DBS, Privacy, Money Laundering nonsense.

--- begin forwarded text


From: "Black Unicorn" <unicorn@schloss.li>
To: <tboyle@rosehill.net>, "dbs" <dbs@philodox.com>
Subject: DBS, Privacy, Money Laundering nonsense.
Date: Fri, 13 Nov 1998 22:57:51 -0600
Keywords: dbs
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tboyle@rosehill.net comments:

[...]

> But I simply cannot comprehend the breadth of the agreement
> on this dbs conference, and depth of conviction, that DBS money
> should be designed with the **deliberate objective** of being
> untraceable, for purposes of law enforcement or taxation.

In the case of some DBS advocates you are overstating the matter.  In the
case of others, vastly understating it.

> I have a lot of respect for you guys' intellect but I think
> you're wrong on two fundamental points:
>
> 1.  Rule of law.  Money laundering is a critical piece in
> organized crime. The democratic countries have banking laws.
> Do you think these laws should be followed, or NOT?  (Scurrying
> of feet as all the DBS readers avoid answering.)

Well let's examine this.  The view that all democratic countries have
banking laws really begs the question.  "What are the differences between
said laws."  I can tell you with solid authority, they are many.

I've often repeated this story here and elsewhere.  It's all a matter of
public record.

Set the way-back-machine to just after Reagan has entered office.  Ole Ron
began to crack down on tax evasion and in particular offshore havens.
Taxes would be cut, it was reasoned, but only if loopholes were filled and
evaders rooted out.  (Those of us old enough to remember might even recall
nodding at the sense of it).

This policy was particular hard on certain Caribbean nations.  This was the
time of operation Tradewinds (search for it in the congressional record)
and other IRS black projects where the IRS actually violated local law to
spy on foreign banks even going so far as to drug guards, steal the
briefcases of banking executives, perform unwarranted searches, bribe
foreign officials and all manner of nonsense to root out tax evaders which
might also be U.S. citizens.  For a long while there was a project which
opened and Xeroxed all the incoming mail at JFK which appeared to originate
from offshore havens.  This wasn't in the 50's mind you, but the 80s.  It
was acts like these which prompted the Swiss to strengthen their banking
secrecy during the Second World War.  Just another day in the park in the
U.S.  Just recently this year Mexico nearly indicted several U.S. law
officials for breaking Mexican law during the investigation of several
Mexican banks.  Clearly the practice hasn't abated much in the last 15
years..   (Note also that today all these methods (except for drugging
guards maybe) have their legal equivalents in the United States, which is
in itself a powerful statement).  This continued for some time back when
Ron was at the helm until the United States finally began to threaten to
revoke the U.S. charters of certain banks it considered uncooperative.  At
this point a visitor, unannounced, flew into D.C. and literally dropped by
the White House with no press coverage or fanfare at all in the late
evening.  That visitor was Margaret Thatcher and she proceeded to explain
to Ron over the course of a few hours that if he kept it up many of the
British Protectorates would literally have their economies crippled.

Literally overnight the matter was dropped and the offshore centers left to
quietly continue their business.

So much for democratic countries with universal ideas about banking law, or
the rule of "law and order" in banking regulation.

This is but one example.

So:

Rule of Law - means little in the global-political scheme of things
Democratic Countries Have Banking Laws - none of which are consistent or
consistently applied

Money Laundering is a Key Piece of Organized Crime -

This begs a definition of Money Laundering.  "Concealing the proceeds of a
criminal act" sounds legitimate, but consider that it has been held to
apply to a store clerk who sold food stamps for cash and deposited the
proceeds in his personal (non-anonymous) checking account:  Indicted in
Federal Court for Money Laundering with a maximum possible term of 35
years.  (This is a prosecutorial tactic to get a guilty plea to the basic
theft charge).  Consider also that third parties often take it on the chin
with the wide definition currently applied.  Case in point: Ma and Pa
travel agency innocently accepts a deposit from notorious attorney of drug
dealer.  Their entire holding account is seized including the deposits of
some 700 other potential travelers.  After 7 years of fighting the seizure,
the money is finally returned, without interest.  (Effectively halfing the
value of the funds).  The business is ruined, its reputation in tatters.
Ma and Pa fight it out in bankruptcy, lose their house, most of their
retirement proceeds, etc.  In the process this case sets the precedent that
any amount of illicit funds ($1) deposited in any size account ($500
million) will render the entire account liable to seizure and permit it to
be held in lieu of forfeiture hearings.  That can go on for 7 years or so.
Money which is "laundered" has its title literally revert to the U.S.
Treasury.  This means third parties who innocently accept these funds are
liable for their return, even if they are passed on in the course of
business.  Beginning to seem silly?  Money laundering is an invented
offense.  It's definition in the United States has grown so broad so as to
be laughable, if not so frightening.  Do not think that these are isolated
incidents.

