Counterparties: Bits of laundry

By Ben Walsh
May 29, 2013

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Even criminals need financial intermediaries. Yesterday federal prosecutors shut down Liberty Reserve, a currency exchange and payment processor, and indicted seven people connected to the company. The indictment called the company a “financial hub of the cybercrime world… including credit card fraud, identity theft, investment fraud, computer hacking, child pornography, and narcotics trafficking”, and alleges it laundered $6 billion via 55 million illegal transactions for one million users over the last seven years.

The Tico Times has a detailed article on the history of the Costa Rica-based business, not to mention “flashy cars, lavish gifts, multiple identities and armed Russian henchmen”.

The criminal attraction to Liberty Reserve is obvious. An email address was all that was needed to to set up an account — some accounts had oh-so subtle names like “Russian Hackers” — and paper trails were nonexistent. The principals seemed aware of who used their services: in an IM conversation, they referred to the company as a “money laundering operation that hackers use”.

Speaking of things hackers like that can be used to launder money, what does Liberty Reserve’s indictment mean for Bitcoin? Kevin Roose says that while both Liberty Reserve and Bitcoin offer users anonymity, “in Bitcoin’s case, there’s nobody to arrest, no entity to prosecute for the sins of the system ”. Bitcoin is vulnerable, Roose notes, to enforcement that targets the exchanges and processors which the currency relies on to function. Timothy Lee thinks that any attempt to shut down, or even regulate, Bitcoin would only drive the currency further underground (assuming that’s possible), making it all the more attractive to criminals.

Kirsten Salyer says “more government scrutiny could actually turn out to be a good thing” for Bitcoin. A competitor is gone, and more money laundering enforcement could help accelerate Bitcoin’s adoption by mainstream users.

Bitcoin’s value has remarkably stable since news of Liberty Reserve’s indictment broke. Perhaps that’s another bit of anecdotal evidence that for die-hard users, there is no such thing as bad news for Bitcoin. To the Bitcoin faithful, everything is a stop on the path to legitimacy. — Ben Walsh

On today’s links:

Deals
The largest pork processor in China acquires Smithfield Foods – DealBook

Wonks
Absent a revolutionary policy change, QE is really the only option – Pawel Morski

Legalese
Why there is no justice on Wall Street – WSJ

Long Reads
Caterpillar’s Doug Oberhelman: “We can never make enough profit” – Businessweek

Central Banking
The world’s central bankers have overcome a great challenge: their own caution – NYT
The housing market is recovering, and the Fed is a big reason why – Jared Bernstein

Apple
Tim Cook promises that Apple is still cool, acknowledges that wearable devices have limited appeal – Reuters
Apple may open up iOS features for third-party developers – BuzzFeed

Startups
The state of the Internet in 117 slides – Mary Meeker

Wonks
“Done carefully, debt is not damning” – Quartz

They’re Just Like Us
Mario Draghi feels misunderstood in Germany and finds it hard to make friends – Der Spiegel

Awesome
“Warning: This game is not intended to be used for actual monetary policy” – WSJ

Housing
Mortgage rates are at their highest level in a year – Reuters

Oxpeckers
Josh Barro is joining Business Insider – Politico

And, of course, there are many more links at Counterparties.

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