Bitcoin Forum

Money laundering is the process of making illegally-gained proceeds (i.e. "dirty money") appear legal (i.e. "clean"). Typically, it involves three steps: placement, layering and integration. First, the illegitimate funds are furtively introduced into the legitimate financial system. Then, the money is moved around to create confusion, sometimes by wiring or transferring through numerous accounts. Finally, it is integrated into the financial system through additional transactions until the "dirty money" appears "clean." Money laundering can facilitate crimes such as drug trafficking and terrorism, and can adversely impact the global economy.

In its mission to "safeguard the financial system from the abuses of financial crime, including terrorist financing, money laundering and other illicit activity," the Financial Crimes Enforcement Network acts as the designated administrator of the Bank Secrecy Act (BSA). The BSA was established in 1970 and has become one of the most important tools in the fight against money laundering. Since then, numerous other laws have enhanced and amended the BSA to provide law enforcement and regulatory agencies with the most effective tools to combat money laundering. An index of anti-money laundering laws since 1970 with their respective requirements and goals are listed below in chronological order.

Bank Secrecy Act (1970)
Established requirements for record keeping and reporting by private individuals, banks and other financial institutions
Designed to help identify the source, volume, and movement of currency and other monetary instruments transported or transmitted into or out of the United States or deposited in financial institutions

Required banks to
(1) report cash transactions over $10,000 using the Currency Transaction Report;
(2) properly identify persons conducting transactions; and
(3) maintain a paper trail by keeping appropriate records of financial transactions

Money Laundering Control Act (1986)
Established money laundering as a federal crime

Prohibited structuring transactions to evade CTR filings
Introduced civil and criminal forfeiture for BSA violations
Directed banks to establish and maintain procedures to ensure and monitor compliance with the reporting and recordkeeping requirements of the BSA

Anti-Drug Abuse Act of 1988
Expanded the definition of financial institution to include businesses such as car dealers and real estate closing personnel and required them to file reports on large currency transactions
Required the verification of identity of purchasers of monetary instruments over $3,000

Annunzio-Wylie Anti-Money Laundering Act (1992)
Strengthened the sanctions for BSA violations
Required Suspicious Activity Reports and eliminated previously used Criminal Referral Forms
Required verification and recordkeeping for wire transfers
Established the Bank Secrecy Act Advisory Group (BSAAG)

Money Laundering Suppression Act (1994)
Required banking agencies to review and enhance training, and develop anti-money laundering examination procedures
Required banking agencies to review and enhance procedures for referring cases to appropriate law enforcement agencies
Streamlined CTR exemption process
Required each Money Services Business (MSB) to be registered by an owner or controlling person of the MSB
Required every MSB to maintain a list of businesses authorized to act as agents in connection with the financial services offered by the MSB
Made operating an unregistered MSB a federal crime
Recommended that states adopt uniform laws applicable to MSBs

Money Laundering and Financial Crimes Strategy Act (1998)
Required banking agencies to develop anti-money laundering training for examiners
Required the Department of the Treasury and other agencies to develop a National Money Laundering Strategy
Created the High Intensity Money Laundering and Related Financial Crime Area (HIFCA) Task Forces to concentrate law enforcement efforts at the federal, state and local levels in zones where money laundering is prevalent. HIFCAs may be defined geographically or they can also be created to address money laundering in an industry sector, a financial institution, or group of financial institutions.

Uniting and Strengthening America by Providing Appropriate Tools to Restrict, Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act)
[Title III of the USA PATRIOT Act is referred to as the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001]
Criminalized the financing of terrorism and augmented the existing BSA framework by strengthening customer identification procedures
Prohibited financial institutions from engaging in business with foreign shell banks
Required financial institutions to have due diligence procedures (and enhanced due diligence procedures for foreign correspondent and private banking accounts)
Improved information sharing between financial institutions and the U.S. government by requiring government-institution information sharing and voluntary information sharing among financial institutions
Expanded the anti-money laundering program requirements to all financial institutions
Increased civil and criminal penalties for money laundering
Provided the Secretary of the Treasury with the authority to impose "special measures" on jurisdictions, institutions, or transactions that are of "primary money laundering concern"
Facilitated records access and required banks to respond to regulatory requests for information within 120 hours
Required federal banking agencies to consider a bank's AML record when reviewing bank mergers, acquisitions, and other applications for business combinations

Intelligence Reform & Terrorism Prevention Act of 2004
Amended the BSA to require the Secretary of the Treasury to prescribe regulations requiring certain financial institutions to report cross-border electronic transmittals of funds, if the Secretary determines that such reporting is "reasonably necessary" to aid in the fight against money laundering and terrorist financing

Financial Action Task Force
http://www.fatf-gafi.org/pages/aboutus/

The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 by the Ministers of its Member jurisdictions.  The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.  The FATF is therefore a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.


The FATF currently comprises 34 member jurisdictions and 2 regional organisations, representing most major financial centres in all parts of the globe.

