Episode 62 – Should Money Laundering be a Crime? (Feat. Josh Cincinnati)

Should Money Laundering be a Crime? (Feat. Josh Cincinnati) Crypto Critics' Corner

Bennett and Cas are joined by their good friend, former executive director of the Zcash Foundation, and current board member of the Mina Foundation, Josh Cincinnati. We wanted to pretend this was a debate about whether money laundering should be illegal, instead we all pretty much agreed, "Yes, it should." But we had to define it first and discuss the rules and regulations put in place because of it before coming to a peace accord. Follow Josh on Twitter @acityinohio or visit his website https://ponzico.win This episode was recorded on Monday, March 21st, 2022.

Cas Piancey and Bennett Tomlin are joined by Josh Cincinnati to discuss whether or not money laundering should be a crime and our global, warrantless, financial panopticon.

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Auto-generated transcript:

Welcome back, everyone.

I am Cas Piancey, and I'm joined as usual by my partner in crime, Mr.

Bennett.

Tomlin.

How are you doing today?

I'm doing pretty well today.

How are you, Cas?

Well, I'm home and alive, and that's about all I can ask for.

My car is ruined 100 miles away from me, but I'm happy because we're joined by a good friend of ours, Mr.

Josh Cincinnati.

First of all, how are you doing, Josh?

I'm doing great.

I'm doing great today.

Awesome.

Well, glad to hear that.

Josh is the former executive director of the Z Cash Foundation, board member of Mini, and author of PonzICO, which go ahead and visit.

I think everybody should just take a look.

It's a great investment opportunity for everybody.

It is, especially since I lost the private key to the contract.

Yeah.

So you say.

But perhaps this is a good segue into what we're actually talking about today, which is, should money laundering be illegal?

And I land squarely of the opinion that absolutely, yes.

And I think Josh is firmly in the camp.

That definitely no.

So we're going to argue about it.

We were friends at the beginning of this podcast.

By the end, who knows?

But yeah, Josh, I'd love to hear.

Why not.

Yeah, for sure.

And actually, before I begin, also in hopes of preserving our mutual friendship, I would like to say, as someone who is predominantly like a crypto booster and advocate and someone who is optimistic about this stuff, despite my happily cynical takes on Twitter, I have a very deep and enduring respect for the stuff that you guys do and the way that you hold people to account in this industry and that you have probably the most informed, critical takes on cryptocurrency that I've seen.

And I really deeply appreciate it.

As someone, I think similar to the vibe on the podcast that you did with ZachXBT about how there are people that love this industry that hate to see it go to the Justin Sun's of the world.

And you guys might not love the industry, but I think that there is something extraordinarily important about the work that you all do.

So just as a little carrot, before we get into argument about it.

I just wanted to say that I deeply appreciate that it would be hard for us to hate this industry to the bone and do this for so many years.

So I think it's fair to assume that Bennett and I don't hate it.

Yeah, I think so, too.

And I think there are a lot of people that like knee jerk that and they don't actually see beyond that.

And sucks to be back to your question, like, why am I in the no camp for money laundering being legal now?

I'm going to pull because what would crypto be without a little rug pull?

And I'm going to rug pull the argument a little bit and say that it's not so much that money laundering should be legal.

It's that if we lived in a just society, the entire concept of money laundering would be kind of irrelevant or superfluous.

And here's my take on that.

And this is what got me super motivated and involved, I think, in Bitcoin so many years ago.

And then when understanding more about the privacy stuff, like how to solve that with other systems and approaches.

So my contention is that right now in the world today, there's sort of like two systems of the way that money works.

There's a system for everybody, for the normies, where there's an incredible amount of reporting that happens once you reach certain limits.

On the BSA side, you've got this degree of surveillance that's happening from governments and corporations all across the board.

And if you're just a regular pleb, you are kind of subject to that system.

Right.

And then there is the high class Panama Papers level obfuscated private money route.

Right.

And there's that system for very super wealthy crazy in a whole other stratosphere of wealth.

Not everybody does that in that realm of wealth.

But certainly if you want to be private about your finances, there's a way to do that when you are extraordinarily wealthy.

And that doesn't always hold up.

And frankly, I'm grateful it doesn't always hold up because sometimes those people get called to account for the terrible things that they've been spending their money on or doing or supporting.

Right.

And that is, I think one of the cases, the Twitter thread that inspired this conversation was the fact that, like, I think Casie posted all the Kings men follow the money, right?

Yeah.

All the presidents.

All the President.

Sorry.

All the President.

Yeah, follow the money.

And that is, I think one of the benefits of having that traceability is, like, when you see this nefarious activity, you can follow it and find the source.

But I think that right now, the current system that we live in is like, there's this bifurcation, and it's actually unjust.

And that if we lived in a just society where we all had a degree of control over the privacy of whatever data we were sharing, whether that's and data can be anything but particularly for money and finances, that if we lived in that sort of society, then all of us would have the access and ability to shield our finances and be confident that nobody could trace the way that we were spending our money, whether it's a big government or a big Corporation.

And so I think that's, like, me putting on my this might be like a bit of a stretch, but I love thinking about this.

John Rawls had this concept of the veil of ignorance, like a political philosopher of contemporary, where he said, if you can imagine any society you wanted to live in where you put on this veil of ignorance and you try to picture like, you can't pick what kind of person you're going to be in this society, but what conclusions would you draw about the kind of society you want to live in if you had no ability to pick where you landed, what Lotto ticket you get in the Ovarian lottery?

Right.

And to me, he arrives to interesting conclusions.

But my conclusion on that is actually or at least one part of it is that Privacy for all of these things should be available for everyone.

So anyway, that was my Rambling Rug pulled answer about whether money laundering should be illegal or not.

Okay.

So just a couple of statements in regard to that.

So I think the current system gets a really bad rap, and there's a lot of good reasons for it to get a bad rap.

I'm not going to deny that.

I think clearly the system is a bit rigged to benefit the wealthy, and I think everybody understands that it's kind of an open secret.

Nobody really fights or argues about that.

But when I look at some of the important cases involved with money laundering, the ones that stick out are like the bank of New York, PNB, Paribus, Donska Bank, Deutsche Bank, HSBC.

We're talking about billions and billions and billions of dollars in fines for these companies.