So, money laundering in its commonly understood sense might be key to
organized crime, but what passes for money laundering in the United States
has little to do with it.

Myth:  Money Laundering laws have a serious impact on organized crime.

This is increasingly nonsense.  The United States spends close to
$22,000.00 to seize $1.00 of illicit funds.  Money Laundering today is
extremely sophisticated and enforcement doesn't catch the drug dealers, it
catches professional money launderers.  Today if you are a drug lord you
drop $30 million in cash with a professional launderer who cuts you a
"clean" check for 85% of that figure or so on the spot and takes the risk
of laundering the funds on his own.

Myth: Money Laundering can be detected accurately and effectively and leads
to drug and organized crime convictions.

Nonsense.  Assume for sake of argument that you could detect 99% of
fraudulent transactions with the measures in place (entirely impossible)
and that your false positive rate was only 1% (also entirely impossible).
SWIFT alone processes $2 trillion per day.  That's on the order of $600
trillion per year, just in SWIFT.  (Add another $1.3 billion for CHIPS and
$989 million for Fedwire daily.  Oh, don't forget the foreign exchange
markets, oh and NYSE, oh and NASDAQ, oh and international letters of
credit, oh and...)  The most sinister estimates of the global criminal
economy (primarily drug money) run around $400 billion per year.  Your
false positives will identify $6 trillion in naughty funds that are
actually pure just in SWIFT.  Your correct hits will identify $396 billion
in naughty funds in all systems worldwide.  In this example you will have
15 times as many false hits as correct hits ignoring the lionshare of world
financial systems.  This is under the very best of circumstances.  It's a
losing game..  It's a game only the mathematically challenged or
politically motivated will play.  In fact, money laundering is a tack on
offense that is brought to bear after an arrest on other charges has been
made.  The number of cases that originate with a money laundering
investigation is vanishingly small.

The payment system today eats up over 1.5% of the GNP primarily because of
nonsense regulations like CTR's and other transaction reporting
requirements which can cost up to $15 per transaction and (as we see above)
have little if any effect on professional money laundering.  Given these
numbers the degree of "fraud" in the world financial system is far better
than in the credit card system, which has pretty much reached equilibrium.
(Fraud accounts for about 5% of credit card costs.  Customer service
accounts for about 15%).

> There is a certain logic in the notion of having a legislative
> process and laws.  Our laws in the U.S. weren't written by
> angels up in heaven, but they are better than some other places.

In the case of money laundering regulation I should say almost _no_ other
places.

> If DBS participants advocate that money laundering laws are
> not to be followed, I'm sorry but YOU GUYS have the burden
> of logically arguing your position.  So shut up and quit
> raggin' on *me* about it.

I would just like to see them applied with rationality.  It's fairly clear
that that's too much to ask of the United States.  Interestingly enough
it's typically multi-party systems of government that have a balanced
approach to money laundering.  Perhaps this is because grandstanding with
things like "the war on drugs" isn't as effective outside of a two party
system.  Sheds new light on your comment about democracies and banking
regulations.

Some jurisdictions get along quite well without the nonsense perpetrated in
the United States.  Like Switzerland.  Switzerland has one of the nicest
things in a cash economy I have seen.  A freely circulated 1000CHF note.
It's worth about $750.  (The United States phased out $500 bills long ago
to deal with laundering).  In Switzerland you can drop a 1000CHF note at a
restaurant and no one bats an eye.  In the U.S. you cant take a cab home
from the International Terminal unless you have something smaller than a
$50.  Somehow Switzerland has manage to survive without looting in the
streets and rampant crime.  Luxembourg is in a similar situation.

I tried to purchase a car some years ago outside of D.C. with cash.
Completely legitimate transaction.  No interest nonsense for me to worry
about.  No waiting for the car while the check clears.  Simple.  Right?
The dealership called the police, convinced they were striking a blow
against drug dealers.

It's really gone too far.

> 2.  Practicality.   Without at least a fig leaf of cooperation
> with banking authorities and other police, DBS will not be
> permitted.  Transactions denominated in DBS won't be enforceable
> in courts, and fraud won't be a crime.  Reporting fraud in DBS
> deal would be like reporting a fraud in purchase of heroin.