Argentina

Australia

Austria

Belgium

Brazil

Canada

China

Denmark

European Commission

Finland

France

Germany

Greece

Gulf Co-operation Council

Hong Kong, China

Iceland

India

Ireland   

Italy

Japan

Republic of Korea 

Luxembourg

Mexico

Netherlands, Kingdom of

New Zealand

Norway

Portugal

Russian Federation

Singapore

South Africa

Spain

Sweden

Switzerland

Turkey

United Kingdom

United States

FATF Associate Members

Asia/Pacific Group on Money Laundering (APG) (See also: APG website)
Caribbean Financial Action Task Force (CFATF) (See also: CFATF website)
Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) (See also: Moneyval website)
Eurasian Group (EAG) (See also: EAG website)
Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) (See also: ESAAMLG website)
Financial Action Task Force on Money Laundering in South America (GAFISUD) (See also:   GAFISUD Website)
Inter Governmental Action Group against Money Laundering in West Africa (GIABA) (See also: GIABA website)
Middle East and North Africa Financial Action Task Force (MENAFATF) (See also: MENAFATF website)

You are doing god's work on this board, BCB.

Where I am floored is the double standard that the authorities enforce. Allow the rich to do as they want while the rest follows a set of rules.

Power always corrupts if given in more than moderation.

Just my opinion.

Anti-money laundering laws, however well-intentioned, righteous and god-faring they make you feel, inevitably destroy the fungibility of the monetary unit.

When shaping money into a tool of law-enforcement and moral judgement, you lessen, even remove completely, its usefulness as an economic good.

How much are you prepared to penalise the whole of society by removing the enumerable benefits that good fungible money provides, in the mostly vain quest of catching a few bad apples through their money?

Just because it is Law does not make it right.

Thank you for documenting 34 years (1970-2004) of the progressive erosion of liberty and the pursuit of happiness, under the auspices of "fighting terrorists".

BCB gets a post award for quality.  Thank you sir.   :)

Yes, quality fore-lock tugging, bowing, scraping and general sycophancy.

Very informative post, big thanks.

The point here gentleman is that anti-money laundering has been a significant issue in the United States for over 34 years.  These laws have also been amended every 2-5 years since 1986 so this issue continues to be of great concern.

Since the creation of the FATF in 1989, 36 countries have come out in support of similar legislation and regulation.

When you look at the liberty reserve case you see that 15 countries were involved in that effort.
http://www.justice.gov/usao/nys/pressconference/libertyreserve/visual.pdf

So when individuals rail about the over-reach of the US government or say they are safe or immune from these laws because they are in other countries they are naively mistaken.

I'm not saying I agree with or support these laws and regulations as the pertain to virtual currencies but it is important we identify and understand the risks.

The laws and potential new  regulation and  "guidance" are clearly a threat to the long term viability of virtual currencies and it is important we understand them in any effort to finda way forward.

Who did you vote for last election?  Did you research the candidates stance on civil liberties?

FTFY  :D

Carlton

You seen like a smart guy. You can call them ugly babies, and that may be true and other than possibly making you feel better where does that get you?  What action are you taking?  How do you make a difference?

He did omit a tip address.

I think Lao Tsu would approve of BCB's post.

Great work! Thanks for the info, and thanks for taking the time to put it here.

But I think you shall consider changing the title. It should be more like: "How the ugly government gained legal right to scrutinize and control all private transactions in the country".

Or just. "History of Financial Surveillance."

I could answer you, but do we really want to get into politics here?  We can't be sure, but I think I voted for the best option.

I think you might have misunderstood a little: I'm making the point that it may as well be a competition about who lies the most convincingly, i.e. a race to the bottom instead of a race to the top. When was the last situation where calling grown adults ugly babies was an insult related to their appearance or behaviour? You might need to tune your cognition of interpretation a little there.

Sorry. Just trying to maintain an intelligent conversation.

But my question remains:  how are you making a difference?

We are in complete agreement here.

I am new at this.  I am still learning.

I thought this might fit here because AML and KYC laws are just another method of the US government spying on its citizens. The good news is that opinions are changing.


Source: http://www.dailykos.com/story/2013/07/28/1227187/-Americans-More-Concerned-About-Civil-Liberties-than-Terrorism-for-First-Time-Since-2004-Pew# (http://www.dailykos.com/story/2013/07/28/1227187/-Americans-More-Concerned-About-Civil-Liberties-than-Terrorism-for-First-Time-Since-2004-Pew#)

I'd condense it down to: doing, not talking. I regularly go a while never posting here, not just because other smart people here have got it covered and said what I was going to say anyway, but because I'm out in the physical world, taking as many different approaches to getting people thinking about all the issues related to the state our world is in. For instance, some people will never listen to an argument in favour of dissolving governments, others will never listen to the arguments about the corrupt monetary system, others don't want to hear about the truth about wars, or the politicisation of science, or the lies of organised religions. But you don't just give up on those people, there's always some conversation you can have that can enlighten all parties, in a variety of different ways; even experiences of talking to the totally intransigent are valuable as there's often some novel aspect to their dogma. If you want real specifics, then you're probably not as valuable in whatever activism you partake in as you assume, role playing tends towards this self-validating attitude where people like to put their own shortcomings beyond criticism ("you can't tell me I'm a bad neighbour for filling up your trashcan, I give money to the homeless!").