Some of them getting I mean, some of these banks getting, like pretty much shut down, I'm sure.

So the people that these money laundering laws are affecting strongly, at least in my opinion, seems to be banks doing the wrong thing.

And that's a lot of the problem with the financial system.

And what people take issue with is the way that banks operate, the way that it works in general.

So I think having a way to try to stop that from happening is a net positive for society.

And just to tack on one other thing about this, because I think it's related, like RICO laws is something that I immediately think of when I think of money laws.

True.

And the reason why is because those guys, the mobsters, the reason RICO was invented was because the mobsters were literally killing people.

Like, literally they were murdering people all the time.

But was Al Capone murdering people?

Not that often.

His henchmen were murdering people and they couldn't get him on the record saying, Go murder this person.

Right.

And so at the end of the day, the only way they could jail this dude who was killing people and causing massive corruption and ruining life in cities was to hit him with tax issues, hit him with money stuff.

Like it was all money connected.

And so I think at the end of the day, and I'm pro Privacy and money, I think cash is super important, like physical cash.

I love physical cash.

It's fantastic.

But you need to have a way to bring these criminals to account, because often these criminals are too smart to be held accountable for what they actually have done.

One thing I want to add that I think is going to help clarify our discussion here.

And Cas, it came to my mind when you mentioned anti money laundering laws.

And in my mind, we kind of have two groups of those laws.

There's the ones that make money laundering itself a crime, like the act of taking the dirty money and trying to reintegrate it into the financial system.

And then there's all the anti-money laundering laws that followed that expanded the warrantless panopticon of financial surveillance.

It's possible to construct an argument where money laundering itself is a crime, but that the warrantless panopticon is a bad thing that should not exist.

And that's often where I end up in these arguments.

And so I wanted to kind of just split those out so we can have a little bit of clarity as we continue discussing this.

Yeah.

And that's a really good point.

And I will say that's a great point, Bennett.

And Cas, I'm very sympathetic to the argument that the sort of intent around a lot of these original like the original idea of making money laundering illegal was because there was no other way to pin, like, terrible shit pin this terrible shit on people that were clearly doing that terrible shit.

Right.

That resonates with me, as does, frankly, all these banks getting hit for doing terrible s***, whether it's taking drug money from cartels and watching it for them.

Hsbc.

Hsbc.

Yeah.

That's the thing that immediately comes to mind, like, how do they even still exist?

It's terrible.

Right.

And so I am actually very sympathetic to that argument.

But then I do think that the dichotomy that Bennett brings up is really important here because there is evil intent in that for me.

Like, if I were to put it on a moral axis, that is evil, that they're taking that money that was obtained that way and trying to reintegrate it into the broader financial system.

But how do you balance that with all of those regulations that have come afterwards that to me, have really curtailed a lot of individual rights to Privacy for so many people.

Right.

And that is where I think you would say that cash is like a great answer to that for everyday citizens.

Right.

Because you don't have to worry about whether you're getting tracked or traced at the local convenience store.

If you put a 20 down for a sandwich or a gallon of gas in a couple of months.

It's even something as simple as like tipping your waiter and being like, you don't have to report all of this if you don't want to.

Really, it can be.

And I know that sounds old.

That's illegal.

But in my mind, it's not illegal because what you're doing is you're supplementing the income of someone who just doesn't make very much money in today's world.

So that kind of use case for private money is fine.

And by the way, Josh, I bring this up because fucking Bennett Tomlin is the only waiter in history to report his cash tips in full, ever.

I even had a log that kept track of how much I got each day so I can make sure I was paying the taxes.

That is honest to a fault.

And he's worried about the Panopticon.

I don't know.

I just don't even know what to say.

You don't need to be worried, Bennett.

They're not going to get anything on you.

But I am sympathetic to that, and I understand government overreach.

I think that's totally fair.

And haven't they lowered?

Is it less than 10,000 now?

What is the that's the IRS limit.

That's not the BSA FINCEN requirements if the IRS dropped their requirement where they get notified of the transactions to $600 so that they can pick up more of these small cash businesses that aren't paying taxes, that's separate from the $10,000 BSA FINCEN requirements for suspicious activity reports.

But I'm talking about travel.

What about travel?

Can you travel?

It's still to me, yes.

And there's something also, too, because when those laws were put into place, especially at ten K limit.

Ten K was a lot more than ten K.

So there should be a lot that's a simple law to change in my mind.

You go hook it to inflation.

Like whatever inflation is, you increase the rate that people can travel with with inflation every year.

So it's simple in theory.

But I think this is where my argument comes out of like, well, we set up these tools to catch terrible people doing terrible shit, not thinking of the long term consequences of the second or third order effects of what having these tools and this reporting infrastructure in place and how that would affect average citizens.

I think it's like really difficult to roll these things back once whatever power, whether it's the government or corporations even thinking about the amount of credit card tracking that happens, there's all this accumulated power that becomes very difficult to actually take back.

I think that's a running narrative that I don't necessarily agree with.

And the reason I say this is because when COVID restrictions started happening and all these crazy lockdowns started happening, and for instance, I think Israel was known as the one with the most strict, crazy restrictions.

Everyone was like, well, this is it.

This is the end.

They're putting these restrictions in place.

No one's going to be allowed to do anything ever again.

And then Israel has fully rolled back all of their restrictions.

Like, all of it, tracing all that stuff, it's gone.

It doesn't happen anymore.

And I think it's so easy to do the slippery slope argument.

I get it.

It's a fun argument to make.

And there's plenty of examples of the government doing some sort of overreach and continuing it.

Right?

I mean, the TSA is a great example?

I think so, Cas.

I do want to add their push back there and say in the case of something like Coronavirus, you've got the public perception of it.

The numbers, reporting cases, death, things like that.

With something like money laundering, it seems it doesn't end.

It doesn't stop.

No matter what, at any time on the Earth, someone is trying to launder some money.

Right.

And so there's the ongoing justification for the continuing of the laws, whereas with Coronavirus, you have the conditions that cause them to initially come about changing.

It's like, I see a bit of a potential contrast there no.

It'S similar to me because the reason that it changed for Coronavirus was public opinion.

As things change with the Coronavirus, not only do people get tired of the circumstances that they're living under, but if you see a shift in the way things are working, also, of course you're going to get more upset.