Practicality?

Of course any student of political science will understand that where
government enforcement of contracts fails or falls short, organized crime
tends to move in.  Reporting fraud in the purchase of heroin to the right
enforcement cartel tends to be much more effective in rendering results
than U.S. courts I'd wager.  Clearly, the United States would not benefit
by forcing DBS underground.  Several jurisdictions will permit DBS and
enforce it.  (I'm involved in the legislative process for one such law in a
European jurisdiction now).  If you believe that DBS should be outlawed
then you must agree that cash should be outlawed.  There is effectively no
difference but velocity.

> The principal reason for failure of electronic money, other
> than cards used in physical establishments, is you can't trust
> the seller to send you the goods.  That's why everybody is
> using credit cards, and bearing the 2-3% charge for "insurance".
>
> You guys seem to think untraceable DBS will be accepted, if
> only a good enough encryption algorithm can be found????

1% of the GNP.  Instant 1% growth for changing a system of clearing.  Think
about that for awhile.

> I think your ideas have a fatal, logical weakness.  Without
> any practical means to verify who got your money, or even
> a legal *right* to enforce a contract, what good is dbs?
> It's not even money.  It's more like a coupon or something.

What you are missing is that all your arguments apply equally to cash.  Why
is cash used if this is so?  Prove to me that you just gave me six $100
bills.  You are, "without any practical means to verify who got your money
or even a legal *right* to enforce a contract" if the transaction is larger
than $500.

If only we could be rid of this pesky cash would could eliminate organized
crime forever.

--- end forwarded text


-----------------
Robert A. Hettinga <mailto: rah@philodox.com>
Philodox Financial Technology Evangelism <http://www.philodox.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'

At 12:43 AM 11/14/98 -0500, Robert Hettinga wrote in Response to Black
Unicorn:
>--- begin forwarded text
>
Scoops response:

Mr. Hettinga your comments on the federal abuses on money laundering
prosecutions are right on.  As an attorney I have seen time and time again
the mere *threat* of bringing a money laundering charge enough to make
innocent defendants take pleas.  We all know that the crime of money
laundering was invented to catch mafiosos and other scofflaws.  However the
gradual broadening of the intent of the statute now just catches ordinary
people in the course of either legal or illegal activities that involve a
bank -- or other financial institution.  A bookkeeper is accused of
embezzling $10,000 from his employer and puting the money in his checking
account.  Lets say he has a reasonable defense to his actions.  Was the
money laundering statute intended to cover this crime?  No.  Will a federal
prosecutor (or even state) lay on a money laundering charge?  Of course.
The deal is, if the guy loses, he gets six months on the embezzlement and a
*minimum* of five or seven years on money laundering.  So you tell me?
Does he plead even if he could beat the embezzlement rap?  Of course.

A quick story.  True unfortunately.  A guy sells parts for jet planes.
Expensive.  Usual tab $50,000 to $200,000.  One day he sends an invoice for
$100,000 instead of $10,000.  He's got no reason to immediately notice that
it's'wrong.  He uses the U.S. mail.  That's mail fraud.  He asks his
secretary to see what she can do.  That's conspiracy.  He gets fed up and
calls the buyer who he thinks is a dead beat.  That's wire fraud.  In the
middle of the mess he changes his bank account from Bank of America to
Wells Fargo.  That's money laundering.  The buyer complains to a U.S.
attorney.  A grand jury indicts.  He's looking at something like 40 years.
The man's nearly in a coma that something like this could happen.  It's
Alice in Wonderland.  Naturally, all his money is seized and he can't
afford a private attorney and gets a competent but not overly zealous
federal public defender.  If the man had actually stolen $100,000, with
restitution and if it was his first offense, he get maybe a couple years.
Maybe probation.  But he doesn't even have the money!  Naturally, after a
few months in a federal detention facility (he can't make bail because the
feds have his assets) he starts listening to the other horror stories of
other fish caught in the net.  He sees what happens to them.  You fight and
there's a 98% chance that you lose.  And if you lose you get the maximum.
But if you plead out, we're looking at a slap on the wrist -- say a year or
two.  In his mind he hasn't committed anything even remotely like a crime
and he feels he completely innocent.  But he also knows that he's already
been in jail for about 1/2 of his sentence.  He vows to leave Amerika as
soon as he's out.  He perjures himself.  Admits his guilt under oath.  He
shows remorse for his crime.  The feds drop everything except some offense
that he can get a "5 and 5" -- five months in, five months on house arrest
(ankle bracelet).  He takes a felony hit on his record.  He loses all his
licenses.  He's ordered to pay costs of  $50.  He's already been in 5
months.  He's released the next day after they strap on the bracelet.  His
life is ruined.  His business is dead.  He is bankrupt.  The feds won't
give any of the money back unless he sues them.  He's got no money for an
attorney.  He's done.  This is not fiction.  This happens hundreds of times
a day all over this country.  Oh, did I mention the fine?  Yeah, it's only
$5000.  But here's the latest twist in federal jurisprudence.  The
Assistant U.S. Attorney has been to a new training program to insure
compliance with paying fines and restitution.  In his plea agreement the
new criminal has agreed that in the event he does not pay the fine on
schedule, the feds may retry him on ALL the original charges and he waives
double jeopardy.  Unconstitutional you say.  Sure.  But that's not what the
Supreme Court says.  Amerika.  Love it or leave it.

