The Hidden Truth Behind Money Laundering, Banks And Cryptocurrency


Last week, a set of documents known as the FinCEN files were released, detailing how some of the biggest banks in the world move trillions of dollars in suspicious transactions for suspected terrorists, kleptocrats and drug kingpins. And the U.S. government has failed to stop it. 

The Financial Crimes Enforcement Network (“FinCEN”), an agency within the Treasury Department, charged with combating money laundering, terrorist financing, and other financial crimes. A collection of “suspicious activity reports” offers a window into financial corruption, and how governments are unable or unwilling to stop it. Profits from deadly drug wars, fortunes embezzled from developing countries, and hard-earned savings stolen in Ponzi schemes, all flow through financial institutions, despite warnings from bank employees. 

These reports are available to US law enforcement agencies and other nations’ financial intelligence operations. Although FinCEN is aware of the money laundering activities, it lacks the authority to stop it. 

Money laundering is more than a financial crime. It is a tool that makes all other crimes possible – from drug trafficking to political crimes. And banks make it all possible. In a detailed expose, BuzzFeedNews named several of the most trusted banks. Current investigations show that even after fines and prosecutions, well-known JPMorgan Chase
JPM
, HSBC, Standard Chartered, Deutsche Bank, and Bank of New York Mellon
BK
are all involved in moving funds for suspected criminals. 

The current financial system largely insulates the banks and its executives from prosecution, so long as the bank files a notice with FinCEN that it may be facilitating criminal activity. The suspicious activity alert effectively gives the banks a free pass. And so, illegal funds continue to flow through banks into various industries from oil to entertainment to real estate, further separating the rich from the poor, while the banks we have grown to trust, make it all possible. 

According to the United Nations, the estimated amount of money laundered globally in one year is 2 to 5% of the global GDP, or $800 billion to $2 trillion, with more than thank 90% of money laundering going undetected today. 

Concurrently, the cryptocurrency industry has also been criticized for being a tool for money laundering, despite statistics stating otherwise. It is estimated that only 1.1% of all cryptocurrency transactions are illicit. During its early days, Bitcoin was widely associated with the Silk Road, an online dark-net marketplace, where users could purchase weapons and illegal drugs anonymously.

But with the growing use of the Bitcoin network, 42 million Bitcoin wallets and counting, it is becoming increasingly possible to track transactions on public blockchains, while private banking transactions remain hidden in plain sight. 

This week, I had an opportunity to sit down with Chanpeng Zhao “CZ”, the Founder & CEO of Binance, largest cryptocurrency exchange by volume in the world, to get his take on money laundering both in the traditional and the digital finance worlds. 

The following are a few highlights from our interview:

Thank you for joining us today, CZ. In your opinion, why is money laundering particularly harmful to our economy?

CZ: As financial services providers, it is our duty to fight illicit activity. Everyone shares this responsibility. But typically once the rules are established, people will try to get around the rules. And there are people who just want more business, and knowing or unknowingly will facilitate these transactions. We also live in a complex world, where one country may view a country as a criminal and the other may not. A lot of people have a black and white view, but the world is actually grey. Not all banks are innocent and not all crypto companies are bad.

The cryptocurrency industry has come under fire for facilitating illicit transactions. How do you think traditional finance and cryptocurrency industries compare in this regard?

CZ: If you are using Bitcoin, it is a transparent ledger. Once you have a few transactions, you can trace the funds all the way back to where the coins were mined. So in this way, blockchain actually provides a very transparent ledger for everyone to analyze. If you piece together a few data points and do a cluster analysis, it is not that hard for an algorithm to analyze the origin. Privacy coins are harder to track, but their market cap is not that high, making larger transactions more difficult. So to be honest, it is much easier to make illicit transactions using fiat than using crypto. 

How would you compare the volume of illicit transactions in crypto versus fiat?

CZ: It’s probably a thousand times less. Basically, for any meaningful amount of money you want to move in the crypto, it is very hard to move it anonymously. There are third-party monitoring tools, and databases that can match many of the addresses to known persons. The cryptocurrency market cap is so small, that if you are moving a $100 million dollars, you cannot do so without going through a centralized exchange, making it even easier to track. 

The cryptocurrency space as a whole was started by Satoshi Nakomoto as somewhat of a crusade against the corruption of banks. Notably, the genesis block of Bitcoin contained a footnote addressing the bailouts of banks in 2008 and 2009 [“The Times 3 January 2009 – Chancellor on brink of second bailout for banks.”] Is that ethos still alive in the cryptocurrency space today, the drive to take down the big guy?

CZ: I have more of a balanced view here. Some in the crypto space are against banks, fiat, etc., while others think cryptocurrencies are used by drug lords. Those are two extreme views. My view is that cryptocurrency offers freedom – a higher degree of freedom in transactions, investments, holdings, savings, etc. We are just offering another option for users who value that freedom and control. I’m not against any bank or any single person. I think crypto offers a higher freedom of money, and therefore we want to provide more people with access to crypto… If I don’t like the banks, I just don’t use them. 

Where do you feel the balance lies between the government protecting its citizens versus fostering innovation?

CZ: I believe governments should be public services. They should provide roads and fire departments…Whenever there is government intervention, it is bad for the economy. Whenever a government helps one party, it inherently damages another. The government tips the balance of the economy providing help to a party that is not competitive enough to stay alive. So whenever a government bails out big banks, or any business for that matter, they only look like they are helping. I believe in a free economy, and I subscribe to that philosophy very strongly. 

Thank you for your insight, CZ.

Full video interview will be available on www.MythOfMoney.com on Thursday, October 1, 2020.

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