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Author Topic: [Resolved] MtGox mishandled sensitive AML info.  (Read 14228 times)
Phinnaeus Gage
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October 17, 2012, 06:14:08 PM
 #21

I think gross incompetence is an understatement.  MtGox is plagued by mismanagement at nearly every step... and that's all well and good, but when you're a) dealing with large quantities of money and b) sensitive personal information, that is just a recipe for disaster in the making.


+1.1

And from this day forward, consider anything I pen about you or BFL tongue-in-cheek, underless I state otherwise (will try to keep it to a bare minimum).

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In the US the only entity that can attach an apostle seal is the state government (usually the secretary of the state personally)...

Ruckily, when doing so, no other state or federal agency will be made aware that one trades in Bitcoin...or will they during this apostle sealing process?

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October 17, 2012, 06:23:59 PM
 #22

@ Charlie

The fact that it is 2 am in Japan should not matter.  They run a multi-million $$  20/7 trading platform with a very large US clientele.  They can't hire a guy to work the night shift. 

Does not inspire confidence.



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October 17, 2012, 06:27:19 PM
 #23

Also, the AML rules are not their own, they have to follow the standard of both Japan and the USA (Japan being much more strict) but it allows them to stay operationally legal in both jurisdictions.
Financial institutions have to comply with the AML regulations through the implementation of KYC procedures.
mtgox is a financial institution only in the imagination of mark karpeles.

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October 17, 2012, 06:31:36 PM
 #24

davout

regardless of whether or not MT GOX is a financial institution or not, they do interface with fiat financial institutions and will be compelled to comply they those AML/KYC rules.
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October 17, 2012, 06:44:23 PM
 #25

@ Charlie

The fact that it is 2 am in Japan should not matter.  They run a multi-million $$  20/7 trading platform with a very large US clientele.  They can't hire a guy to work the night shift. 

Does not inspire confidence.


Your preaching to the choir boss...BitInstant has 24/7 support  Grin

Also, the AML rules are not their own, they have to follow the standard of both Japan and the USA (Japan being much more strict) but it allows them to stay operationally legal in both jurisdictions.
Financial institutions have to comply with the AML regulations through the implementation of KYC procedures.
mtgox is a financial institution only in the imagination of mark karpeles.

Incorrect.

MtGox is a financial institution.

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October 17, 2012, 07:39:29 PM
 #26

Your preaching to the choir boss...BitInstant has 24/7 support  Grin

Charlie,

You are not the Choir.  Both you and Mark hold corporate seats on the Board of the Bitcoin Foundation and as such should be encouraging one another to be leaders in the community.  Not just in terms of sale volume or reach but in setting expected standards of business practice.



 
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October 17, 2012, 07:47:01 PM
 #27

Your preaching to the choir boss...BitInstant has 24/7 support  Grin

Charlie,

You are not the Choir.  Both you and Mark hold corporate seats on the Board of the Bitcoin Foundation and as such should be encouraging one another to be leaders in the community.  Not just in terms of sale volume or reach but in setting expected standards of business practice.


Agreed.

And yes, I am the choir!

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October 17, 2012, 09:05:05 PM
 #28

Also, the AML rules are not their own, they have to follow the standard of both Japan and the USA (Japan being much more strict) but it allows them to stay operationally legal in both jurisdictions.
Financial institutions have to comply with the AML regulations through the implementation of KYC procedures.
mtgox is a financial institution only in the imagination of mark karpeles.

Incorrect.

MtGox is a financial institution.
Even *they* wouldn't dare to make such a claim.

I can't even find their little Delaware incorporated front (Mutum Sigillum) in the US MSB directory (http://www.fincen.gov/financial_institutions/msb/msbstateselector.html)

So if you have information that we don't have feel free to share, and feel free to check the facts.