Making a difference is a full time effort of uplifting the consciousness of everyone and everything you come into contact with, in whatever way you see best. Be prepared to make mistakes, to acknowledge them, and keep learning. Can I go now, sir?

By this definition, the FED is laundering money every day, since counterfeiting money (create money out of nothing) is illegal. They should be put into prison immediately!  ;D

Incidentally, the source:

 - http://www.fincen.gov/news_room/aml_history.html

That explains why the tone of the original post was promoting the activity. Glad to know it wasn't written by a member of this community.

I voted for Gary Johnson, since Ron Paul was unavailable. As Carlton suggested, there really was no difference between Obama and Romney, and neither are significantly different from the Bushes, Clintons, or McCain.

So how do these "financial surveillance" laws and LE financial information dragnets not fall afoul of the 4th amendment?

BCB : would you like to post the fourth amendment with regards to financial privacy for everybody so we can see the history of those abuses? thanks.

You sound like the expert on that. Why don't you.

Many are aware that they contravene it entirely, just to collect personally attributable information without using it is a breach. This started so long ago though, the 16th amendment is not ratified, and is practiced in the very states that didn't ratify as well as those that did, it even contradicts the amendment that stipulates the barring of unapportioned taxation. The American constitution has been weakened so much that it's pretty much a non-functional relic, the descent into government by diktat began with the Federal Reserve in 1913. Orwell said it best: power is not a means to an end, it is an end in and of itself. There is no freedom except that which you grant for yourself, people that recognise that quality in Bitcoin should start applying the principle to their whole existence too, the world needs to take back consent from these commissars.

So, as a legal scholar, you basically agree that the Banking Secrecy Act has many aspects of it that are unconstitutional then?

(We need to frame the argument before we launch into it ...)

I'm not a legal scholar.

I'm not a lawyer.

I'm having a public dialogue about US anti - money laundering regulation as it relates to virtual currencies.

You are certainly welcome to outline elements of the BSA that you believe to be unconstitutional.  And until a court proves your point they remain law in the US regardless of what you think and  I for one plan to operate within those laws.

I am of the opinion that the Bitcoin process is incompatible with the

• Bank Secrecy Act (1970)
• Money Laundering Control Act (1986)
• Anti-Drug Abuse Act of 1988
• Annunzio-Wylie Anti-Money Laundering Act (1992)
• Money Laundering Suppression Act (1994)
• Money Laundering and Financial Crimes Strategy Act (1998)
• Uniting and Strengthening America by Providing Appropriate Tools to Restrict, Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act),
  [Title III of the USA PATRIOT Act is referred to as the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001]

• Intelligence Reform & Terrorism Prevention Act of 2004

as well as other related government initiatives (to protect us from evil), such as

• The elimination of all currency denominations greater than $100
• Mandatory reporting of wages data, and withholding
• Searches and confiscation of "suspicious cash" by TSA (and other agencies)

We are witnessing the early sparring.

TippingPoint

everyone has an opinion.

I don't disagree that there are civil liberty and privacy concerns will all the issues you enumerate. 

Regardless,  they remain the law.

Informative post. Thanks.

This might be coming

• Money Laundering, Cryptocurrency and Financial Crimes Strategy Act (2016)

Whatever ... they are idiotic to think they can ever effectively legislate for Open Source code, particularly OS code that can transfer valuable bits.

If they want to be in the business of making the rules of this game they need to learn git, end of.

huh??

I understand that Adolf Hitler was in total compliance with German law when he invaded and murdered his way around Europe. It didn't magically transform those laws into moral behaviour, strangely, they were the total opposite. Legal != ethical.

Everyone has an opinion, that's nice and we may also have different definitions of dirty money.
Drug money is generally seen as dirty money, but 100 years ago, cannabis and cocaine were perfectly legal, and sold freely in shops. No dirty money there.

In many places, gambling is illegal, and people from those places see Las Vegas as a shameful ring of dirty money factories.

Don't get me wrong, there's real dirty money coming from bank robberies and extortion, but there's also a lot of dirty money coming straight from the government.

This was the law.  Gold was dirty money.

Executive Order 6102 is an Executive Order signed on April 5, 1933, by U.S. President Franklin D. Roosevelt "forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates within the continental United States". The order criminalized the possession of monetary gold by any individual, partnership, association or corporation.  They gave you less than 1 month to turn it in, under penalty of $10,000 and/or up to five to ten years imprisonment.  The Supreme Court upheld all seizures as constitutional, with only one justice dissenting.

This was the law until December 31, 1974.

https://upload.wikimedia.org/wikipedia/commons/thumb/a/a1/Executive_Order_6102.jpg/200px-Executive_Order_6102.jpg

https://en.wikipedia.org/wiki/Executive_Order_6102

But they would never be able to do that with Bitcoin, because unlike gold, Bitcoins are used all over the planet.   ;)

Doug Jackson of e-gold bent over forwards trying to comply and still ended up getting it hard with no grease.

