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In 2018, just a month passed without an official at a financial institution or a government department invoking cryptography to clean up his act. Only in the last quarter of the year, the US Treasury Department, the Canadian Parliament and the Russian Federal Financial Monitoring Service have all solicited or announced the introduction of anti-money laundering laws (AML) for cryptocurrencies, and all based their moves on (presumably wrong) presumption that cryptocurrencies are a major refuge for criminals, who use them as a means of exchange for illicit goods or as a means of hiding (ie laundering) the source of dirty money.
However, when the US Financial Regulatory Authority (FINRA) declared a $ 10 million fine on December 26 for non-compliance with anti-money laundering legislation, this sanction was not effectively transferred to a crypt or an activity related to cryptography. Instead, he went to Morgan Stanley, the 38th largest bank in the world (and the sixth largest in the United States). For anyone who has ever noticed the great abundance of news about the obvious problem of encryption with money laundering, this can be a shock, but a more in-depth analysis of recent history reveals that the traditional financial world of done, it has a problem as serious with recycling as a crypt, if not a more serious problem.
And what is particularly interesting about the issue of money laundering is that while the cryptocurrency industry is rapidly strengthening its codes and conduct, the consolidated financial industry still seems stuck on a plateau of underlying illegality , despite its considerably higher position and resources. Indeed, cryptographic exchanges are increasingly observing KYC (Know Your Customer) and AML regulations, while new commercial bodies have been set up to develop self-regulation guidelines for the cryptographic industry to be followed. And in the zeal of the industry to become a fully legitimate and secure feature of the global economic landscape, it could have only one thing or two to teach the pre-existing banking sector.
Morgan Stanley, Deutsche Bank, Société Générale, UBS and so on …
As reported by Reuters, FINRA has slapped a $ 10 million fine on Morgan Stanley's brokerage arm for long-standing failures in its AML reporting system. Between January 2011 and April 2016, Morgan Stanley's automated monitoring system failed (for reasons not disclosed) to receive vital customer information and data from the other systems of the bank, thus preventing complete monitoring of the "dozens" movement of billions of dollars "" (according to Reuters) in currency transfers and bank transfers.
To further worsen the situation for Morgan Stanley, FINRA has learned that the bank has become aware of shortcomings in its monitoring system as early as 2015, but has not actually started taking steps to resolve these problems until February 2017. FINRA he also found that between 2011 and 2013, Morgan Stanley had not "reasonably monitored" the transfer of 2.7 billion shares of penny stock, which must be done to ensure that the commercial volumes of these securities were not inflated. And to say the least, Morgan Stanley refused to challenge both charges, with the bank simply stating, "We are pleased to have solved this problem several years ago."
Such violations already present an unencrypted financial industry in a bad light, but if there were doubts as to whether the unencrypted world is not as poor as AML compliance as the cryptic world, numerous other episodes throughout 2018 would dispel it. . For example, in November, the Reserve Bank of India (RBI) issued a fine of 30.1 million rupees (about $ 420,000) on Deutsche Bank, which had not complied with the Indian KYC and AML regulations. Also in November, the French bank Société Générale agreed to pay a heavy bill of $ 95 million to set aside the allegations that it was in contrast to US regulations on AML, an invoice that included an even greater burden of $ 1.34 billion to break US trade sanctions against Cuba such as Cuba, Iran and Libya.
Furthermore, in December, the Latvian Financial Controller withdrew a fee of EUR 1.2 million to BlueOrange Bank for the non-compliance of AML, while FINRA fined the Swiss bank UBS for $ 5 million for similar violations. And in August, the Chinese central bank, the People's Bank of China, fined five financial institutions anywhere from $ 100,000 to $ 250,000 each for failing AML laws, including Ping An Bank, Shanghai Pudong Development Bank and Bank of Communications.
Given that these fines were all imposed only in the second half of 2018, it is difficult to shake the suspicion that the traditional financial sector has a serious problem with money laundering. And this is actually more than a suspect, because a September report published by the financial services company based in Ireland Fenergo has revealed that, over the last 10 years, $ 26 billion of fines have been withdrawn from massive world banks due to of non-compliance with AML and KYC Regulations. Commenting on the report, Laura Glynn, director of global regulatory compliance at Fenergo, said the problem is not limited to specific countries or banks, but has global reach:
"Until now, the focus of regulators has been on US and European markets, but now we are seeing regulators in the Asia-Pacific region and Middle East markets becoming more proactive in their markets. supervisory efforts ".