But I think it was also just a matter of time.

Right.

We're talking about these restrictions for people like, you couldn't go out for a year.

People got antsy, man.

People got antsy.

They got pisseds off.

They didn't want to do it anymore.

So imagine they start putting these crazy tight financial restrictions on people with cash that are even more intense than they are now and just continuing down that road there's to me, at some point you reach a moment where people that is how Republicanism works, right.

Our representatives will answer to us eventually being like, hey, this is not fair.

It's a pleasant theory.

I think it's so easy to suggest that government overreach starts and never, ever stops because it's fun to say slippery slope.

I mean, you can say it about people talk about the slippery slope, about every single, like going to start smoking weed, you're going to end up doing heroin.

It's a very, very simple approach to problems that are, I think, far more complex than what people suggest.

I see that cast.

But I also would say that this concept of there being an ever present but insidious, like panopticon born from anti money laundering regs.

And like the BSA to Bennett's point, I kind of find it hard to believe that people will suddenly wake up to that amount of surveillance.

They'll still be affected by it in many kinds of small ways they may not truly understand.

Much like when we all go online and we get our free social media fix, we're all intrinsically affected by the algorithms behind the scenes that are pushing whatever content that we don't have any control over.

It's hard to describe, but there is, I think, something to be said.

It doesn't seemingly affect you on the service day to day.

I don't know where the public push will come for changing these things on a legal level until maybe one day the IRS starts auditing everyone for their cash tips.

Right.

And Bennett is the only one who gets cleared, right?

Maybe there comes a point where that happens, but it's almost like boiling a frog where you don't really see it happening.

Maybe.

But do you think I guess here's part of where my mind goes is we're talking about the government, which what is Google?

I think I just checked IRS budget is something like eleven out of those trillion dollar company probably around there.

Apple.

Apple.

Right.

So these are Amazon trillion dollars and we're talking about all the mighty power of the government to trace you and track you.

And like eleven and a half billion dollars ain't cutting it.

They're never going to audit all of America.

It's literally impossible.

They don't have the employees, they don't have the abilities, they don't have the updated technology, they have nothing.

And we're concerned about the IRS tracking everybody.

Like, come on guys, Google is tracking.

You be worried about Google.

So my personal view is I'm worried about all of them.

Right?

I want there to be Privacy, not just from the government but from these massive valuable.

I think that's exactly right, Cas.

Like, for me, it's not so much that it's just the government's onerous panopticon.

The thing that's really sketchy right now is the fact that there is ungodly amounts of data being shared amongst your credit card provider and Lord knows what other kind of ad retargeting resellers looking at your purchase history, doing all sorts of like shady s***.

And that to me is actually like for the average citizen today in America, they have much less to worry about.

Most people in America pay their taxes, right?

Maybe not to the degree that Bennett pays his taxes.

And that's incredible.

And I'm still kind of in awe and amazed.

But I do think that people, however ridiculously complex our tax code is, most people really put a good faith effort in paying their fair share.

I think that there's a lot of data that supports that and it's, I think a real testament to the amount of duty that people feel to these systems and the fact that we live in a society and so forth.

But I think that the more nefarious one is, in fact, the big corporations and how much our average spending behaviors today PayPal and Venmo alone just give me anxiety thinking about what sort of stuff they do with the amount of data that they have.

But anyone, any kind of central operator that is of that size has the ability to do that.

And you could say, oh, look like Apple is making overtures.

This whole world like Privacy focused.

But I think that's all quite superficial.

And there is to me, this is like where I do think people are going to get ultimately quite upset about this when it becomes apparent.

But I also worry is it ever going to become apparent to most people that this is happening?

And when it is, there are, I think going to be a variety of different choices that people can make when they choose to, not when they choose to disagree with the way the system works.

And one way I think is and frankly should be pursued is changing the law, right?

Because it should be changed and Privacy should be reinforced and people should begin to argue for their Fourth Amendment rights in so many more realms of the way that our own personal lives function.

Right?

So that's absolutely one path.

But I think another path.

And this obviously comes from my background, and my bias is that for all of the I'm still one to point out all the many mistakes of the cryptocurrency industry.

But one thing that I think is a valid pursuit that is going to potentially change the nature of a lot of this discussion is that the possibility for people to interact with private digital money on a level where the UX is equivalent to something like Venmo is, I think, around the corner it's coming where average people will be able to shield their finances that way and maybe not the next couple of years, but ten to 20.

I think it's sort of inevitable that that technology appears and happens and then in that sort of world, in my mind, because it's inevitable.

Part of why we're having this philosophical discussion about money laundering is like, if that becomes widely adopted by most people, it will, I think, preclude a lot of the kind of money laundering enforcement that you would do for people engaging in nefarious activity because everyone maybe not everyone, but a lot of people will be using these fundamentally private Rails for finance.

And then we have to ask ourselves, how do we go about enforcing these laws?

Well, part of my struggle here is payments is just generally one part of it, right?

Finance as a whole, banking as a whole is driven in large part like by credit generation and extending credit and things like that.

And that's something I struggle to imagine how to do in any kind of trustless or private way.

And so much of our existing assumptions about the global financial system depend on there being like this readily available supply of credit for known individuals, and that that's going to be paid down by those individuals at expected times and via expected means.

And so often when I hear discussions like what you're bringing up here about how entirely Privacy focused Rails for payments will help alleviate a lot of the money laundering enforcement, it still seems like many of the entities who would be doing money laundering on the scale that I care about, which is not going to be someone who forgot to declare $1,000 payment or whatever.

It's the people doing millions and billions of like dirty drug and weapons money or whatever.

In those cases, they're still going to end up needing to interact with registered intermediaries, with centralized things where their identity is going to become known.

So my understanding of your stance is that you feel even in those cases that there should not be a crime, money laundering, that people who like in that situation, there might be an individual who assists the criminals with interfacing with those institutions, getting the required assets, providing access to these services and doing those kind of things.

And that person generally is the money launder in the way we conceive of it.

Now, I still feel like even in a situation with private payment Rails, money laundering can still end up being a crime because you still have people who are aiding in the interface of the pile of dirty money with the access to credit Rails and other things like that.