Government employees cannot be relied upon to follow the law. They will change it to whatever suits them and their masters among the elites.

You cannot negotiate with terrorists.

There seems to be a common misconception that the rule of law still prevails ... despite all evidence pointing to the contrary.

TD. If you were actually familiar with the e-gold case and the law you would understand that that Doug Jackson was prosecuted for ignoring existing law just as you are suggesting. At his sentencing the judge actually said that there was nothing illegal about his business. Unfortunately he was not in compliance and he allowed bad actors to use his system.

Actions (or more specifically inaction) have consequences. And in this case the consequences include both civil and criminal penalties.

It's ok, you can get away with money laundering if you are a big bank.

http://dealbook.nytimes.com/2012/12/10/hsbc-said-to-near-1-9-billion-settlement-over-money-laundering/?ref=business&_r=0

The laws that affect us most are all surprisingly recent.  Wow.

You are living in an alternative reality ... I kind of envy your cognitive dissonance because that is the world most of us would like to believe we are living in (in an ignorance is bliss kind of way), but the evidence for selective application of bad laws and the roll out of a facist state are now overwhelming. In the end, wilfully ignoring the new reality will cost you, financially and probably psychologically as well eventually.

Huh??  You should try to understand concepts like cognitive dissonance before you use them in an argument to make baseless uninformed attacks. You are attacking me personally not my argument that there are laws that  exist and regardless of how they are selectively enforced the are still to be obeyed.  You don't like that. Neither do I but the fact remains. Throwing around armchair psychology may make you feel better or more superior but it does not change the fact.

In fact if you really knew what cognitive dissonance was you'd realize your justification that laws you find immoral or unjust don't apply to you is in fact a classic example of cognitive dissonance.

Now to return to to the topic here:  the US and other countries have very clear anti-money laundering laws and regulation and the extent to which any legitimate bitcoin business in the US or serving US Customers understands how to navigate these regulations or work collectively to change or modify those laws as they relate to virtual currency is the extent to which they will be successful.

Thanks for the reading material!

You're entirely correct to point out that immoral or unjust legislation is in the eye of the beholder. You haven't the faintest clue how to identify cognitive dissonance correctly. Allow me to refute the above quote:

Some people think the ability to stifle the flow of money between criminals is a proportionate and appropriate way to tackle the actual crimes, others don't. The trouble with that is that the United States political/corporate establishment seeks to impose it's subjective view of right and wrong upon every square inch of the planet, and it has been granted no such authority, except by itself. This is the greater crime, as it renders everyone else unable to choose what version of right and wrong they wish to live under. It is nothing more than a dictatorship, to disacknowledge this is cognitive dissonance of a magnitude that would sound like an entire orchestra tipped over the edge of the Grand Canyon.  

Let me put it in a more down home analogy for ya:

... the old house is crumbling down, people are walking through the massive holes smashed in the walls, climbing in through the broken windows ... and here you are screaming, "everybody, please remember to use the doors!".

I think go to Wall St. and pontificate about following the ridiculous financial regulations and laws, the targets are bigger, more 'morally just' and at least they will pretend to care.

That is your opinion and you are entitled to it.

/thread revive
With government seizing bitcoins now and somewhat acknowledging their status as money regulation seems inevitable but I agree with you that bitcoin protocol is in direct conflict with many existing aml and other laws on the books so other then an outright ban what possible regulation can there be?

That would be awesome.

Do you know how much we'll get done by 2016 in terms of inventing systems that will make that law impossible to enforce in practise?

I hesitate to give them specifics.  The good news is that they are usually slow and ponderous. 

Sure, so the hope here is for adoption to outrun the time it takes for various agencies to crack down?  Aml and kyc laws are illegal per se without mens rea requirements much like drug possession.  Those laws already make lots of bitcoin transactions illegal.  If taken to its logical conclusion since regulating bitcoin is impossible the only other option is an outright ban.  No amount of explaining to regulators will change the fact that an anonymous address A can transfer the equivalent of millions of real fiat to anonymous address B and there is nothing anyone can do about it.

Page 13, Item 21 titled "Silk Road's Bitcoin Based Payment System" in section b. item V. of the sealed complaint of US vs Ross William Ulbricht states:
"Bitcoin are not illegal in and of themselves and have known legitimate uses."
http://s3.documentcloud.org/documents/801130/172773407-ulbricht-criminal-complaint-silk-road.pdf (http://s3.documentcloud.org/documents/801130/172773407-ulbricht-criminal-complaint-silk-road.pdf)


"... offering virtual currencies must comply with ... regulatory requirements, and if they do so, they have nothing to fear from Treasury. "
JENNIFER SHASKY CALVERY, DIRECTOR , FINANCIAL CRIMES ENFORCEMENT NETWORK
http://www.fincen.gov/news_room/speech/pdf/20130613.pdf (http://www.fincen.gov/news_room/speech/pdf/20130613.pdf)