>> But I simply cannot comprehend the breadth of the agreement
>> on this dbs conference, and depth of conviction, that DBS money
>> should be designed with the **deliberate objective** of being
>> untraceable, for purposes of law enforcement or taxation.
>
>In the case of some DBS advocates you are overstating the matter.  In the
>case of others, vastly understating it.
>
>> I have a lot of respect for you guys' intellect but I think
>> you're wrong on two fundamental points:
>>
>> 1.  Rule of law.  Money laundering is a critical piece in
>> organized crime. The democratic countries have banking laws.
>> Do you think these laws should be followed, or NOT?  (Scurrying
>> of feet as all the DBS readers avoid answering.)
>
>Well let's examine this.  The view that all democratic countries have
>banking laws really begs the question.  "What are the differences between
>said laws."  I can tell you with solid authority, they are many.
>
>I've often repeated this story here and elsewhere.  It's all a matter of
>public record.
>
>Set the way-back-machine to just after Reagan has entered office.  Ole Ron
>began to crack down on tax evasion and in particular offshore havens.
>Taxes would be cut, it was reasoned, but only if loopholes were filled and
>evaders rooted out.  (Those of us old enough to remember might even recall
>nodding at the sense of it).
>
>This policy was particular hard on certain Caribbean nations.  This was the
>time of operation Tradewinds (search for it in the congressional record)
>and other IRS black projects where the IRS actually violated local law to
>spy on foreign banks even going so far as to drug guards, steal the
>briefcases of banking executives, perform unwarranted searches, bribe
>foreign officials and all manner of nonsense to root out tax evaders which
>might also be U.S. citizens.  For a long while there was a project which
>opened and Xeroxed all the incoming mail at JFK which appeared to originate
>from offshore havens.  This wasn't in the 50's mind you, but the 80s.  It
>was acts like these which prompted the Swiss to strengthen their banking
>secrecy during the Second World War.  Just another day in the park in the
>U.S.  Just recently this year Mexico nearly indicted several U.S. law
>officials for breaking Mexican law during the investigation of several
>Mexican banks.  Clearly the practice hasn't abated much in the last 15
>years..   (Note also that today all these methods (except for drugging
>guards maybe) have their legal equivalents in the United States, which is
>in itself a powerful statement).  This continued for some time back when
>Ron was at the helm until the United States finally began to threaten to
>revoke the U.S. charters of certain banks it considered uncooperative.  At
>this point a visitor, unannounced, flew into D.C. and literally dropped by
>the White House with no press coverage or fanfare at all in the late
>evening.  That visitor was Margaret Thatcher and she proceeded to explain
>to Ron over the course of a few hours that if he kept it up many of the
>British Protectorates would literally have their economies crippled.
>
>Literally overnight the matter was dropped and the offshore centers left to
>quietly continue their business.
>
>So much for democratic countries with universal ideas about banking law, or
>the rule of "law and order" in banking regulation.
>
>This is but one example.
>
>So:
>
>Rule of Law - means little in the global-political scheme of things
>Democratic Countries Have Banking Laws - none of which are consistent or
>consistently applied
>
>Money Laundering is a Key Piece of Organized Crime -
>
>This begs a definition of Money Laundering.  "Concealing the proceeds of a
>criminal act" sounds legitimate, but consider that it has been held to
>apply to a store clerk who sold food stamps for cash and deposited the
>proceeds in his personal (non-anonymous) checking account:  Indicted in
>Federal Court for Money Laundering with a maximum possible term of 35
>years.  (This is a prosecutorial tactic to get a guilty plea to the basic
>theft charge).  Consider also that third parties often take it on the chin
>with the wide definition currently applied.  Case in point: Ma and Pa
>travel agency innocently accepts a deposit from notorious attorney of drug
>dealer.  Their entire holding account is seized including the deposits of
>some 700 other potential travelers.  After 7 years of fighting the seizure,
>the money is finally returned, without interest.  (Effectively halfing the
>value of the funds).  The business is ruined, its reputation in tatters.
>Ma and Pa fight it out in bankruptcy, lose their house, most of their