Yeah, that's an interesting point, actually, because I suppose my perspective is very much informed at this top layer of financial interaction, which is the whole, like just payments of fast money and not the settlement of that money into harder assets that then can generate credit and that allows someone to interact with the broader financial system.

It's made me rethink a little bit about my argument because I do wonder to what degree.

So let's say you have someone who's just interacting with, let's say this private payment Rails exist.

Right.

And that people are I'm just like spitballing here and trying to speculate how this might work out.

So let's say this private payment Rails exist.

What you would categorize is like illegally gotten gains from, let's call it drug dealing and weapons, like illegal weapons.

Gun running.

Yeah.

Take out drug dealing.

Let's just say it's like murder and gun running.

Let's say it's something actually bad.

Yeah.

It's a bit on the boundary these days, but, yeah, gun running.

Let's just call it like weapons trading.

Right.

So that money goes into the private payment Rails.

Right.

The money comes from it's bilaterally, known to gun seller to gun buyer.

Right.

Those are the people that know about the transaction.

But it is, in fact, mediated by this private payment Rails, where anyone else who sees that the transaction happened only sees an encrypted blob, they don't actually see money that changed hands with whom.

Right.

Then someone may be at the other end.

I guess that's sort of scenario that you outlined, it's like maybe someone for the purpose of putting that fast cash into a harder asset, like buys some real estate in the US.

Right.

And then that person, it's registered to them.

But maybe they're like Vladimir Putin's, buddy.

And.

It'S not really their house.

They're just holding it for XYZ, mass murderer, gun runner, et cetera.

Right.

And that sort of activity is, I think, morally suspect for sure.

I think it's pretty terrible.

Right.

And I can see an argument to be made for why that person should be, especially if it becomes clear through whatever other interactions that they have with mass murdering person.

I can see the argument for why they would be called to account for that activity.

But I will say that's at the endpoint of this, at the real world endpoint of this transaction.

Right.

But, Josh, that's the point from the very beginning.

Right.

The idea with this RICO money laundering, all this stuff is that sometimes you can't get the criminals for the criminal s***, but you can sometimes still follow the money for the criminal shit.

Right.

Maybe you don't know who is dealing with it, but you know that it's coming from a particular region in Colombia where they specialize in cocaine trafficking and murder.

I don't know.

Whatever.

I think that's the whole point.

Like, sometimes you can't trace from the very, very, very.

You have to talk to Vladimir Putin to know it's literally exchanging from his hands or whatever, or be in contact with the Russian Bank that could get shut down if they tell you that it's Vladimir Putin's money.

Right?

Yeah, that's true.

But I also think there's a bit of like, and maybe this is more of a semantic argument than anything else, but the actual, quote unquote wandering of the money, you could argue that like, oh, well, it's this private pool, these private rails where someone has put money in.

And because of the fact that this private pool exists, it's obfuscating the flow of money for everyone.

Right.

My contention is, like, that private pool and the fact that people are interacting with it, even if nefarious people are using that doesn't make the operation or use of that pool a crime.

Right.

Or like that you as an individual.

Like, let's say that transaction happens and then right after that, I go buy a sandwich with a shielded transaction.

Right.

Does that make me aiding and abetting in a money laundering operation because I was adding to the anonymity set of that private pool?

No, it doesn't at all.

No, you shouldn't.

It doesn't, though.

I mean, let's think about right now something that is widely known as being used by money launderers all the time, which is literally laundry.

Right.

Like go to a laundromat.

Yeah.

But Josh is bringing up the example he's bringing up because when Z Cash was making a bunch of noise in 2017 and 2018, there were various people who posited that creating shielded transactions, even for innocuous uses because you were contributing to the anonymity set that enabled others to potentially do other things, like layering and structuring that you were.

It's similar to, like, Monero saying, people saying, even if you touch Monero, then Coinbase and these other exchanges aren't going to let you use their stuff.

I get it.

And I'm not disagreeing.

I'm saying, like, I hear you and that should be legal.

Like, you should be allowed to use cash.

Cash is private and inherently.

That's why I'm using the example of a laundromat, because I am using the reason they use coins is very obvious.

It's like totally untraceable, man.

So some money launderer can just walk in with $10,000 of coins or whatever and just there you go, man.

If that person who owns the laundromat knows what's going on and is aiding and abetting these criminals to move this money, they are money laundering.

There's just no ifs, ands or buts about it if they know what they're doing.

But Alternatively, am I money laundering if I go to the laundry mat and buy a laundry load worth of time?

No, of course not.

I'm not suggesting that at all.

But it doesn't suggest that money laundering in and of itself shouldn't be illegal.

It should definitely be illegal.

Still, that laundry mat owner knows exactly what's going on.

I want to add here just quick, and I think what we're getting at is why I wanted to make that distinction really early on is because I think that what we're all kind of approaching here is the warrant list and all pervasive surveillance of financial transactions is not a desirable end state.

Yes, none of us want the reason Josh reacts, or at least part of the reason Josh reacts so strongly to money laundering being a crime is because once money laundering is made a crime, you provide the justification for these kinds of systems to be built and used.

Right.

Which, again, we all agree is a bad thing.

I know Josh started this off talking about in your ideal world, and sure, in our ideal world, the people murdering or gun running are getting caught long before they can let their money enter the private cash system.

Like that shouldn't be able to happen.

Right.

But all of us know that if you want private cash, inevitably that's destined to happen.

Like, there are dark pools of money.

There's always been dark pools of money.

And wealthy people are the ones who know best about this.

They're the ones using art and high end sophisticated offshore banking and stuff that clubs like us don't think we can't have access to that kind of obfuscation mechanism.

But we do have physical cash, and I think that's absolutely important, super important for us to have Privacy still.

But if you want to have Privacy, the trade off is you got to have a way to prosecute money laundering, because there's always going to be someone who's willing to take that cream off the top for the criminals who's going to be like, well, I mean, I'm getting paid five grand a month to move $20,000 for these people or something.

Like, there's always going to be that person.

And I think that's fair.

And I remembered my point when you were saying that is I think the anti money laundering set of regulations are occasionally or perhaps often counterproductive in that we all agree that what HSBC was doing is a bad thing.

You should not set up specific stalls at your bank with holes cut out that you can shove boxes of cash through very quickly.

That's a bad thing.