I think you misinterpreted what I said.  Forget for a second the fact that one judge can say one thing and later another can say something else.  What I said was that lots of bitcoin transactions are illegal per se not bitcoin itself is illegal.  If bitcoin is a currency then either it is a cash currency or because of the public blockchain it isn't.  If one feels it's cash then various institution must file reports if transactions exceed a certain size and the participants aren't identified.  Somehow I doubt any such reports are filed or for that matter who's supposed to file them?  Miners?  Pools?  So all the big transactions you see on the blockchain are either money laundering per se or what are they since participants are obscured and that by definition is money laundering.  If it isn't a cash currency then no regulation is needed at all since it's just like writing a check and both partis are known by their bitcoin address.  Bitcoin is kinda like the Native Americans view about land and property vs modern money which was the European view about land and property when they came to America.  These two systems can not coexist peacefully.

The Tao of Trolling

Moves this up to the top of the page due to recent news etc.

True.  There have been few legal precedents set for bitcoin.

"Therefore, Bitcoin is a currency or form of money, and investors wishing to invest in BTCST provided an  investment of money."
Judge in the Eastern District of Texas, Sherman Division in SEC V TRENDON T. SHAVERS and BITCOIN SAVINGS AND TRUST
http://ia600904.us.archive.org/35/items/gov.uscourts.txed.146063/gov.uscourts.txed.146063.23.0.pdf

I hope that further ruling in the Shavers Case in Texas and the pending Silk Road cases in New York and Delaware will give further clairity to bitcoin's legal standing.

Interesting analogy about the Native Americans.  We all know their fate in the US.  It was not until they partnered with corporate america to use the sovereign powers of their domestic dependent nation  status to enter the casino industry that they began to gain any parity.

The unseen hand of the US government has plenty of tactics against an advisary as is evidenced in the recent announcement by DWOLLA to suspend services to bitcoin businesses and the continued closure of bitcoin business bank accounts.

The banks and dwolla are not closing these accounts because they don't want the businesses.

They are closing these accounts because of increased pressure and scrutiny by their regulators as well at the "reputational risk" of banking a bitcoin business.

see:

Treasury's War: The Unleashing of a New Era of Financial Warfare by Juan Zarate
http://www.amazon.com/Treasurys-War-Unleashing-Financial-Warfare/dp/1610391152

For more than a decade, America has been waging a new kind of war against the financial networks of rogue regimes, proliferators, terrorist groups, and criminal syndicates. Juan Zarate, a chief architect of modern financial warfare and a former senior Treasury and White House official, pulls back the curtain on this shadowy world. In this gripping story, he explains in unprecedented detail how a small, dedicated group of officials redefined the Treasury’s role and used its unique powers, relationships, and reputation to apply financial pressure against America’s enemies.
 

Ah, but now we are talking about a 'conspiracy'.  The most critical segment of society (the 'outer party' to use Orwell's shorthand) has been conditioned to reject anything like that at the hypothesis phase.  This effectively short circuits any analysis of a 'conspiracy' before it progresses to a theory or fact phases.

It is undeniable that there is such a thing as a 'conspiracy', but it is only possible when it has been established as a fact through historical analysis.  It is exceedingly uncomfortable for most people to entertain the notion of a 'conspiracy' occurring in the present or near past because believing considering such a thing casts one into a zone of being of either unsound mind or in a despised class of people or both.

 edit: fix

Conspiracy implies something unlawful.

The regulations currently being imposed on bitcoin business and their banking partners is lawful.

So was gassing the Jews and Gypsies at one time and place. What's your point?

To you it may, but I've never considered that to be a requirement.  Taken from Google's 'define: conspiracy':

   noun
  1. a secret plan by a group to do something unlawful or harmful.

The operative elements are 'secret' and 'group'.  'harmful' is sufficient to characterize the 'plan'.


That is probably unknown until it is adjudicated.  It seems arguable to me that if a 'conspiracy' were to have occurred with a goal of harming a vendor or system which was itself perfectly legal, then the conspiracy might be considered unlawful.  It is (currently) possible for parties up to and including government bodies to break the law in the US.  In other political systems the latter may be impossible by definition.

+ 100,000,000 native Americans

I'm not talking about Jews or Gypsies.  I merely point out the the pressure currently being place on virtual currencies are not the product of any conspiracy but of the interpretation of existing regulation and legislation. 

Exactly and going a step further it seems that a decentralized currency concept is incompatible with many current laws on property and money.  Some other examples to think about is laws on possession of stolen property and how that relates to the concept of tainted coins.

One of the more interesting takeaways I found at the 2013 San Jose conference was the discussion of taint at the security round-table.  At least three of the participants seemed to treat it as a no-brainer and the obvious way to address unlawful behaviour in the ecosystem.  Only ~etotheipi seemed to have some reservations which attempted to voice.  I suspect that as if/when the circulation grows to the point when only well connected operators run full nodes then taint will appear.

