In section 7.6,
we'll talk about Anti Money-Laundering.
What is money-laundering and what are
the rules that governments have imposed,
especially in the U.S., that affect
some Bitcoin-related businesses.
So the goal of anti-money
laundering policy
is to prevent large flows of
money from crossing borders or
moving between the underground and
legitimate economy without being detected.
I talked earlier about capital controls,
where countries are just trying to
prevent money from crossing borders.
In some cases, countries are just
fine with money crossing borders, but
they want to know who's transferring what
to whom, and where that money came from.
Anti-money laundering is aimed at making
certain kinds of crime more difficult,
especially organized crime.
Organized crime groups often
find themselves getting
a lot of money coming in in one place and
wanting to ship it to somewhere else, but
not wanting to explain
where that money came from.
Hence the desire to get money across
borders, or they find thereself making
a lot of money in an underground economy,
and wanting to get that money
into aboveground legitimate economy so
that they can spend it on sports cars and
big houses, or whatever it is that
the leaders of the group want to do.
Anti-money laundering is designed
to make that more difficult.
To either try to catch people
trying to do those things, or
else prevent them from doing it, in order
to detect certain kinds of crimes, or
make organized crime more difficult.
One of the rules that goes
with anti-money laundering,
is something called Know Your Customer,
sometimes called KYC.
And the details of this can be a little
bit complicated, depend on your locale.
But the basic idea is this
that know your customer rules
require certain kinds of
businesses that handle money to,
first of all, identify and
authenticate who their clients are.
To know who these people are, and
to get some kind of authentication that
they really are who they claim they are.
And, that those claimed identities
correspond to some kind
of identity in the real world.
So a person can't just walk in and
say, I'm John Smith, 123 Main Street,
Anytown, USA,
they have to actually give an identity and
have that be checked in order to
engage in certain kinds of business.
Second, after identifying and
authenticating the clients,
the business may be required
to evaluate how risky it is,
what the risk is with respect to a certain
client engaging in underground activities.
And this will be based on
how the client behaves,
how, how longstanding their business
relationship is with the company,
how well known they are in the community
and various other kinds of factors.
But know your customer rules, generally
would require some kind of risk analysis
with respect to individual clients,
and would res, and
would require, a,
a company that's covered by KYC
to treat clients who's activities
seem riskier with more attention.
And then finally third typically
there's a requirement to watch for
anomalous behavior, to watch for
behavior that seems to be indicative
of criminal activity, or of money
laundering, or of other sorts of things.
Tying that together with
the risk evaluation
to understand what's the level of risk
with respect to a particular customer.
And what to watch for
with respect to a particular customer.
KYC will often ask a company to
cut off business with a client
who looks too dodgy, or
who's unable to authenticate themselves or
their activities sufficiently for
the rule.
As I said, this gets complicated but
this is the basic outline.
There are mandatory reporting
requirements in the United States
that are worth talking about.
For example,
companies in a broad range of sectors
have to report currency
transactions that are over $10,000.
They have to file something called
the Currency Transaction Report to say
what is the transaction, who is
the other party to the transaction, And
there's some requirement to
authenticate who they are.
This has to be reported to the government,
and that goes into databases and
then might be analyzed to look for
patterns of behavior that
are indicative of money laundering.
Companies are also required to watch for
clients who are engaged in
what's called structuring.
That is in structuring
transactions to avoid reporting.
For example, if someone engages in a
series of transactions that are $9,000 in
value as a way to get around
a $10,000 transaction reporting rule,
that amounts to structuring.
It looks like an attempt to evade
the reporting requirements.
A company that sees structuring
is required to report it.
And they're required to watch for it.
That requires filing of
a suspicious activity report.
Again, filing that with the U.S.
Government, and
that again goes into a database,
might lead to investigation of the client.
The requirements here differ by country.
I am by no means trying to give you legal
advice about whether you need this or
what you have to do.
I just want to give an idea of what
kind of requirements are imposed
by anti-money laundering rules.
But I do want everyone to note
the government, the U.S. government and
other governments take anti-money
laundering rules very very seriously.
This is not the kind of rule
you can just blow off and
deal with it if you get a complaint
from the government later.
Bitcoin businesses have been shut down.
They've been shut down temporarily.
They've been shut down permanently.
Business people have been arrested.
People have gone to jail for
not following these rules.
This is one of those areas where
government will enforce the law
vigorously, and where if you're interested
in going into any kind of a business
that is handling, certainly,
large transactions or for sure,
currency or
fiat currency value in quantity.
You had better be talking to a lawyer
who understands these rules.
This is an area in which government
absolutely does regulate BitCoin, and
has ever since they noticed that
Bitcoin was large enough to
pose a risk of money laundering.