But when you set up a set of expected anti money laundering measures and you start measuring whether or not someone's a money launder by their ability to comply with the regulations rather than by the acts they're participating in, I think you can end up with systems.

And I think we see this a little bit in crypto where there will be a lot of efforts made to appear like you're doing know your customer and anti money laundering steps, but a tendency to avoid trying to actually identify the evils.

And I think that this affects the political will surrounding this and the view of society around this.

When you see someone like HSBC not be shut down.

And yet they had to pay a massive fine, billions of dollars.

Right.

But they continued to do business because they were allowed to continue doing business despite doing these evil things.

And so that's why I think it is perhaps valuable to have money laundering as a crime so that you can treat the people doing this thing that morally is evil as criminals and prosecuted.

But I get deeply worried about a lot of what I see is some unconstitutional financial surveillance and stuff that occurs.

And like, you were talking about Google and stuff before.

And yes, that's deeply problematic as well.

And that extends far beyond financial information.

Same for the credit bureaus as well, where they're trying to get any piece of information they can on you.

And we saw even way back in like 2014 with prison that the US government has very few qualms about using any information that those private companies get even without a warrant or with the Patriot Act rubber stamp warrant that 99.

8% or whatever gets approved.

So my point is I worry sometimes that certain anti money laundering regulations are set up such that businesses that should be taking an active effort instead try to find a provider that will do the minimum required for them to be in compliance.

And second to that point, and this is important too, is that there are plenty of people who are willing to completely break those laws.

There are plenty of people who are willing to start.

We know because we covered cryptocurrency Core.

We know because we've heard stories about how these cryptocurrency, some of them are still in existence today.

Some of these cryptocurrency exchanges operated back in the day.

The stuff they were doing was not real KYC or AML, and it was easy enough for them to just not do it and get away with it and not get any kind of penalty whatsoever.

So we're talking about how this can harm regular individuals like us.

And I think that is a great point and I don't disagree with it.

And I wish I knew the solution.

I wish we were talking about not instead of should money laundering be illegal?

I think the real discussion should be like, yes, of course, money laundering should be illegal.

How do you find the people of money laundering, though?

Yeah, this is kind of what I was leading up to because I think often the best way to go about it is if you are watching, say, Al Capone, since that was an example we chose of someone who was pretty clearly bad, you're going to eventually have your investigators are going to have some idea about what businesses, banks, whatever he's interacting with.

And then at that point, you go to a judge and you get a warrant and you pulled those specific records and you investigate those specific records.

And I really think that what you're saying.

These things seem really bad, and the things that are enabled by this money laundering seem really bad.

And even more broadly, I think a lot of the Kleptocracy and corruption, both in America but also abroad, is enabled by this type of activity.

And so I think that in order to help solve that kind of thing, it's important to go after it.

But I think that the current way of going after it often fails.

And I mean, you see this even with like, FINCEN or stuff's discussion of their own ability to identify money laundering and stuff using their tools.

And they often suggest that they're not particularly good at it and that the broad financial surveillance isn't particularly useful at stopping the money laundering.

Well, if you want to look at a very obvious way to prove that, just look at the Lwanda leaks, the FINCEN files, the Panama Papers.

Why are journalists exposing money launderers?

That's not their job.

That's insane.

That's insane that thousands of money launder money launderers are being exposed because journalists are like essentially being the government investigators into money laundering.

And then you can reflect on who's caught up in that.

And then you can be like, oh, I guess that's why they're not getting reported when it's like the President of the country or the biggest billionaire in the country or whatever.

I guess you can just bypass all KYC AML laws and just not have to worry about money laundering at all.

That I think, really does underline the point that much of the current regime of anti money laundering regulations and implementation doesn't actually help catch those big fish that are doing the terribly illegal things.

That's where I definitely think we all agree that there is something the people doing the truly evil shit are not caught by these sort of ridiculous panopticon tending dragnets.

Right.

And that's the thing that I'm most worried about.

But then I would also say I think I can agree on some level that money laundering, depending on your definition of what constitutes money laundering, should be illegal.

But the real trick or the real difficulty in that is figuring out what actually constitutes that in a world where people will have access to super private payments.

Because I think that world is coming like whether the government is prepared for it or not, or whether big corporations who are used to sucking up all our data are prepared for it or not, that world is going to happen.

And when it does happen, then the sort of scenarios that I think that I was role playing in my head while you guys humored me as I drowned on about it.

But there's this big private rail that people are maybe independently running servers and nodes and validators to maintain and keep up.

Those people running those nodes are not engaging in money laundering.

Right.

But maybe the people that are buying real world assets under false pretenses, maybe they are.

And that aspect, I actually would agree on some level that, yes, that action, if you're like Putin's, buddy, and you're trying to evade sanctions by using some of this five years from now or something, using this technology, then buy real world assets or use someone else's credit history to engage in some other credit expansion of the traditional financial system.

After moving assets around in these private rails, I actually think I can be convinced that that activity, it certainly is morally unscrupulous and thus probably should be illegal.

But I just don't want us to be in a place where the definition of what constitutes money laundering is so vast that it begins to incorporate what everyday people engage in.

And frankly, it's going to be impossible, I think, to even make that definition so vast because the technology is going to exist to allow people to engage in those kinds of private payments at the top layer of whatever the new financial system will be well.

Even now, I think it's fair to say that a lot of this is security theater.

A lot of it just isn't doing what it's supposed to.

Now, like you said, I don't think that means money laundering should be legal.

I think it means we're doing a really crappy job of narrowly defining what money laundering is and nailing the people who are doing it.

Like I said, the real end result.

The reason for that, I think, is that the system in place protects the people who are doing it at scale.

Well, I think that's clearly true.

Right.

None of the HSBC executives went to jail for their money laundering, did they?

I don't think so.

And that was billions of dollars for the Colombian cartels.

Was that Mexican cartels or Colombian cartels?

Mexican cartels.

And I think what Josh is getting at, too, is we've been pretty careful in this episode to keep money laundering close to its original definition, which was like integrating this dirty money for organized crimes and the groups like that.

However, the definition in use by a lot of governments at this time includes a lot of other activities, often including like tax evasion or stuff like that, where it's like we were kind of getting at earlier with our talk of servers and people running small Etsy shops and the new IRS reporting limit and stuff is there are a lot of people who nominally violate search and laws.