Further, I suspect that 'theft' in the standard sense would be only a minor reason why coins get tainted.  It's boring and hard to investigate.  Probably a more useful role of taint would be to assert punitive measures against people who don't comply with other 'lawful' dictates.  Taxes, dues, declarations, etc.  At the aformentioned round-table, ~vess warned specifically about using mixing services so it is a fair bet that if/when taint makes it's appearance it will be applied broadly and retroactively.

Is there anywhere transcripts I can look at?  In the matter of taint I think it's an either or issue.  Either taint is something to be handled or nothing is to be done at all.  If it is going to be addressed it will likely fracture bitcoins into some sort of two tiered legal and illegal bitcoins.  It should come to the forefront fairly quickly though in Mr Trendon Shavers case.

I've heard that after the panel some of the panelists got clue sticked with "FUNGIBLITY! DO YOU SPEAK IT?" and have since reconsidered their positions somewhat.

Praise Jesus!  That's one of the more heartening things I've heard for a while.

To answer the the previous guys question, someone seems to have put the link up here:

  https://www.youtube.com/watch?v=si-2niFDgtI&list=PLUOP0P68GJ3BGjfqoLLnzAefk3ZzXQtJ7

They were into the taint discussion by the time the film started rolling, and the topic re-appeared throughout the discussion.

Sorry for the shrill tone - caught me at a weak moment.

I guess _my_ point would be that government does all sorts of legalistic things that are fundamentally immoral. As an example, almost until the instant Federal Reserve Act was passed on Dec 23 1910, all the planning was conspiracy of incredible proportion. If the insidious legislation that passed this abomination from unlawful to the law of the land passed the planning from definitively conspiracy to definitively not conspiracy, then the definition of conspiracy is a poor one.

See my other entry for a youtube link.  I cannot help but comment again on this as it interests me.

But for the moderator who struck me as a bit of a goob, the other participants are sharp people who don't suck at analysis.  I suspect that taint would work extremely well to solve the 'unlawful' behavior that appears in the Bitcoin ecosystem just as they predict.  In fact, I suspect it would work even better than some of them might guess.  This because if even a distinct minority of the userbase started to honor a taint system it would result in a modest devaluation which would bring more participants on-board resulting in more devaluation, etc.  I predict that the snowball effect would completely devalue tainted coins within weeks.  I don't believe that we'd ever see a 'two tiered' system even briefly (but I'm certainly capable of being wrong about this.)

In actual fact what would probably happen is that at the end of my 'weeks' prediction is that enough grief would be experienced and enough danger would be recognized that Bitcoin would become effectively a historic foot-note.  This because it is not a challenge at all to build on Bitcoin's shoulders and lose some of it's deficiencies and baggage along the way.  If this happens for any reason, there seems to me a pretty good chance that Bitcoin's blockchain would form the value core of what emerges.

Developer Maxwell is a strong proponent of mixing to preserve privacy, and of the necessity of fungibility to preserve the health of bitcoin.  He also has a thread titled "I taint rich" that gives some deeper insight into transactions and the current ideas of taint.

I find his arguments persuasive, but I also find myself deeply unhappy about the theft issue.  Before I studied his arguments, I developed the following scenario.  This is a broad brush concept, the devil & his details have not yet been subjugated.

I have tried to find a scenario where miner's make clean coins, theft is reported to the block chain, the original victim gets restitution, bad guys can't benefit from false theft reports, and most coins are clean.

A claim of stolen coins could be made by sending a payment from the stolen address to a well known address 1Stolenwhatever, another payment to the theft receipt address, and change to an address <new good address> with a public comment giving the TXid of the theft.  The payment to the theft receipt address is important so that they have (legal) notice of the theft claim.  A simultaneous transaction would deposit coins into the stolen address.
In the case of coins that are stolen, I would assign (a user defined) value to the stolen inputs to the theft transaction, e.g., "0"
I would then trace all the inputs to the transaction being considered starting from freshly generated bitcoins.  That transaction would have a face value input, and a "tainted value" input.  All outputs from that transaction would carry the weighted value of output.
Please notice that inputs from the compromised address before the theft transaction carry their full value.  
Any transactions in the block with the notice are still "clean."
By choosing coins that have a large number of confirms (a possible wallet source change), it is very unlikely that stolen coins will be propagated quickly, so exposure of innocent bystanders is minimized.

Now, there is a policy decision.

I would force a miner's fee to a tainted transaction.  
Inputs that are 1 transaction after the notice forfeit 10% of the taint value to the miner's fee.  Thus miners have incentive to adopt this policy.
The new address receives half of this miners fee as new coins, so the miner and the victim split this insurance payment.
The taint of the outputs is re-calculated to account for the amount of restitution (not including the miner's fee).

So, in time, the victim gets restitution, miner's are paid for protecting bitcoins, the theft victim gets to report coins as stolen, and old coins are presumably clean and can be spent with confidence.

It might be necessary to reduce the amount of restitution if the victim does not make a prompt report.  For example, we don't want coins reported as stolen 5 years after the theft.


