In March 2010 Wachovia cut a deal with the US government which involved the bank being given fines of $160 million under a ”deferred prosecution” agreement. This was due to Wachovia’s heavy involvement in money laundering moving up to $378.4 billion over several years. Not one banker was prosecuted for illegal involvement in the drugs trade. Meanwhile small time drug dealers and users go to prison.
That is a decent article from the Guardian concerning Wachovia's activities. In particular, it contains the statements of a highly involved whistleblower that are indicting on their own. But I find the statement of facts from the deferred prosecution agreement to be more compelling:
>24.) During the investigation, law enforcement reviewed the CDC banking activity that occurred at Wachovia and found readily identifiable evidence and red flags of large-scale drug money laundering....
>26.) These BSA investigations have determined that from May 2003 through at least July 2007, Wachovia violated the anti-money laundering ("AML") and suspicious activity reporting requirements of the BSA and its implementing regulations. The violations at Wachovia were serious and systemic...
>31.) ...This wire activity was principally monitored through the use of a computer system.... The actual number of alerts that the system was designed to generate per month was pre-set, based, in part, on the number of investigators available to review the alerts. In addition, AML personnel were not allowed to carry investigations into the next month.... The net result was that the understaffed AML unit in Philadelphia could not keep up with the volume of wires. The suspicious activity went effectively unmonitored.
>32.) With regard to the bulk cash business, Wachovia had no written formal AML policy or procedure for the monitoring of bulk cash to ensure that suspicious activity was reported.... As a result, at least $4,728,626,300 in bulk cash from the CDCs went through Wachovia during the period of May 1, 2004 through May 31, 2007, with essentially no AML monitoring.
>33.) Wachovia never reviewed any of the RDC deposits made from the time the product was first offered in the summer of 2005 until approximately November 2007. During this time, approximately $47 billion was deposited into Wachovia through RDC without AML monitoring.
>34.) With regard to standard pouch activity, Wachovia also failed to enforce a self-imposed policy regarding traveler's checks. In 2005, Wachovia was warned that the CDCs were sending in large quantities of sequentially numbered traveler's checks for deposit and that this was potentially suspicious activity. As a result of this warning and other internal discussions, Wachovia sent a letter to its customers noting that, "due to the strict U.S. regulatory mandates associated with anti-money laundering policies, Wachovia has decided to limit acceptance of bulk deposits of traveler's checks through our cash letter service." The letter stated that Wachovia "will require that you no longer remit deposits containing sequentially numbered USD traveler's checks where the total value of the series exceeds $10,500." Wachovia, however, failed to establish any internal policy or monitoring procedures to implement or enforce this rule. As a result, from April 2005 through May 2007, Wachovia accepted more than 1000 pouch deposits that contained thousands of sequentially numbered traveler's checks in violation of its own policy.
That's about as intentional as it gets in my book. I would argue that those above statements of fact are enough on their own to indicate intent. Particularly number 34, which makes it plain as day that they were certainly aware of the problems --and made public-facing gestures at addressing them-- but internally were more than happy to keep rolling in the drug money.
For anyone who's directing their rage at MtGox for this, that should not be the target.
We should be outraged at the banking system and the lawmakers instead. They are the ones who are putting roadblocks on to MtGox, as these documents prove.
MtGox does not operate a MSB according to the laws in Japan, so if it has a bank account in the US, how does it make it a MSB?
Besides, the FinCEN guidelines are not clear for Bitcoin. For example, there's no clear definition for what is a "User" and what is an "Administrator".
Being P2P, users are administrators at the same time. (You don't necessarily need to mine bitcoins to be an administrator, if you're a user, then your client still needs to do administrative tasks such as relay transactions across the network)
Besides, bitcoins should be considered as virtual messaging service, rather than a currency as in the traditional sense of the word. In essence, Bitcoin is a distributed messaging network. (When bitcoins are bought, the buyer is actually paying the seller to send a message to the network).
The accounts seized were for Mutum Sigillum, their US subsidiary. The claim is that MS transferred funds from Mt Gox's Dwalla account to Mt. Gox's overseas account, which fits under the definition of a MSB in the US.
If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck. I doubt any court in the land would rule that Bitcoin is not a currency.
Keep in mind that half of Mt. Gox's value is in BTC. They tend to receive about 1% of volume (average 0.5% commission on both sides of trade - half of which is fiat, other half BTC)
Last month or so they've had about 20K or so daily volume. So 600K X $100/BTC X 1% = about $600K/month. Let's double that for good months. Hell, triple it. $1.8 M/mo, or $900K cash. I'd assume $100K/mo for salaries, infrastructure, etc. So about $10M/year in profit.
Half of it's frozen. Meanwhile, they have $900K/mo in BTC. That's a liability if they can't properly cash out. They'd probably have to sell about 1/2 of what's in their wallets to get to solvency as people continue to want their money. They control like 60% of the market - so what would be the effect of about 30% of all BTC hitting the other exchanges? Assuming they could handle the traffic, it would devastate prices.
Or they liquidate. 60% of all BTC flooding market.
