1
00:00:00,008 --> 00:00:04,833
In section 7.6,
we'll talk about Anti Money-Laundering.

2
00:00:04,833 --> 00:00:10,222
What is money-laundering and what are
the rules that governments have imposed,

3
00:00:10,222 --> 00:00:15,320
especially in the U.S., that affect
some Bitcoin-related businesses.

4
00:00:15,320 --> 00:00:17,980
So the goal of anti-money
laundering policy

5
00:00:17,980 --> 00:00:22,690
is to prevent large flows of
money from crossing borders or

6
00:00:22,690 --> 00:00:27,280
moving between the underground and
legitimate economy without being detected.

7
00:00:27,280 --> 00:00:29,090
I talked earlier about capital controls,

8
00:00:29,090 --> 00:00:32,350
where countries are just trying to
prevent money from crossing borders.

9
00:00:32,350 --> 00:00:36,050
In some cases, countries are just
fine with money crossing borders, but

10
00:00:36,050 --> 00:00:39,895
they want to know who's transferring what
to whom, and where that money came from.

11
00:00:39,895 --> 00:00:45,590
Anti-money laundering is aimed at making
certain kinds of crime more difficult,

12
00:00:45,590 --> 00:00:47,370
especially organized crime.

13
00:00:47,370 --> 00:00:51,310
Organized crime groups often
find themselves getting

14
00:00:51,310 --> 00:00:55,900
a lot of money coming in in one place and
wanting to ship it to somewhere else, but

15
00:00:55,900 --> 00:00:58,750
not wanting to explain
where that money came from.

16
00:00:58,750 --> 00:01:02,950
Hence the desire to get money across
borders, or they find thereself making

17
00:01:02,950 --> 00:01:06,630
a lot of money in an underground economy,
and wanting to get that money

18
00:01:06,630 --> 00:01:11,510
into aboveground legitimate economy so
that they can spend it on sports cars and

19
00:01:11,510 --> 00:01:14,855
big houses, or whatever it is that
the leaders of the group want to do.

20
00:01:14,855 --> 00:01:19,230
Anti-money laundering is designed
to make that more difficult.

21
00:01:19,230 --> 00:01:22,219
To either try to catch people
trying to do those things, or

22
00:01:22,219 --> 00:01:26,306
else prevent them from doing it, in order
to detect certain kinds of crimes, or

23
00:01:26,306 --> 00:01:28,321
make organized crime more difficult.

24
00:01:30,007 --> 00:01:32,673
One of the rules that goes
with anti-money laundering,

25
00:01:32,673 --> 00:01:36,680
is something called Know Your Customer,
sometimes called KYC.

26
00:01:36,680 --> 00:01:40,270
And the details of this can be a little
bit complicated, depend on your locale.

27
00:01:40,270 --> 00:01:44,110
But the basic idea is this
that know your customer rules

28
00:01:44,110 --> 00:01:47,540
require certain kinds of
businesses that handle money to,

29
00:01:47,540 --> 00:01:51,240
first of all, identify and
authenticate who their clients are.

30
00:01:51,240 --> 00:01:52,690
To know who these people are, and

31
00:01:52,690 --> 00:01:57,180
to get some kind of authentication that
they really are who they claim they are.

32
00:01:57,180 --> 00:02:00,130
And, that those claimed identities
correspond to some kind

33
00:02:00,130 --> 00:02:01,970
of identity in the real world.

34
00:02:01,970 --> 00:02:06,930
So a person can't just walk in and
say, I'm John Smith, 123 Main Street,

35
00:02:06,930 --> 00:02:10,090
Anytown, USA,
they have to actually give an identity and

36
00:02:10,090 --> 00:02:14,260
have that be checked in order to
engage in certain kinds of business.

37
00:02:14,260 --> 00:02:17,480
Second, after identifying and
authenticating the clients,

38
00:02:17,480 --> 00:02:21,600
the business may be required
to evaluate how risky it is,

39
00:02:21,600 --> 00:02:26,290
what the risk is with respect to a certain
client engaging in underground activities.

40
00:02:26,290 --> 00:02:28,920
And this will be based on
how the client behaves,

41
00:02:28,920 --> 00:02:33,210
how, how longstanding their business
relationship is with the company,

42
00:02:33,210 --> 00:02:36,860
how well known they are in the community
and various other kinds of factors.

43
00:02:36,860 --> 00:02:41,260
But know your customer rules, generally
would require some kind of risk analysis

44
00:02:41,260 --> 00:02:44,770
with respect to individual clients,
and would res, and

45
00:02:44,770 --> 00:02:48,840
would require, a,
a company that's covered by KYC

46
00:02:48,840 --> 00:02:54,530
to treat clients who's activities
seem riskier with more attention.

47
00:02:54,530 --> 00:02:57,765
And then finally third typically
there's a requirement to watch for

48
00:02:57,765 --> 00:03:01,510
anomalous behavior, to watch for
behavior that seems to be indicative

49
00:03:01,510 --> 00:03:05,110
of criminal activity, or of money
laundering, or of other sorts of things.

