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Author Topic: e-gold scariness  (Read 1500 times)
jimbobway
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October 13, 2010, 05:48:47 PM
 #1

http://en.wikipedia.org/wiki/E-gold

In 2007 the proprietors of the e-gold service were indicted by the United States Department of Justice  on four counts of violating money laundering regulations. In July 2008 the company and its three directors pleaded guilty to charges of "conspiracy to engage in money laundering" and the "operation of an unlicensed money transmitting business" in the U.S. District Court for D.C.[1] The company faces fines of $3.7 million.
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nelisky
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October 13, 2010, 06:25:13 PM
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That's what keeps exchanges from thriving, I guess. Buying and selling stuff with bitcoins is, at most, tax fraud *if* it does not get reported to the IRS. Same as buying and selling using US$ for what that's worth.

But exchanging money in an untraceable way for bitcoins, and then back, is kind of a big bright shiny red arrow pointing at the exchange service. I, myself, believe there's no such thing as "money laundering", only money that taxes weren't collected upon, but that's not the point.

What can I, if opening a small exchange, do to prevent being mistaken for a money launderer and still keep the anonymous part of the deal? I mean, tax-wise, I'm more than happy to report as profit all the local currency profit I make, and even report on the size of my bitcoin stash (though as a non regulated commodity, there's no way to accurately correlate their value to local currency). But how can I keep away from liability, if the service I charge for is used for doing unlawful stuff and I don't report on the color of underwear of everyone trading on my exchange?

Sorry for stealing the thread, feel free to tell me off Smiley
jgarzik
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October 13, 2010, 06:51:45 PM
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But exchanging money in an untraceable way for bitcoins, and then back, is kind of a big bright shiny red arrow pointing at the exchange service. I, myself, believe there's no such thing as "money laundering", only money that taxes weren't collected upon, but that's not the point.

The United States' anti-money laundering (AML) efforts are not primarily aimed at uncollected taxes.  It's more about preventing criminals from using crime profits for legitimate purposes.  I would rather not have bitcoins purchased from the Bitcoin Store used to purchase the world's most dangerous WMD, and from there, used to kill people.  I would rather not have the Zetas, known for kidnapping and murdering policemen, politicians and journalists, using bitcoins to fund their organization.

The best way for bitcoins to be successful is to ensure the majority of transactions are for purposes that the world's governments consider legitimate.

And the quickest way to kill bitcoins in the long run will be to encourage bitcoin use by criminal elements.

Jeff Garzik, bitcoin core dev team and BitPay engineer; opinions are my own, not my employer.
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jgarzik
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October 13, 2010, 06:54:04 PM
 #4

http://en.wikipedia.org/wiki/E-gold

In 2007 the proprietors of the e-gold service were indicted by the United States Department of Justice  on four counts of violating money laundering regulations. In July 2008 the company and its three directors pleaded guilty to charges of "conspiracy to engage in money laundering" and the "operation of an unlicensed money transmitting business" in the U.S. District Court for D.C.[1] The company faces fines of $3.7 million.

Yep.  That's why exchanges should register as Money Service Businesses (MSB), if they are making money.  They also need to adopt anti-money laundering (AML) protections.  Unsurprisingly, AML protection means not permitting huge sums of untraceable money to pass through your exchange without some sort of identification of the user.

Non-profit exchanges are on a little bit better ground, legally.  But they still need to adopt AML protections, if they want to avoid running afoul of the law.  (or move offshore)

Jeff Garzik, bitcoin core dev team and BitPay engineer; opinions are my own, not my employer.
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caveden
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October 13, 2010, 07:37:32 PM
 #5

Non-profit exchanges are on a little bit better ground, legally.  But they still need to adopt AML protections, if they want to avoid running afoul of the law.  (or move offshore)

Offshore where, exactly? (seriously, is there a state whose laws wouldn't attack bitcoin exchange services?)

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jgarzik
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October 13, 2010, 08:53:59 PM
 #6

Offshore where, exactly? (seriously, is there a state whose laws wouldn't attack bitcoin exchange services?)

Nevis seems popular these days (MyBitcoin uses it, I notice).

But even offshore, for United States citizens, means reporting to the IRS
  • ownership interest in a foreign entity
  • transactions between the United States and a foreign country

and possibly all bookkeeping of the foreign entity to the IRS.

This does seem to indicate that United States citizens could legally operate offshore, outside the jurisdiction of the Banking Secrecy Act, PATRIOT Act, etc. with regards to banking and currency exchange, as long as the transactions are reported to the IRS for taxing.

However, I Am Not A Lawyer and This Is Not Legal Advice.  ;-)

Jeff Garzik, bitcoin core dev team and BitPay engineer; opinions are my own, not my employer.
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jimbobway
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October 13, 2010, 08:57:00 PM
 #7

This could be a solution to working offshore.

http://ecoble.com/2007/11/18/250000-bottles-amazing-recycled-mexican-island-paradise/
jgarzik
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October 13, 2010, 09:24:47 PM
 #8

Nah, this is offshore: http://seasteading.org/

Jeff Garzik, bitcoin core dev team and BitPay engineer; opinions are my own, not my employer.
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Immanuel
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October 14, 2010, 05:52:27 PM
 #9

I love how Libertarian this forum is.

"I swear by my life, and my love of it, that I will never live for the sake of another man, nor ask another man to live for mine."
idev
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October 14, 2010, 08:52:40 PM
 #10

Well even if you go offshore you will still have to apply to the jurisdictions local financial regulators,
for licensing, as money exchange, transfer service, payment processing requires licensing from such authorities before any business is carried out.
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