Why are people surprised that Liberty Reserve got shut down?
We are living in the age of anti-money laundering where Know Your Client is extremely important. FATF compliance is essential. Even the once-venerated Swiss Banks now share data with the US taxman. One, Wegelin et Cie, was driven into being shutdown. Not even a US corporation, it was indicted and convicted for enabling tax evasion.
If you Don’t Know Your Client, you can’t take their cash. You can’t even open a library account these days without photo ID and a utility bill proving your residence.
What might seem invasive and over-reaching on the part of governments around the world is just to protect us from evil people using alternative banking systems to transfer money around the world to finance terrorist operations. Don’t like it? We’re protecting you!
$6 billion dollars laundered over 55 million transactions gives us an average transaction value of barely US$110.
Of course, we don’t know what the median transaction value was so making statements like “criminals used Liberty Reserve to launder the proceeds of crime” might lead us to believe that:
- crime really does not pay
- even criminals need financial intermediaries
- anti-money laundering laws are working effectively
- the US has its priorities clear – $110 transactions are dangerous
- anyone actually wanted to launder money would not go anywhere near the financial system, therefore making anti-money laundering a bit silly
The state does not like competition. Financial intermediaries like Liberty Reserve enable transactions to happen outside of their purview. They don’t like that. Information sharing for alternative financial intermediaries and regulators is non-existent, therefore they must be destroyed.
Mt Gox, the Bitcoin exchange, is also getting shut down by the US. And that’s where Bitcoin will get destroyed – the exchanges and eventually accepting Bitcoins will become illegal acts. A blanket submission of firms who accept bitcoins to anti-money laundering rules and Know Your Client (don’t think it can’t happen) procedures would make Bitcoin completely worthless overnight.
If you understood anything about how the world actually works as opposed to how you wish it worked, you’d avoid alternative financial intermediaries. At least if your bank account is frozen (like Cyprus) you’ll get a bit of sympathy. Going outside the system and expecting anything other than tears requires an awful lot of belief in the power of freedom.
It is not rational to use things like Liberty Reserve or Bitcoin. Anyone who had money frozen in US developed, offshore hosted poker sites would be able to tell you the perils of having all of your eggs in one basket.