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October 17, 2012, 09:20:15 PM
 #29

Division of Corporations - General Information - Entity Details
https://delecorp.delaware.gov/tin/controller
Frequently Asked Q uestions View Search Results Sum m ary of Charges Logout
Entity Details
File Num ber: 4545735 Incorporation Date /
Form ation Date:
05/09/2008
(m m /dd/yyyy)
Entity Nam e: MUTUM SIGILLUM LLC
Entity Kind:
LIMITED
LIA BILITY
COMPA NY
(LLC)
Entity Type: GENERA L
Residency: DOMESTIC State: DE
Status: GOOD
STA NDING Status Date: 05/09/2008
TA X INFORMA TION
Last Annual Report
Filed:
NO
REPORTS
ON FILE
Tax Due: $ 0.00
Annual Tax
Assessm ent: $ 250.00 Total Authorized
Shares: 0
REGISTERED A GENT INFORMA TION
Nam e: CORPOMA X INC.
Address: 2915 OGLETOWN ROA D
City: NEWA RK County: NEW CA STLE
State: DE Postal Code: 19713
Phone: (302)266-8200
FILING HISTORY (Last 5 Filings)
Seq Document Code Description No. of pages Filing Date
(m m /dd/yyyy) Filing Time Effective Date
(m m /dd/yyyy)
1 0102Y Register L.L.C. 1 05/09/2008 14:43 05/09/2008
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October 17, 2012, 09:26:06 PM
 #30

Division of Corporations - General Information - Entity Details
https://delecorp.delaware.gov/tin/controller

[...]

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Irrelevant, you missed the whole "MSB" part.
Check my source, you'll find Bitinstant, you won't find Mutum Sigillum.

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October 17, 2012, 09:27:32 PM
 #31

Division of Corporations - General Information - Entity Details
https://delecorp.delaware.gov/tin/controller

[...]

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Irrelevant, you missed the whole "MSB" part.
Check my source, you'll find Bitinstant, you won't find Mutum Sigillum.

I could be wrong, but Mutum is just the corporation he has the Dwolla account under, I believe he has 1-2 other entities in the US as well.

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October 17, 2012, 09:46:17 PM
 #32

Since there has been no legal ruling on bitcoin he may not consider his business a money service business.

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October 17, 2012, 10:08:32 PM
 #33

Since there has been no legal ruling on bitcoin he may not consider his business a money service business.
Check your facts, a ruling was made in a French court on September 13th 2011.

I dropboxed the full transcript here for your records.

It is in French obviously, so let me take the liberty of translating a few interesting sentences from the ruling summary on page 18 for you :

Quote
Dit qu'il n'y a pas lieu de se prononcer sur la nature des bitcoins.
Quote
[The court] says that ruling about the nature of bitcoin is irrelevant to the case at hand.

Quote
Dit que l'activité de la société MACARAJA s'analyse comme la fourniture de services paiement.
Quote
[The court] says that MACARAJA's activity shall be seen as a payment services business.

Quote
Dit que la société MACARAJA exerce son activité en dehors des règles de droit qui s'imposent à elle.
Quote
[The court] says that MACARAJA operates its businnes outside of the rules of law that it is subjected to.

Why do you think they moved their main operational EUR account to some random polish bank ?

(Note : Macaraja is a French company owned by karpeles, incorporated way before Bitcoin was even invented, it was doing software development before starting to serve pretty much the same purpose Mutum Sigillum currently serves)

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October 17, 2012, 10:14:13 PM
 #34

Since there has been no legal ruling on bitcoin he may not consider his business a money service business.

I'm pretty sure Mark has said before that they intend to seek licensing as a money service business in the US but that it's a process which happens at state level and is quite expensive.  Whether or not they're currently licensed in the US has no impact on their obligations to comply with Japanese AML/CTF/KYC requirements or their obligation to comply with the requirements of the licensed financial institutions with whom they deal in other nations, but they're not going to get a licence in the US without being able to demonstrate that they have appropriate risk assessment and other AML procedures in place.  If you look at institutions like PayPal, you'll see that they can be licensed very differently from one location to the next - here, they're regulated as an authorised deposit-taking institution and regulated under the Banking Act - and that the restrictions on their operations vary by jurisdiction.

I do agree with D&T that this error should never have occurred and that the onus is on MtGox to make it right at their expense.  It would probably be to their advantage to use Western customer service reps as their responses often come across as quite dismissive - even if they're technically correct - and that reflects badly on MtGox as a whole.

All I can say is that this is Bitcoin. I don't believe it until I see six confirmations.
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October 17, 2012, 10:18:07 PM
 #35

davout

was not aware of that specific ruling.  Thanks for posting (and translating).  Does this ruling set a precedent for for other county rulings?  Is this the only legal ruling on bitcoin??  
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October 17, 2012, 10:34:44 PM
 #36

davout

was not aware of that specific ruling.  Thanks for posting (and translating).  Does this ruling set a precedent for for other county rulings?  Is this the only legal ruling on bitcoin??  