Crypto and AML
In contrast to what appears to be an endemic problem in the traditional financial sector, the crypto relationship with AML legislation is tangibly less complex. First of all, there have been fewer cases of fines for AML and KYC violations, with cryptographic exchanges that do much less to attract the authorities' attention than the major international banks. Apart from the $ 110 million civil fine requested by FinCEN from the Russian stock exchange BTC-e in July 2017, and the $ 700,000 also requested by Ripple's FinCEN in May 2015, there were no high-profile fines taxes on cryptographic platforms and platforms as a result of AML non-compliance.
Of course, the rejoinder at this point is that cryptographic exchanges have spent most of their lives outside the jurisdiction of regulators responsible for the implementation of the LCA. However, what is worth pointing out here is that since governments and financial regulators started beating their cocks on cryptography and money laundering, exchanges and platforms ran to fully comply with all applicable regulations.
For example, Coinbase has been a financial services company registered with FinCEN since 2013, which means it has been subject to the AML guidelines for over five years. And since it was registered, most of the major stock exchanges operating in the US have followed the example, including Bitstamp, CEX, Huobi US (HBUS), Bittrex, Poloniex, bitFlyer, itBit, Gemini, Gatecoin, Kraken and OKEx. This record serves to demonstrate that, contrary to the bad reputations that cryptography might have acquired in the public arena, the industry is seriously intent on being accepted as a legitimate sector of the economy.
This willingness to be accepted as respectful members of the global financial community law is also evident in the number of self-regulatory bodies that have arisen in recent months and years with the goal of creating AML standards (among other guidelines) for the encryption. In February, Coinbase, eToro and other exchanges formed CryptoUK, a UK-based regulatory body that aims to define "the model for the future regulatory framework", according to its chairman, Iqbal Gandham. Part of this plan will include anti-money laundering regulations, something that the Japan Currency Exchange Virtual Association established in June for trade in Japan.
Such self-regulatory moves towards effective AML guidelines have also been tested elsewhere. The Korean Blockchain Association revealed its rules – including provisions for money laundering – in April, while the South African Reserve Bank announced in the same month that it would launch a self-regulatory body to oversee the & # 39; cryptic industry in the country and to ensure that cryptocurrencies have not compromised financial stability and compliance with financial laws (such as AML).
Since the crypt has not really exploded on the world stage until 2017, these developments show how quickly and efficiently the industry is moving towards regulation and legitimacy. And not only is it voluntarily moving towards greater compliance, but it is also aided by governments and regulators, who are engaged in the development of clear, often international, frameworks that will help exchanges understand exactly where they are in terms of the law. In particular, November saw the Financial Action Task Force (FATF) – a body that formulates AML regulations to be adopted globally – update the cryptocurrency guidelines. These have been changed so as to require the 35 member states of the FATF to submit all the crypto transmitters to the AML regulations, which in turn would require that these transmitters be authorized and / or monitored.
Distraction
Of course, if members of the FATF – which include the United States, Canada, the United Kingdom, France, Germany, Russia, China, India, Australia and Brazil – adopt this orientation within their own jurisdictions, cryptic exchanges will be needed to strengthen their compliance with the AML standard even further. Since the crypt has just been called by regulators to the extent that large international banks have, it is arguable that additional legislation and monitoring are not really necessary, although it will be an important step to reassure the public that the cryptocurrencies are not the obscure underground world that mainstream media love to paint them as if they were.
Indeed, it is an interesting story for the reasons why, when "reputable" banks such as Morgan Stanley, UBS and Société Générale are fined of left, right and center, it is the relatively cryptocurrency industry that attracts most of the glow of the world as an alleged sanctuary for thieves and criminals. In the face of such sins as the scandal of the forex, the LIBOR scandal, the scandal of the Russian laundry, the PPI scandal (among many others), the idea that the crypt is a serious weakness in an otherwise impenetrable financial fortress is almost ridiculous and should be seen with a good dose of skepticism.
A possible explanation for this, apart from an obvious fear of the new, is that the cryptocurrency serves as a comfortable distraction from the problems currently underway in the traditional financial sector. According to the 2018 Edelman Trust Barometer, the financial services industry stands out as the least reliable industry internationally, with only 54% of the global audience trusting it (compared to 75% and 70% for technology and education, for example). This is perhaps not surprising in light of the 2007-08 financial crisis (and, in fact, confidence was 48% in 2014), so it is fortunate that banks and financial institutions now have encrypted to denounce regularly, so create the implied impression that the businesses they represent are somehow much better. However, given the speed with which cryptographic exchanges have taken licenses and self-regulation and tried to demonstrate their compliance with AML legislation, it is only a matter of time before the financial industry needs to look elsewhere for scapegoats.
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