This is also part of the problem with turning every negative or immoral thing into a law or turning all these things into laws is that when you end up in a situation where potentially every person has violated a law, you give the individuals with prosecutorial judgment or the ability to actually pursue certain cases, you give them a lot of power because.

Right.

If everyone's a criminal and you're just choosing who's going to actually suffer for the crimes, it becomes that individual.

The executives with that kind of power are the most powerful.

Yeah, absolutely.

And that's the future I definitely want to avoid or the present that I want to avoid, frankly.

Yeah.

That's why I agree with Josh.

If it's going to be a crime, it needs to be pretty narrowly and tightly defined.

And you shouldn't just gradually lump in other things like the US Office of the Comptroller of Currency.

The currency has changed money laundering to mean any financial transaction which generates an asset or a value as a result of an illegal act.

So, like, if I pay you a dollar to jaywalk, we just committed money laundering.

Well, I mean, you've got to look into your head and be like, why would anyone pay you a dollar to jaywalk?

But the point is, if the definition can be made absurd, that means the definition itself is flawed.

Yeah.

Actually another example, maybe more.

Although the jaywalking thing is fine.

I think it would be interesting to see how many people would do that for a dollar, but don't find out.

But I think there's something like, let's say, I think morally good version of this, that we still become money launder technically is like, I have chronic pain, like hip and back issues.

I will say upfront that having some marijuana from time to time really helps dull that pain in ways that other drugs can't.

Now Virginia is slowly getting on its way to it being legal.

And just for anyone listening, I have never done any of that in the state of Virginia while it is still not legal.

But I will say that when I was in California, I would do that.

And it's interesting that for me, seeking some kind of relief that would have been illegal.

I would have engaged in a transaction where maybe I would have paid someone private, anonymous cash for some gummies, and then that person, I guess, according to that definition, just engaged in some kind of money laundering there.

Right.

I mean, which is patently ridiculous to me.

To be fair, 81,000 people on average a year are convicted of money laundering.

And of those 81,000 people, 800 are convicted of money laundering as the primary, most serious charge.

So the numbers are pretty tiny.

It's not like a lot of people are getting hit with money laundering charges.

I mean, realistically, it's just not a huge concern.

But then does that validate the amount of regulation and surveillance that's done?

Or if that's the result of all of that?

No.

I mean, if the real discussion we're having is, are anti money laundering laws effective as currently thought out, and are we doing a good job of stopping money laundering?

I can resoundingly say, absolutely not.

They're terrible.

We're doing a bad job.

It's not effective.

But that's like saying, I mean, let's bring it back to jaywalking.

Jaywalking seems like a pretty stupid law until everyone's jaywalking all the time and people are getting hit by cars and killed.

Right.

So the idea for making jaywalking a law, even though it might seem absurd, like, I can look both directions, I can figure this out for myself.

I'm not an idiot.

Well, people were dying from it, and then people were getting sued for hitting people in the middle of the street.

And so there are ramifications for this stuff.

Right.

Like, you want freedom, but you also want rules and regulations, because those rules and regulations actually define they help define who's going to get charged with what.

If there were no jaywalking laws and you hit someone jaywalking, maybe you could go to jail for manslaughter.

Like, I don't know what that would mean.

Right.

Certainly none of us do.

We're not lawyers.

So I think the panopticon is a concern, and I hope it doesn't trend that way forever.

And I think, like everything else, I feel like there's waves and phases between regulation and deregulation, Privacy and anti Privacy and all this stuff.

So in my mind, I hope that we don't go all the way far.

Right.

In this stuff.

But if that indeed is the case, it's sad because I do think that there's room to look at this and be like, well, this is an issue that needs to be corrected.

But like you said, if the medicine is worse than the disease, then you're not really accomplishing anything.

Yes.

And I guess I think when we're talking about this argument and trying to figure this out, that's where we all come down is like, how do we view the current regime?

Is it a net positive and net negative?

Right.

And we might disagree about that.

I think that there is something to be said for creating a more targeted and concise definition of what money laundering truly is that would then effectively obsolete so many of these regulations so that they wouldn't lead to a world where we're in a terrifying panopticon.

And truthfully for me, I think that there's going to be this is despite the fact that I'm very cynical on Twitter, my Privacy optimist technologist hat on.

I think there is going to be an emergence of technology that enables people to do that in a very seamless and Broadway soon.

And when that happens, it'll be very interesting to see how the perspective of what money laundering is and how it needs to be prosecuted.

It will be interesting to see how that changes.

Right.

Because on some level, if maybe not exactly what HSBC was doing, but like the laundromat example that you mentioned, Cast, that can all be effectively reduced to a private payment in a private digital pool somewhere one day.

Right.

So then those laundromats don't need to exist.

A variety of those sorts of businesses might not exist because people have figured out how to effectively move money and assets in a private way.

Not all money, not all assets.

But I'm just saying there's a world where that part of the stages of money laundering might like.

The reason that a laundromat works is because it's useful for everybody.

And the usefulness is that I can wash my clothes there.

It's not that I'm thinking about how I can launder $12 or whatever it costs for me to do my laundry.

It's that I can wash my clothes.

If the only use case for a pool of money concept business is to launder money, to move and not dark money into the same pool.

I think that indeed is actually an issue.

Well, I don't think it'd be a business.

Yeah, it can't be a business.

No.

That's where chaos is coming from.

Right.

We're talking the former executive director of ZCash.

He doesn't expect it to be like a business filing taxes in the United States that pulls this off.

No, I expect it to be a giant pool of shielded transactions of a variety of assets across some kind of network.

And you can argue, like, here's where the argument stands when that sort of intermediary exists.

This is where I actually do agree with, I think how we've fashioned where the money laundering should be illegal is at the entry point.

So the moving of the money into that dark pool, if you're like a bank or an exchange, more likely a cryptocurrency exchange that is centralized crypto exchanges, knowingly taking Vladimir Putin's gun and then exchanging it into this private network, that is a point where.

Yeah.

That person, I think, should come under the crosshair.

That entity should come under the crosshairs of whatever money laundered in the machine.

And then at the opposite end of that, when you're a friend of Vladdy's and you're buying some New York penthouses, but the money comes from that dark pool.

Right.