>retirement proceeds, etc.  In the process this case sets the precedent that
>any amount of illicit funds ($1) deposited in any size account ($500
>million) will render the entire account liable to seizure and permit it to
>be held in lieu of forfeiture hearings.  That can go on for 7 years or so.
>Money which is "laundered" has its title literally revert to the U.S.
>Treasury.  This means third parties who innocently accept these funds are
>liable for their return, even if they are passed on in the course of
>business.  Beginning to seem silly?  Money laundering is an invented
>offense.  It's definition in the United States has grown so broad so as to
>be laughable, if not so frightening.  Do not think that these are isolated
>incidents.
>
>So, money laundering in its commonly understood sense might be key to
>organized crime, but what passes for money laundering in the United States
>has little to do with it.
>
>Myth:  Money Laundering laws have a serious impact on organized crime.
>
>This is increasingly nonsense.  The United States spends close to
>$22,000.00 to seize $1.00 of illicit funds.  Money Laundering today is
>extremely sophisticated and enforcement doesn't catch the drug dealers, it
>catches professional money launderers.  Today if you are a drug lord you
>drop $30 million in cash with a professional launderer who cuts you a
>"clean" check for 85% of that figure or so on the spot and takes the risk
>of laundering the funds on his own.
>
>Myth: Money Laundering can be detected accurately and effectively and leads
>to drug and organized crime convictions.
>
>Nonsense.  Assume for sake of argument that you could detect 99% of
>fraudulent transactions with the measures in place (entirely impossible)
>and that your false positive rate was only 1% (also entirely impossible).
>SWIFT alone processes $2 trillion per day.  That's on the order of $600
>trillion per year, just in SWIFT.  (Add another $1.3 billion for CHIPS and
>$989 million for Fedwire daily.  Oh, don't forget the foreign exchange
>markets, oh and NYSE, oh and NASDAQ, oh and international letters of
>credit, oh and...)  The most sinister estimates of the global criminal
>economy (primarily drug money) run around $400 billion per year.  Your
>false positives will identify $6 trillion in naughty funds that are
>actually pure just in SWIFT.  Your correct hits will identify $396 billion
>in naughty funds in all systems worldwide.  In this example you will have
>15 times as many false hits as correct hits ignoring the lionshare of world
>financial systems.  This is under the very best of circumstances.  It's a
>losing game..  It's a game only the mathematically challenged or
>politically motivated will play.  In fact, money laundering is a tack on
>offense that is brought to bear after an arrest on other charges has been
>made.  The number of cases that originate with a money laundering
>investigation is vanishingly small.
>
>The payment system today eats up over 1.5% of the GNP primarily because of
>nonsense regulations like CTR's and other transaction reporting
>requirements which can cost up to $15 per transaction and (as we see above)
>have little if any effect on professional money laundering.  Given these
>numbers the degree of "fraud" in the world financial system is far better
>than in the credit card system, which has pretty much reached equilibrium.
>(Fraud accounts for about 5% of credit card costs.  Customer service
>accounts for about 15%).
>
>> There is a certain logic in the notion of having a legislative
>> process and laws.  Our laws in the U.S. weren't written by
>> angels up in heaven, but they are better than some other places.
>
>In the case of money laundering regulation I should say almost _no_ other
>places.
>
>> If DBS participants advocate that money laundering laws are
>> not to be followed, I'm sorry but YOU GUYS have the burden
>> of logically arguing your position.  So shut up and quit
>> raggin' on *me* about it.
>
>I would just like to see them applied with rationality.  It's fairly clear
>that that's too much to ask of the United States.  Interestingly enough
>it's typically multi-party systems of government that have a balanced
>approach to money laundering.  Perhaps this is because grandstanding with
>things like "the war on drugs" isn't as effective outside of a two party
>system.  Sheds new light on your comment about democracies and banking
>regulations.
>
>Some jurisdictions get along quite well without the nonsense perpetrated in
>the United States.  Like Switzerland.  Switzerland has one of the nicest
>things in a cash economy I have seen.  A freely circulated 1000CHF note.