50
00:03:05,110 --> 00:03:08,240
Tying that together with
the risk evaluation

51
00:03:08,240 --> 00:03:12,180
to understand what's the level of risk
with respect to a particular customer.

52
00:03:12,180 --> 00:03:16,280
And what to watch for
with respect to a particular customer.

53
00:03:16,280 --> 00:03:20,610
KYC will often ask a company to
cut off business with a client

54
00:03:20,610 --> 00:03:24,580
who looks too dodgy, or
who's unable to authenticate themselves or

55
00:03:24,580 --> 00:03:27,890
their activities sufficiently for
the rule.

56
00:03:27,890 --> 00:03:30,599
As I said, this gets complicated but
this is the basic outline.

57
00:03:32,010 --> 00:03:35,580
There are mandatory reporting
requirements in the United States

58
00:03:35,580 --> 00:03:37,030
that are worth talking about.

59
00:03:37,030 --> 00:03:41,410
For example,
companies in a broad range of sectors

60
00:03:41,410 --> 00:03:43,720
have to report currency
transactions that are over $10,000.

61
00:03:43,720 --> 00:03:48,840
They have to file something called
the Currency Transaction Report to say

62
00:03:48,840 --> 00:03:53,370
what is the transaction, who is
the other party to the transaction, And

63
00:03:53,370 --> 00:03:55,790
there's some requirement to
authenticate who they are.

64
00:03:55,790 --> 00:03:59,660
This has to be reported to the government,
and that goes into databases and

65
00:03:59,660 --> 00:04:01,150
then might be analyzed to look for

66
00:04:01,150 --> 00:04:03,950
patterns of behavior that
are indicative of money laundering.

67
00:04:05,500 --> 00:04:07,530
Companies are also required to watch for

68
00:04:07,530 --> 00:04:10,230
clients who are engaged in
what's called structuring.

69
00:04:10,230 --> 00:04:13,830
That is in structuring
transactions to avoid reporting.

70
00:04:13,830 --> 00:04:17,530
For example, if someone engages in a
series of transactions that are $9,000 in

71
00:04:17,530 --> 00:04:23,240
value as a way to get around
a $10,000 transaction reporting rule,

72
00:04:23,240 --> 00:04:24,470
that amounts to structuring.

73
00:04:24,470 --> 00:04:27,660
It looks like an attempt to evade
the reporting requirements.

74
00:04:27,660 --> 00:04:31,040
A company that sees structuring
is required to report it.

75
00:04:31,040 --> 00:04:32,529
And they're required to watch for it.

76
00:04:33,640 --> 00:04:37,260
That requires filing of
a suspicious activity report.

77
00:04:37,260 --> 00:04:40,380
Again, filing that with the U.S.
Government, and

78
00:04:40,380 --> 00:04:45,010
that again goes into a database,
might lead to investigation of the client.

79
00:04:45,010 --> 00:04:47,170
The requirements here differ by country.

80
00:04:47,170 --> 00:04:50,890
I am by no means trying to give you legal
advice about whether you need this or

81
00:04:50,890 --> 00:04:52,140
what you have to do.

82
00:04:52,140 --> 00:04:55,800
I just want to give an idea of what
kind of requirements are imposed

83
00:04:55,800 --> 00:04:58,610
by anti-money laundering rules.

84
00:04:58,610 --> 00:05:02,090
But I do want everyone to note
the government, the U.S. government and

85
00:05:02,090 --> 00:05:06,000
other governments take anti-money
laundering rules very very seriously.

86
00:05:06,000 --> 00:05:08,580
This is not the kind of rule
you can just blow off and

87
00:05:08,580 --> 00:05:11,640
deal with it if you get a complaint
from the government later.

88
00:05:11,640 --> 00:05:13,510
Bitcoin businesses have been shut down.

89
00:05:13,510 --> 00:05:15,480
They've been shut down temporarily.

90
00:05:15,480 --> 00:05:17,160
They've been shut down permanently.

91
00:05:17,160 --> 00:05:18,570
Business people have been arrested.

92
00:05:18,570 --> 00:05:21,940
People have gone to jail for
not following these rules.

93
00:05:21,940 --> 00:05:24,980
This is one of those areas where
government will enforce the law

94
00:05:24,980 --> 00:05:29,990
vigorously, and where if you're interested
in going into any kind of a business

95
00:05:29,990 --> 00:05:34,580
that is handling, certainly,
large transactions or for sure,

96
00:05:34,580 --> 00:05:39,060
currency or
fiat currency value in quantity.

97
00:05:39,060 --> 00:05:43,000
You had better be talking to a lawyer
who understands these rules.

98
00:05:43,000 --> 00:05:47,962
This is an area in which government
absolutely does regulate BitCoin, and

99
00:05:47,962 --> 00:05:51,901
has ever since they noticed that
Bitcoin was large enough to

100
00:05:51,901 --> 00:05:54,122
pose a risk of money laundering.