That shielded pool where you can't actually trace any of the ins and outs.

But you know that that person is associated with Vladimir, and you have ample evidence those are the places where I actually think it's reasonable to have those kinds of laws in place.

But that intermediary step, which is like the laundromat as a like effectively, I think in your example, it's analogous to the laundromat.

Right.

But it's just on a bigger scale where you have this private pool where everybody who's engaging with prominently legal transactions maybe are benefiting from them.

What's the incentive for me if I'm doing totally and I get this, I understand there's a bit of the, well, if I'm not doing anything illegal, then why should I care about this?

I get that.

But I just want to hear what the incentive is for me, really.

If I'm like, oh, I'm going to go out and buy a burger with this, with my whatever.

I don't know.

Fucking, let's say ripple.

No, we'll say tether.

That's even better.

I'm going to go out and buy a burger with the tether that I've accumulated, the millions of tethers that I have.

I'm wondering why I would move that tether into that dark pool at all.

Why am I sending it there at all if I'm just like, I'm just buying a burger, man?

Why do I care?

So there are a few reasons in my mind, but one, there could be eventually a system where you get a financial incentive for doing that.

Right.

Where it might actually be cheaper to interact with a private pool and a public pool.

I don't think that exists yet.

I'm just saying that there's.

How is that plausible?

So if you can imagine, like, a threshold signature scheme where maybe to get confirmation in an aggregated transaction, it's actually cheaper than sort of like, vaguely similar to what Mimble Wimble was doing way back when.

But there's a possible system that exists in the design space where being a part of a threshold signature scheme that enables a collection of an aggregation of many inputs into one, like, you could say lightning on Bitcoin arguably offers this to some degree, but it doesn't really provide the same level of Privacy guarantees.

I don't know.

It just gets into, like, the weeds a bit.

But I'm just saying that's a possible outcome.

I don't think that's likely.

It's a possible one.

The other, I think more likely incentive is like, it's not so much that you're worried about government surveillance, it's that you eventually get.

This is sort of what we were talking about earlier, like what pushes people to the edge about this stuff.

Maybe you get sick and tired of, like, you go and buy your burger with a tether and then I get advertised, too.

You get advertised against it, or even much worse than that.

That's pretty terrible in my mind.

But much worse than that is that the centralized repository of the chain analytics firm that was deducing the fact that you bought a burger and everything else that you purchased, they get hacked, and all of a sudden all of your personal information that you believed was, like, private to you and to whoever was tracking it winds up being at the mercy of whatever that because I think this argument goes back to why backdoors and encryption itself are terrible.

Because that enables anyone who gets access to that backdoor plethora of information about what was supposed to be secret.

Right?

You can make the same argument for that kind of like broader surveillance state.

So I think that the incentive is more likely going to come from people reaching that kind of point with whatever, because it's sort of inevitable that Google, I think, and Amazon and arguably Apple for all of their supposed Privacy whitewashing, they're all incentivized to maximize the value of the data they collect on you.

And that gets creepier and creepier and shittier and shittier over time.

Right.

And I do think that there is eventually some kind of breaking point for people when it becomes in your face.

Right.

Or there is some terrible hack that happens where all that information comes public and then you buy a burger with your tethers, which I hope you do it soon, because who knows how long those dollar break.

What do you mean, tethers?

Every day that tether continues, I'm more certain it'll outlast me.

I guess that's fair.

It might be a while before we get there, though, don't you think?

Yeah, I don't think it's going to be my personal view is it's probably going to be ten plus years optimistically before we get there.

But I think it's important.

If I was in the government shoes or even in like a big Corporation somewhere that relies on a lot of financial data for people, I would be planning for this.

I would be thinking to myself, this is inevitable and maybe a terrifying thought for them based off the way that things currently work.

But I think it's going to be a net positive for society.

And I do think that the people doing nefarious s*** are still going to be caught and prosecuted.

But they might not be caught and prosecuted with the kind of analytics and tooling that the government has available today.

They'll just have to go do some different kind of police work and investigations.

But then I think we can get on the same page about what constitutes that illegal activity.

One thing you said to me that was interesting because I think it's basically where I've ended up on how this type of stuff should be regulated is you were talking about how when there exists these private pools of money, these dark pools of money, where it's a little bit challenging to tell which dollar coming out of it is dirty or clean, that the centralized intermediaries, the actual institutions with people and stuff are the ones who should be responsible for trying to put in some effort to determine whether or not those individuals could be connected to criminal activities.

And this is why often when I end up looking at KYC AML and money laundering laws, KYC makes sense to me.

Like a financial institution inside a developed country, it makes sense that there should be an expectation or a regulation that they're expected to know who they're serving.

But then the transaction reporting and that more broadly is often where I look at that and I go, that seems really problematic and questionably beneficial.

And so it's just interesting when you were given your example, that you suggested kind of somewhat similar, that these intermediaries are the ones who should be responsible for kind of vetting who they're interacting with rather than vetting which transactions they're interacting with.

Yeah.

And I think I totally agree with that.

Now, I will say that I'm thinking about in that sort of inevitable world that I'm imagining.

One could imagine also that those centralized institutions go away.

And this is maybe the way too optimistic view, but maybe the person buying Vladimir Putin's hypersonic missiles.

They're doing so just purely using the private pool of money to begin with.

Right.

In which case, then the enforcement action and the targeting of the prosecution, you can't rely on that centralized intermediary at the start.

You have to rely on, like, where does the money end up?

What assets does it turn into?

Who is aiding and abetting them in terms of transferring out from them?

There's still so much leverage that the government and law enforcement will have in that part of the transition that they will still be able to, I think, enforce what we would hopefully all agree is considered money laundering at that point.

Yeah.

I guess I just wonder because the current way, even now that it works, if we think about it, is that, let's say, think about how many people just got sanctioned and hitting those people now.

Sure.

I guess it sucks and they're feeling some sort of pinch.

But the reality is that Abramovich owned Chelsea for a decade.

These people have had total access to the financial system, regardless of these laws, this entire time.

And this, again, goes back to the idea of who is this targeting?

Exactly?

Who are we trying to catch right now?

Because if we're not trying to catch Vlad and friends and we're not trying to catch the President of Angola for the Luanda Leaks, she wandered billions of dollars.

Billions of dollars.