You missed the point.  It was not a ruling on Bitcoin.  The whole case centred around the fiat services MtGox was performing for its customers and whether it needed to be licensed in order to offer those services in France.  And yes, it could be used as precedent in other EU countries but it's probably not binding.

One of the decisions which Bitcoin financial service providers need to make is whether a given market is profitable enough to justify seeking licensing in that market.  Even when lower tier (and therefore lower cost) forms of licensing are available, they're often quite restrictive (limits on customer account balances are a common restriction).  The US market is obviously hugely profitable for MtGox, but becoming licensed in every US state would be an astonishingly expensive undertaking.

All I can say is that this is Bitcoin. I don't believe it until I see six confirmations.
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October 17, 2012, 10:46:52 PM
 #37

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October 17, 2012, 10:47:21 PM
 #38

davout

was not aware of that specific ruling.  Thanks for posting (and translating).  Does this ruling set a precedent for for other county rulings?  Is this the only legal ruling on bitcoin??  
I don't know if there are other rulings, I believe not outside of this series (a couple of preliminary rulings were made prior to this one, but they are all summed up in the one I posted which is the final ruling).

I don't know if this ruling sets a precedent.

What I know is that the legislation is supposed to be consistent accross Europe, Paymium (the company I work for) got some specialized legal advice regarding this matter, and we found that in order to operate the Bitcoin-Central exchange securely (as in secure for our users fiat funds), we had to implement some legal compliance steps that go way beyond implementing some KYC/AML/CTF procedures according to the Payment Services Providers and Electronic Money Services European regulations.


I'm pretty sure Mark has said before that they intend to seek licensing as a money service business in the US but that it's a process which happens at state level and is quite expensive.
I don't believe this to be true, the MSB registration form is fillable online and it's like two pages long. And if Bitinstant did it, and if karpeles threw 10kBTC at the Bitcoin Foundation I really see no excuse for mtgox to at least try it.

If you read the whole court ruling you'll see that at some points karpeles outright lies to the court, so I would take his word with a grain of salt.

Page 7
Quote
Qu'à aucun moment un client du site ou la société TIBANNE ne peut effectuer ou initier un paiement sur son compte bancaire
Quote
[Macaraja says that] it is not possible for a customer of the [mtgox] website or the TIBANNE company to initiate a payment to its bank account

Oh, and another gem on page 11
Quote
Que, de plus, ayant reconnu qu'elle effectuait des placements à court terme avec les sommes reçues des acheteurs de bitcoins, la société ...
Quote
That, additionally, having admitted to using the bitcoin buyers funds in short term financial investments, the company ...
In other words mtgox is investing your money.

Whether or not they're currently licensed in the US has no impact on their obligations to comply with Japanese AML/CTF/KYC requirements
Again, these regulations are relevant to licensed financial institutions, and their contractual partners. I have no proof that mtgox is not a contractual partner of a licensed financial institution (absence of proof is obviously not a proof of absence) but I feel that if they did land such a partnership they would have at least bragged about it, and they would be required to include it in their ToS.

If you look at institutions like PayPal, you'll see that they can be licensed very differently from one location to the next - here, they're regulated as an authorised deposit-taking institution and regulated under the Banking Act - and that the restrictions on their operations vary by jurisdiction.
Again, what bothers me here is not that mtgox is unlicensed, it is that they appear to not even try (remember if Bitinstant did it, why would mtgox fail if it tried).

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October 17, 2012, 11:22:34 PM
 #39

In the US MSB are required to post bonds from $0 to $500,000 per state so the process it not possible for a bootstrap company with out deep pocketed and/or connected investors (Dwolla).

Are the requirements Paymium were required to comply with as costly in the EU/France?

repentance

while this was not a ruling on bitcoin that fact that the "nature" of bitcoin was not relevant in the French ruling is relevant for the fact that some say bitoin is not a "currency", not a "stored value" and not "prepaid access" (US FinCEN TERMS) but merely cryptographically signed messages (or merely a digital notary service) would not fly.
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October 17, 2012, 11:34:34 PM
 #40

They just moved to a new office like 2 weeks ago, and probably forgot to update the address on that page of their website.

Or over a month ago, see https://bitcointalk.org/index.php?topic=110356.0

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