The Mystery and Voodoo of Money Laundering

Ever since I first heard the term “money laundering” used in relation to Bitcoin I never saw the connection. Pardon me for being thick headed or dim witted but I fail to see how it could ever be a tool for money laundering. Part of the problem maybe that I have never engaged in money laundering (as I assume most of my readers haven’t) so just as in any other skilled craft listening to someone with absolutely no experience in it isn’t the best way to get an education in the matter. But perhaps we can come up with at least the right questions to ask the regulators to make sure they aren’t practicing some sort of voodoo on us.

So, let’s start with the question of what kind of mney are they talking about? My understanding is that all these new money laundering laws came into existence not very long ago in order to fight the drug lords. So then, let’s expand the question a bit to what kind of money of the drug lords are they talking about? To me the answer seems obvious that the laws are referring to cash.

The next question would be exactly what are the drug dealers trying to do with that cash which the money laundering laws are trying to detect or deter? My guess is that they are trying to get it into a bank, as in a checking account, so that they can buy things with it like yachts, fast cars, wide screen T.V.s, real estate, businesseses etc. Now this is where my ignorance will really show but if someone walks in to a car dealership with $60,000 cash to buy a car is the dealer under some kind of legal requirement to report that? I don’t know and am just asking. But if they are then just adjust the same rules to say transactions in Bitcoin must be reported too. I don’t see the difficulty in doing that.

You see, I myself and, I think everyone else, looks at Bitcoin like cash for the Internet so whether a drug dealer keeps his cash as greenbacks or as Bitcoin is moot in my view. It would still be dirty cash either way. Whatever they can do with dirty cash they could still do with dirty Bitcoin and whatever they couldn’t do with dirty cash they couldn’t do with dirty Bitcoin because the enforcement on how the cash is spent is already iestablished.

So my next question is whether having their cash in the form of Bitcoin would enable them to do anything with it that they wouldn’t be able to do with cash? I think the current laws that require the reporting of buying real estate for cash would apply to the purchase of real estate using Bitcoin. In the Trendon Shavers case the judge ruled Bitcoin was money so it seems then that Bitcoin is indeed money so it seems anyone responsible for reporting the cash real estate transaction couldn’t hide behind Bitcoin for not reporting it.

Does the amount of cash a drug dealer convert to Bitcoin matter to whether or not it makes the money “clean”? Recently two men were arrested in Florida for exchanging Bitcoin for large amounts of cash.

In the article it says

Espinoza, prosecutors allege, arranged such a deal with an undercover agent in early December in which that officer paid $500 for 0.403 BTC, in turn generating a profit of around $83.67 for the seller. Investigators then arranged for a second transaction to occur days later, that time purchasing 1 BTC for $1,000 and earning Espinoza around $167.56 through fees as a result.

That was the most that was actually transferred. The sting got an agreement for the pair to sell an additional $30,000 worth but none of it was ever delivered. For them to acquire them with just the roughly $250 dollars worth of profit would be quite difficult. Even if they did have that kind of cash acquiring that much Bitcoin would still be difficult. The article quotes a researcher saying “The biggest problem that bitcoin faces is actually self-imposed, because it’s always hard to buy bitcoins,”. So it seems that by merely agreeing to sell Bitcoin for what appears “clean money” but knowing (or hearing the claim anyway) that the Bitcoin was going to be used to purchase stolen credit card numbers the man was guilty of “money laundering”.

But in my view the money and the Bitcoin should get the same label before and after. If the money they bought the Bitcoin with was clean then the Bitcoin they got afterwards was clean also. But if the money they paid with was dirty then the Bitcoin they got afterward was still dirty. Don’t take anything here I say as condoning the criminal behavior but rather see the difficulty in making dirty money clean with Bitcoin.

Ironically, the sting used the false intent of wanting to buy stolen credit card numbers. If Target accepted Bitcoin and the users had paid in Bitcoin none of it would have ever happened. Ironic that the police and Secret Service (who also participated in the sting) fail to see the consumer protection aspects of Bitcoin. Perhaps the Secret Service had a busy night partying and weren’t thinking straight? (that’s my last question).

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