If you're not catching those people, what exactly are you doing?

That's a great question.

But it also leads me to be like, so we have all this enforcement action that we're supposed to be taking if we take enforcement action on whatever her name is, the Luanda Leaks Lady, and she just flees Angola and goes to live in Portugal, and she's fine.

What the fuck?

So what exactly did we accomplish by even finding out that she money laundered?

If at the end these people can walk away, go back home and not spend a day in jail, not have any issue other than some of their assets being frozen?

Do they even give a s***?

Do these people care?

I don't think they do.

And so I don't know what that enforcement action after the fact does.

You know what I mean?

The goal would be to catch these people before they have a chance to buy the New York penthouse or whatever yeah.

Actually, I agree with you there.

But then the goal comes to catching them when they're committing the crime prior to moving the money around.

Right.

Which is something I think we all agree with, too.

Right.

Then again, I think this sort of, like, dilutes the definition of money laundering at that point to being like, you know what I mean?

Maybe the issue becomes that money laundering should be the person responsible for if you're purposely moving criminal money into the system that is money laundering.

But even, like I said, moving it out, I guess you're right.

There has to be some sort of issue with that as well.

But it just seems so ineffective to me, genuinely.

Where if you're prosecuting someone, if we're trying to prosecute someone living in Moscow right now for the crimes they committed, buying the New York penthouse, they don't give a f***.

They don't care.

They'll never be back in America ever again.

No one cares.

We're all moving on with our lives.

Oh, we took the penthouse back.

Okay.

It doesn't matter.

Yeah.

So I think what you're getting at here is quite interesting, and it's part of the reason that I have yet to be convinced that transaction monitoring has really any value.

Right.

Is because we know of how many trucks set up in South Dakota holding how much dirty cash, how much real estate in Toronto, Miami, La, Vancouver, San Francisco.

Right.

It's an open secret.

And even, like the ICIJ, when they're releasing the Pandora papers, have to kind of talk around how much of it is even occurring right here in America.

Right.

Most of their immediate coverage when the day was wasn't about the trust in South Dakota, wasn't about anything like that.

It was about the international stuff, because the leadership in America has often become corrupted by these same sources of money that we're talking about.

So what we've been getting out for much of this episode is that these laws aren't targeting what they're supposed to the structure isn't set up to go after the people that are supposed to.

And that the way they exist now, I think weakens the political will and desire to go after the people actually doing the bad things.

That's why I think KYC makes sense.

That's why I start to worry about transaction monitoring, because when you tell people that you're monitoring their $600 transactions to catch billionaires tax evading, you destroy the trust they have in you and the institution.

It's so much harder for you to do serious actions that go after actual offenders who are doing real things.

Because when people hear you talk, they believe you're lying to them.

Yeah.

I just want to say that I think when these laws were established.

Right.

And you're going after people like Al Capone, who at the time.

Right.

This guy's super rich, super duper.

Super duper wealthy.

And then in the 70s, when you had, like, the casino magnets in Las Vegas just killing people and doing whatever they wanted to.

Right.

These people were incredibly powerful, and these laws were used to stop incredibly powerful people who they couldn't stop otherwise.

Right.

Unfortunately, it sure feels like now that the powerful people are the ones who get to use the money laundering laws and they're not going to use it on themselves.

That's not something that will ever, ever happen.

And that, in turn, is the issue.

It's not that money laundering doesn't make sense.

It absolutely makes sense.

Like, the concept makes sense.

The issue is that, well, when the money launderers are the ones who are like, yeah, we'll deal with the money laundering laws.

Now, Cas, I don't know if you recognize it, but you just echoed Josh's initial statement when he rugged pulled the argument and tweaked it all.

That's right.

I was going to say that it feels like we're back at the beginning where we're talking about what it means to live in a we don't live in a just society where those laws affect the right people.

So I think.

Did we come to we've been in agreement the whole time.

Yeah.

They got a sensible conversation about the limits and regulations.

Did we just money launder?

Is that what this is?

Yeah.

Not until I showed you $5 on Venmo.

Exactly.

Not until we make money on the podcast.

Not until we make money.

As long as we keep losing money for that money.

I guess it's just fraud right now, then.

It's just fraud.

Well, I'm glad we're still friends at the end of this.

I guaranteed it.

I'm glad that my guarantee was worth something there.

I'm glad we did this over a conversation as opposed to, like, on Twitter.

Yes.

It would have been a disaster and it would have taken several weeks.

But, Josh, it's been fantastic to have you on.

Maybe we can have you on and talk about something more technological or confusing next time.

As opposed to just this.

No, wait.

This is great.

I would be happy to, you guys.

It's great to finally put faces to voices and tweets.

Yeah.

Especially since we've been friends.

It's weird.

The Internet is a strange thing, right?

Because we feel like we've been friends for so long, but this is the first time we've actually had, like, a conversation.

It's a running joke on the podcast now, but Cas and I have been working together on different projects for four years now and still have never met in person.

You guys should do a retreat.

Yeah.

I keep trying to convince him.

I keep trying to convince him to come out here to California.

But he's a big slug, man.

He's hard to move.

Yeah, exactly.

He's tied.

He's got his wife and his home.

I have nothing.

You're going to have your home soon.

And that's again.

You'Ll be tied to the traditional financial system for the next three decades.

I think you make some really compelling points though, Josh and I'm glad we had you on because I think it is an issue that people should be talking about.

I do think it's a good thing to bring attention to Privacy concerns.

We had Rohan Grey.

It's like you want people who are pro government even or anti government.

You kind of want both to be like, well, Privacy is the thing that we should be concerned about.

So I'm glad we can agree on that.

Yeah, me too.

This is awesome.

I'm glad we aired it out and discovered that we were in violent agreement.

Another incredibly long episode for you guys and for what?

For free.

For nothing.

And here's the deal.

Thousands of you listen.

Thousands of you are out there listening how many reviews and ratings we've gotten in total over all the platforms?

95.

How sad is that?

Tons of free content.

Tons of time.

Just go ahead.

Listen free.

You guys are like, cool things.

Losers.

Idiots taking it and run.

Click the button.

Five stars, man.

It's easy.

5 responses to “Episode 62 – Should Money Laundering be a Crime? (Feat. Josh Cincinnati)”

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