This is not a polished solution, and the numerical amounts need to be adjusted.  I do think it is a good starting point.

Your ideas are good.

If we have taint capabilities does the community get to vote and decide which coins are and aren't tainted? What if there is a dispute about whether the coins are stolen or not? How can we maintain the decentralized and democratic mechanism of Bitcoin and avoid situations where the political atmosphere in a specific nation results in coins being tainted for political reasons because a prosecutor says so (like in the case of Wikileaks and Paypal).

Additionally what is your opinion on the use of time lock encryption to reduce the possibility of unjustly confiscating coins? If the coins are locked in time then they cannot be confiscated by the government until the time limit is up even if the government were to torture the individual and retrieve the password. This could allow an individual dissident under a certain political environment to lock their coins up and wait for the laws to change in their favor as society becomes more enlightened.

The coins would essentially be locked up in the blockchain itself. Another feature could be setting coins so that out of a wallet the coins can only be spent at a certain rate over a certain period of time. It may even be possible to configure a wallet with features to lock down or do a dead mans switch if certain recurring transactions are not made in a certain sequence.

If the wallet is completely emptied within an hour then the coins are considered stolen if the user defines this scenario as something they would never do. Allow the user to set different parameters for their wallet through scripting and you can make theft more difficult. Additionally the time release functionality could make scams more difficult because the coins cannot be spent until a certain period of time passes or can only be spit at a certain user defined rate. This would not completely prevent scams but it would make the scams more time consuming to pull off and give people more time to uncover the scam.

I still don't see any viable technical solution to dealing with money laundering and terrorist finance possibilities. If Bitcoin is going the anonymous transactions route then an alt coin can experiment with taint and blacklist procedures to find out if it can work or not. A simulation can be conducted where a contest can be held to see if anyone can trace a transaction which has been mixed or to role play a scenario where a team of terrorists are trying to finance something and then let another team roleplay trying to stop them. The result of this role play could be used in an academic research paper to determine whether or not the threat of terrorist finance is a realistic possibility.

If it's a real threat then my opinion is we have to create the tools to mitigate the risks. If it turns out it's not a real threat then it's not a problem. But I don't think we can avoid doing the simulations and research because we have to know what the risks are if we want to regulate cryptocurrencies ourselves through technical means.

I'm not sure there should be solutions to taint.  Privacy and irreversibility are major bitcoin points and taint effectively destroyes that.  Also theft is for a lack of a better word a fungible concept.  How far do you take it and who will be the arbiter?  Obviously if I break into your house and torture you until you transfer your BTC that's theft but after it's a slippery slope.  What if I just blackmailed you?  What if the blackmail involves you committing another serious crime or I'm trying to recover something you stole?  What if you give me BTC of your own free will but I don't want to pay back?  What if we have some sort of agreement and I don't do a good enough job? What if that agreement was poorly worded?  Who decides if that's theft or not?

It ought to be abundantly clear to anyone with modest intellectual ability the intractability of the problem of assessing thefts, frauds, and what-not.  Especially in light of the fact that every highschooler and his little brother will be trying to game the shit out of whatever system is constructed.

This leads me to my statement that 'taint' or 'tarnish' are really not all that much about theft/fraud but more about control and management of the ecosystem.  Bitcoin as currently implemented is cumbersome to harness using the tools of traditional justice systems.  An 'extension' like a tainting system could solve this problem nicely and open up a lot of other interesting opportunities that would make the managers of our current fiat systems green with envy.

These are difficult problems which will require the best minds of the cryptocurrency community and Bitcointalk to come together.

Coercion resistant blockciain code voting for example is an important idea I propose. If we could figure out how to do that then we could as a community reach consensus and solve all sorts of problems. Bitcoin is nice but it's not resistant to coercion as it is now and it needs to be in order for voting to work. I haven't figured out a way to do it right but I think code voting could be one way provided there is a secure channel to voters to send code sheets. This secure mechanism probably could be their smart phones, where you send a code sheet to each individual smart phone with the KASUMI encryption of the smart phone acting as the secure channel.

Now lets say you want to create a virtual jury? You could randomly select users to create a virtual jury to arbitrate certain situations. The jury could swing on the side of the buyer or the seller. Everyone who participants in the jury could be compensated (perhaps by taking a portion of the coins for that or some other means?). In addition you could set the jury up so that only specific trusted individuals from the community can take part on the jury and it could be pseudo-anonymous. Perhaps let them choose individuals to serve on their jury or just randomly select addreses from the blockchain and treat it as a way to earn Bitcoins.

If we have voting, and juries, then the community can start to regulate and govern itself.  

http://people.eng.unimelb.edu.au/vjteague/PGD.pdf

The solution in that paper relies on a Bulletin Board to act as an authenticated broadcast channel. Maybe we could have the Bulletin Board be the Blockchain?  Perhaps miners could act as the trustees? Theoretically is it possible to have coercion resistant verifiable code voting as a protocol built on top of the blockchain? Yes. I think this is easily possible. The hardest part is making it coercion resistant but the way to do that would probably be to have someone else or something else vote on your behalf but that is the area I don't know what to do about.

