk about fungible assets — -and their evolution — —

Now let’s evaluate the last 30 years of hyped fungible assets — — these are goods that are:

  • Being traded for speculative values
  • Globally liquid
  • Easily able to overcome capital controls with ease.

Assets That Hyped Hard

Pokemon Cards — Counterfeiting was their demise, but it had its hype cycle stateside

Magic the Gathering- hard to counterfeit, easy to move

– Second Life — there’s 500M USD of in-game assets on secondlife and 60M USD moves through it annually from what I’ve been told.

– Persian Rugs — hard to transfer but one way to convert Iranian Rials to USD is via persian rugs. Persian rug dealers are actually just sophisticated money converters.

– Art — 1T USD worth of art moved from China to the USA over the last 20 years. If you house it in a public gallery and play with antics….you can avoid taxes forever with like-kind exchanges, just don’t hold the cash for longer than 180 days.

– Luxury goods — Breitling watches etc… there’s online platforms where you can trade watches that cost millions of dollars etc…

The list can go on and on, you get the point.

All of a sudden, cryptocurrency comes along.

Zero physical
Globally fungible and verifiable
Converts to fiat
Bitcoin even has ATMs
There are OTC brokers (Both shadow and compliant) which means you can convert between currencies outside of an exchange.

So then, the question is, what caused bitcoin to become so valuable in October 2017?

Xi Jinping gave a 205 minute address to the Chinese Congress that outlined his future vision of increased censorship, autocracy, and military might.

The Chinese wealthy wanted to get their money out but they could only take out $100K USD per a year.

So what did they add to the arsenal of money laundering tools?

Cryptocurrencies.

Lots of dumb retail investors like you and me are fine taking the profits.

For many of China’s wealthy, if they wanted to convert 100M USD of RMB, they didn’t mind taking a haircut on their wealth to get it to cold hard US dollars.

Also, once they get it to the freedom bearing USA — — it’s very easy to just pay off the IRS and keep the money and wealth here.

Bitcoin and the 2K+ cryptocurrencies were a giant money laundering substrate, the catalyst was Xi Jinping.

Bitcoin leads the way because it has the most anti-money laundering, KYC, and money service business licensures. There are no mainstream alt-coin OTC desks(Over the counter.) where you can get your dogecoin converted to US.

The thing that caused the market to be toppled from the top was the implementation of anti-money laundering and identification enforcement laws on cryptocurrency exchanges.

Shapeshift.io lost ~95% of its trading volume the moment KYC and AML were implemented.

Anytime cryptocurrency rises, the only questions I ask myself are about who’s trying to move money and from where.

I will always HODL a bit of it because I believe capital flight is a normal part of human behavior, and I’d like to capture the upside.