Or they go under. It'd be good for those holding in other exchanges, but that would be an epic implosion as all those BTC's "disappear".
I can't see this scenario change, unless they can start fulfilling all wires within the next couple of weeks.
Folks will split hairs about the fact that the freezes are on their subsidiary... but how of Mt. Gox's business runs through it? Enough that the distinction is pointless.
All of these numbers are ballparked, but the deeper point: much of Bitcoin's success and attractiveness is based on the Mt. Gox exchange. Too much. It's going to destroy the market as it currently stands.
The only alternative is for everyone to pull out BTC, destroy Mt. Gox, and hold as the other exchanges stabilize.
Very good points. I hadn't considered the BTC that they keep on trades. I wonder if they sell some of this BTC at certain threshholds, such that they are constantly converting to fiat?
Not too big to fail in the US banking sense, where it would tumble a house of cards with global repercussions. However, I think it would do a lot of damage to the Bitcoin economy: other exchanges, Silk Road, Bitcoin gambling sites, various Bitcoin startups, those with serious money tied up in BTC.
It's entirely possible that they're fulfilling some of the orders out of their wallet, but at a max of 0.6%, if they're never going the other way (fulfilling BTC orders with fiat), that'd get exhausted pretty quickly.
Report from #mtgox when I asked, the deposits and withdrawals in USD are still flowing, but it's so slow they might as well not be. You can move your money out of Mt.Gox as bitcoins but you take a "9% haircut" because the Mt.Gox USD are undervalued.
(Unless of course your money is already bitcoins.)
Wire transfers are being fulfilled in an average of 7 weeks.
This is 100% hearsay but I went and asked yesterday because this article popped up on HN and was deleted before anybody had a chance to comment, and I wondered why.
No comments about the seizures, other than "anything but business as usual".
Given that I ordered two Jalapenos from Butterfly Labs in January and they've just shipped today, and people who ordered larger, more expensive items are waiting even longer, I'd say there's a certain tolerance for waiting when it comes to money and items crossing borders in the Bitcoin community.
No, there isn't tolerance. The Bitcoin community feels trapped and accepts fate.
BFL: they refuse refunds. You can get them if you push PayPal a bit, but BFL's policy is that you're stuck.
Mt Gox: despite multiple failures (security breaches, closing when they couldn't handle load, wire delays, etc) they still survive because they're the biggest.
Bitcoin is run by a bunch of hobbyists cashing in. The market will mature, and in time there will be a greasy spot where companies like BFL and Mt. Gox used to be. It's much like the early days of the Internet: early ISPs were charming, but eventually the Internet service grew and required companies that could operate at that level.
If all the companies selling mining equipment are incompetent and untrustworthy, you don't have to mine. I don't any more. You don't have to daytrade either.
I never said anything suggesting that all the companies were untrustworthy. I was responding to the idea that Bitcoiners are patient - I was pointed out that wasn't the case, but that some very large players in the industry have backed their customers into corners with little way out.
Given that pirateat40's ponzi managed to take in the majority of the Bitcoin community, I'd say their actions don't necessarily represent sound financial practice.
Consider this could happen to any Bitcoin exchange, and now the US Government has 5 million of their dollars. I would think that would put them on the road to licensed and bonded in 50 states -- they were saying before it costs about 5 million to become licensed and bonded.
Also, Mt.Gox is not a US company. SEPA/Euro transfers are being processed in a "reasonable amount of time" -- I don't know exactly what that means. I am from the US and I am becoming verified this week, since my BFL Jalapenos have just shipped it seems much more important than only a week ago.
I've withdrawn from mtgox to a UK account via SEPA many times. It's never taken less than two weeks, and last time (about four months ago), it took nearly five weeks. Communication and transparency about waiting times has always been pretty bad. I'm lucky to have contact info for senior staff, who I can pester for assurances that they are just very backed up rather than in a meltdown situation. Were I an average customer I'd've assumed the worst.
The death of one exchange does not herald the death of the market. Absolute worst case, it moves off of public HTTP websites to back channels like #bitcoin-otc
There's always going to be a need for easy, anonymous value transfer.
It's not easy, by any means, unless you're already familiar with IRC and crypto and signing messages.
But it's basically anonymous: the actual transactions happen in emails or privmesgs and so there are zero records beyond the feedback on bitcoin-otc.com (which is optional and can be meaningless†, for example, the ratings by 'newguy' and 'AVALON' on me), and there's no way to prove or disprove that a transaction happened without full access to the internals of whatever systems one side of the transaction is on. For example, there's no way for anyone to prove that I really did sell 0.25btc for $50 on Amazon; there's plenty of 0.25btc movements on the blockchain, and all Amazon sees is that I redeemed a giftcode from somewhere. And there's even less evidence if you're willing to send or receive cash in an envelope (http://bitcoin-otc.com/vieworderbook.php?type=&nick=&thing=&...). So it's about as anonymous as you want it to be.
