Money Laundering

Anonymous Economies

in Society by

In December of 2017, the US saw its first piece of fine art placed up for sale in an auction where bids were accepted in Bitcoin only. The piece which sold eventually – a Mark Flood painting dating from 2013 – fetched the equivalent of $100,000. The buyer was unknown to anyone.

The sale was managed by Elizabeth White, CEO of The White Company, who describes herself as a “cryptocurrency purveyor of luxury goods”.

The sale was also the object of some controversy because of the anonymity which surrounded it. White herself maintains contact with her clients through means of encrypted communication. So whilst she may help manage purchases on behalf of her clients, her business model allows for clients to retain their anonymity.

Legal Ambiguity

White has come in for criticism for facilitating what may be a potential avenue for money laundering operations. Others have pointed out, however, that her services do not infringe upon any existing laws. Bitcoin itself is not considered legal tender in the US and therefore does not fall under the scope of standard AML compliance procedures.

Whilst cash can achieve more or less the same thing, it doesn’t zip itself across borders as quickly or as securely

The Blockchain – along with other technologies which leverage advanced cryptographic methods – is facilitating the emergence of anonymous economies. We are entering into a post Panama Papers world where individuals and corporations will no longer have to engage the services of creative accountants to bury their assets behind obscure entities that sit underneath a mountain of paperwork.

A simple transfer of value over a network such as Bitcoin or – better again – Monero is enough now to remove all tangible links between an asset and its owner. Whilst cash can achieve more or less the same thing, it has two distinct disadvantages – it is not quite so easy to get hold of in large quantities, and it doesn’t zip itself across borders as quickly or as securely.

How statutory authorities come to deal with crypto technology’s streamlining of anonymous transactions in a globalised world will make for interesting observation.

When Anonymity Brings Benefit

On the other hand, the subject of blockchain anonymity largely comes in for bad press when it does bring some upsides.

In January of 2018, California approved the legalisation of recreational marijuana. Supporters of the legislation had long argued that legalisation of recreational drugs is likely a better alternative to the current War on Drugs.

With legalisation comes regulation, and with regulation regular members of the public can now be sure of accessing products whose chemical composition and possible effects are known in advance, all without having to engage with what are likely sketchy contacts in the criminal underworld.

But in the days and weeks that followed legalisation, new and existing marijuana-based businesses had a hard time gaining access to the necessary finances to expand their operations to meet the new demand.

In a context where State and Federal authorities were essentially locked in a stand-off with each other about the implications of the new legislation, banks were nervous about handing out loans as some marijuana dispensers became the target of federal law enforcers who placed a different interpretation on the primacy of state over federal law. And consumers themselves became nervous about approaching dispensers.

One answer to all of these problems came in the form of crypto-assured anonymity. PotCoin, which describes itself as “a peer-to-peer cryptocurrency which exists with the aim of becoming the standard form of payment for the legalized cannabis industry” – entered the fray.

PotCoin offers the kind of anonymity which ensures that local producers and sellers within California’s $7 billion pot economy can remain out of the purview of federal interference whilst complying with the diktats of local authorities.

And the PotCoin project – when it is not financing trips by Dennis Rodman to attend Trump-Kim summits in Singapore – is inspiring other, similar projects in its wake.

In Canada, where Trudeau’s Liberal party is meeting a pre-election pledge to legalise recreational marijuana, pro-pot activists are creating their own PotCoin spin-offs, anticipating that Canadian pot consumers will continue to experience friction in some form in a post-legalisation world in much the same way that California has.

The irony is that these projets are actually helping to facilitate the law as opposed to break it. And whilst these kinds of examples are rarely cited in the mainstream media, they stretch far beyond recreational drugs – journalism, political activism and dispute resolution are all examples of fields which stand to flourish from the anonymity granted by cryptographically-secured blockchain economies.

How participants fill out the corresponding forms for the taxman, on the other hand, is one question that appears to have been left hanging by the technology.