Ultimately the Bitcoin community has to figure out how to govern itself or an altcoin is going to come along with this voting and other self governing functionality and have a competitive advantage.  The Bitcoin community cannot accept money laundering if it's supposed to last in the long term, which means the community will have to develop a way to make decisions using the blockchain itself. If that means coin taint or if it means voting, it has to happen sooner or later unless Bitcoin goes anonymous in which case it will potentially lose its competitive advantage or gain one depending on how regulators respond. If regulators don't accept anonymous transactions due to money laundering then Bitcoin loses legitimacy.

"Comply or suffer our wrath!" is a form of government, I suppose.

Through all of human history, dictatorship has worked up until now because of centralized economic control of societies. Along with P2P networks and strong encryption in general, I have hopes that Bitcoin is another meaningful obstacle to those personalities attracted to State offices that appear unable to get their jollies unless they're controlling other peoples' activities and fates.

Hell, Bitcoin has already changed the world. I don't see that stopping anytime soon no matter what arbitrary rules are put in place by our various officials. I just wish Chuck Schumer would get on TV and scream about Bitcoin again. That helped drive the price up back then.

It is disappointing to see so many intelligent people come to such an appallingly bad conclusion as "coin tainting is acceptable".

The failure here is to not understand that some things are principles, not matters for arbitration.

Look at the complete destruction of these principles in modern life:
the right to a fair trial and innocent until proven guilty
the right to free speech
the right to privacy

These are the principles which, in a slow and painful process since the Enlightenment, have created a whole new superior order of civilisation. But they have been abandoned.

Example: the right to free speech. Since terrorists and child pornographers and racist hate-mongers use this right, and we don't find that acceptable, we limit free speech in these cases. But any limitation of free speech for any reason means that speech is conditionally free, not actually free. And that means that a certain privileged group in society has to act as the arbiter.

So many intelligent people, certainly many or even most among those I know, think that this is an acceptable state of affairs - some things cannot be tolerated, so let's be "reasonable". There is nothing reasonable about this at all - a 1% reduction in freedom is actually a 100% reduction - something is free, or it is conditional. If it is conditional (and this is the point that I think people don't understand), human nature dictates that the conditionality will be exploited by the corrupt to gain more and more power for themselves and those with their views.

Now back to bitcoin. Money should be fungible - this is exactly freedom in the context of money. Money can still function if it is not free, as it does now for example with bank accounts, but it is a very different thing - it's really a multiparty contract in which one of the parties is some arbitrating organisation (usually a branch of government), which has the ultimate say in which money can and cannot be spent.

Gold could be used as a pure, free form of money but it was very subject to physical limitations. Bitcoin does not have those limitations and can be kept genuinely free. Please consider this. Just because pure freedom is not possible in the physical world does not mean it is impossible in the platonic realm of digital data.

@waxwing

I couldn't give two shits about the philosophical aspects of money and freedom when it comes to the issue of 'taint', and I actually don't have much against strong-arming people if it can be done effectively and if the 'victims' deserve it.  I cackle with delight when a dirt-bag thief gets ripped off himself (like the Ozcoin incident as a classic example.)

My main complaint about 'taint' is that it basically cannot work from a systematic point of view (in my analysis.)  There is no universal agreement on 'fairness' so most people are going to be pissed off most of the time, and the extra degrees of variability which it would throw into the value basis of the solution would almost certainly be unpredictable and dynamic.

Separately, it would open the door for huge levels of control and abuse and I have no doubt that this would follow.

Anyway, 'taint' is not a source of concern until the transaction rate (block size) is significantly increased and mostly large operators provide the critical infrastructure.  Even then I would expect that realistic engineering principles would intervene before such a disaster occurred.  So, it's mostly just a fun intellectual excursion at this point.

Waxwing

Excellent argument. Bravo!

I see a contradiction between these two stances; the second quote is pretty much directly in line with the 'meat' of what I was saying, so I don't think we have any disagreement. If you care about control and abuse of power then you care about freedom.

Sure it's pleasing to see a bad guy get a comeuppance, but my point is that that cannot trump the principle. The violation of the principle is far more of an evil than that an individual thief gets away with a crime. There is far less petty crime in a police state.

To clarify, the 'control and abuse' would damage Bitcoin on mechanical level (taking the liberty of including psychological effects under that term.)

Although I do not consider myself a Libertarian I happen to have a high degree of agreement with the principles such folks espouse philosophically when it comes to money and freedom.  And you have articulated it fairly well I might add.  My point is that I don't think that it is necessary to leverage such arguments when it comes to Bitcoin and 'taint'.  I am quite confident that and attempt at a 'taint' or 'tarnish' extension would result in disaster for strictly operational and engineering reasons alone.

Well at least waxwing "gets it" ... the rest of you might have to suffer another few re-incarnations before an enlightened existence becomes available to you.