† Specifically, you can be fairly sure the AVALON/newguy accounts did leave that feedback on me because the site accepts commands only from IRC accounts which have cryptographically proven their ownership of the account; but there is no way to be sure that I transacted with them or scammed them. As it happens, I did not and those ratings are revenge from a scammer for not falling for his tricks. Same problem as with public keys, and why people talk about web of trusts.
That reminds me, I wonder how the CoinLab vs Mt Gox lawsuit is getting along. As I understand it, Mt. Gox entered into a contract with CoinLab to do the US transaction processing that was previously being done by their subsidary, in part because CoinLab were able to follow the various legal requirements, then breached that contract. Mt. Gox then had the sheer balls to argue that they weren't getting anything worthwhile from the contract in question.
How is Mt. Gox on the legal and lobbyist front? They might be able to go hard on this with USV and others to back off the pressure and cut a deal that preserves BTC without onerous regs. (It might be expensive.)
If you trusted a company that started out trading Magic: the Gathering cards with a significant amount of your money, you probably need the lesson you are going to learn from this.
> The frequently repeated story that eBay was founded to help Omidyar's fiancée trade Pez candy dispensers was fabricated by a public relations manager in 1997 to interest the media
Your already spurious analogy is extra terrible because nobody deposits hundreds of thousands of dollars with eBay.
Paypal, OTOH, started out as a financial service and was designed as one from the beginning, and proven itself reliable. But even so, most people know not to leave large amounts of money in their Paypal accounts, and to make regular deposits into a proper bank account.
What you are saying is "Don't use mtgox because one of its founders that has no role in the company once thought about doing magic the gathering cards exchange".
The site never really worked as a cards exchange.
However, I agree that given Mt. Gox record of fuck ups, I would never put any large sums there.
That's like saying "The government stole my car from the valet who was driving it without a license". Mt.Gox knew they needed a license, that's been made extremely clear. The only reason they are still operating at all is because Japanese authorities are asleep at the wheel.
If it's like you say, then people are supposed to go to the government to recover their funds. Unfortunately, govt won't give them a cent. It's like you live on a street where mafia requires valets to "buy" a license. You happen to give your car to a valet who forgot to "buy" a license from mafia. Then mafia seizes your car from the valet and you get upset. Why blame the valet if it's better to not have a mafia in the first place?
Oh, I forget. Mafia dictates what's good for your health and educates your children because it gives you a great service: protection against other mafias. And the price for that service is not fixed. You have to give up half of your income.
My point was not whether they were "stealing" their money, it's that they weren't an entity you should be trusting with substantial amounts of money. Whether they lost it by malicious action, inept accident or by themselves being stomped on by some larger entity (the government in this case), it was/is foolish to trust an organization like Mtgox with lots of your money.
It's kind of impressive that they can just lose 5 million like that and go on doing business. Actually I don't know if impressive is the word I was looking for...
As long as some portion of that $5M eventually goes towards licensure and bonding, or is returned, I'm counting it as forward progress to have that money seized.
I don't know the likelihood of that honestly but I would certainly be more ashamed of my own government than already this month if it was simply "appropriated" and not returned or counted.
Hardly. They make about 1% of their volume. At 20K volume (about what they see these days), and $120/BTC, That's about $24,000 a day in revenue, half of which is USD. About $4.3M a year in USD. They just had $5M locked up.
They're surviving because they're not letting go of any of the USD they have, or at a trickle. I've heard numbers along the lines of they had $10M in April. They can't pay salaries and infrastructure costs in BTC, so they're holding on to what $ they have for as long as they can. Eventually they'll have to start releasing their BTC into the market to get $ out, but they know that will have a negative effect.
The company did not start out trading MtG cards. Mtgox's founder launched mtgox using a domain name that he once used for a MtG site. The founder then sold the company to Mark Karpeles, the current owner.
It's not. The original commenter insinuated that the site was somehow inferior do to a history of selling playing cards. As it's just the domain name that was reused, there's clearly no association at all. A name is a name is a name.
Not quite. They are two distinct business ventures linked by the operator and name. The name is irrelevant, and the operator clearly ran them as distinct entities.
Actually, yes, both are substantially different from Bitcoin. Both stock and futures contracts carry legal weight -- basically they are contracts and their value is ultimately a result of their legal meaning, despite all the speculators you hear about. From time to time you can see news about shareholder lawsuits or elections of corporate leadership. Companies often use futures contracts to reduce the risk of buying raw materials (fuel, food, etc.) for their operations.
They never moved per se, but apparently they have some kind of US subsidiary.
They actually made a deal back in 2012 to sell all their USD business to CoinLab which would have made compliance CoinLab's problem while MtGox could sit back and collect their revenue share. Maybe they're kicking themselves for not going through with the CoinLab deal.
http://www.bloomberg.com/news/2013-03-31/money-laundering-ba...
http://www.globalresearch.ca/money-laundering-and-the-drug-t...
In March 2010 Wachovia cut a deal with the US government which involved the bank being given fines of $160 million under a ”deferred prosecution” agreement. This was due to Wachovia’s heavy involvement in money laundering moving up to $378.4 billion over several years. Not one banker was prosecuted for illegal involvement in the drugs trade. Meanwhile small time drug dealers and users go to prison.