>It's worth about $750.  (The United States phased out $500 bills long ago
>to deal with laundering).  In Switzerland you can drop a 1000CHF note at a
>restaurant and no one bats an eye.  In the U.S. you cant take a cab home
>from the International Terminal unless you have something smaller than a
>$50.  Somehow Switzerland has manage to survive without looting in the
>streets and rampant crime.  Luxembourg is in a similar situation.
>
>I tried to purchase a car some years ago outside of D.C. with cash.
>Completely legitimate transaction.  No interest nonsense for me to worry
>about.  No waiting for the car while the check clears.  Simple.  Right?
>The dealership called the police, convinced they were striking a blow
>against drug dealers.
>
>It's really gone too far.
>
>> 2.  Practicality.   Without at least a fig leaf of cooperation
>> with banking authorities and other police, DBS will not be
>> permitted.  Transactions denominated in DBS won't be enforceable
>> in courts, and fraud won't be a crime.  Reporting fraud in DBS
>> deal would be like reporting a fraud in purchase of heroin.
>
>Practicality?
>
>Of course any student of political science will understand that where
>government enforcement of contracts fails or falls short, organized crime
>tends to move in.  Reporting fraud in the purchase of heroin to the right
>enforcement cartel tends to be much more effective in rendering results
>than U.S. courts I'd wager.  Clearly, the United States would not benefit
>by forcing DBS underground.  Several jurisdictions will permit DBS and
>enforce it.  (I'm involved in the legislative process for one such law in a
>European jurisdiction now).  If you believe that DBS should be outlawed
>then you must agree that cash should be outlawed.  There is effectively no
>difference but velocity.
>
>> The principal reason for failure of electronic money, other
>> than cards used in physical establishments, is you can't trust
>> the seller to send you the goods.  That's why everybody is
>> using credit cards, and bearing the 2-3% charge for "insurance".
>>
>> You guys seem to think untraceable DBS will be accepted, if
>> only a good enough encryption algorithm can be found????
>
>1% of the GNP.  Instant 1% growth for changing a system of clearing.  Think
>about that for awhile.
>
>> I think your ideas have a fatal, logical weakness.  Without
>> any practical means to verify who got your money, or even
>> a legal *right* to enforce a contract, what good is dbs?
>> It's not even money.  It's more like a coupon or something.
>
>What you are missing is that all your arguments apply equally to cash.  Why
>is cash used if this is so?  Prove to me that you just gave me six $100
>bills.  You are, "without any practical means to verify who got your money
>or even a legal *right* to enforce a contract" if the transaction is larger
>than $500.
>
>If only we could be rid of this pesky cash would could eliminate organized
>crime forever.
>
>--- end forwarded text
>
>
>-----------------
>Robert A. Hettinga <mailto: rah@philodox.com>
>Philodox Financial Technology Evangelism <http://www.philodox.com/>
>44 Farquhar Street, Boston, MA 02131 USA
>"... however it may deserve respect for its usefulness and antiquity,
>[predicting the end of the world] has not been found agreeable to
>experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
>

At 2:22 AM -0500 on 11/14/98, scoops wrote:


> At 12:43 AM 11/14/98 -0500, Robert Hettinga wrote in Response to Black
> Unicorn:
> >--- begin forwarded text

Oops. Looks like you weren't watching your >'s :-). You're actually
responding to Unicorn, not me. *He* was responding to something Todd Boyle
said (well, probably trolled, given his past behavior :-)) on the DBS list.

A sad story, though...

Cheers,
Bob Hettinga


-----------------
Robert A. Hettinga <mailto: rah@philodox.com>
Philodox Financial Technology Evangelism <http://www.philodox.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'

>Oops. Looks like you weren't watching your >'s :-). You're actually
>responding to Unicorn, not me. *He* was responding to something Todd Boyle
>said (well, probably trolled, given his past behavior :-)) on the DBS list.

I don't altogether enjoy living in the world I've created.  My
intent in posting my ideas is so that they'll either be verified,
or be neutralized or corrected by enzymes on your excellent list!  <G>

But I'm still stuck on these points:

 * Thieves exist in large numbers, throughout the world including my
     own immediate area.  Many more potential thieves in line, behind them.

 * If thieves could hide the money they stole, there would be substantial
    increase in frequency and severity of theft; mostly fraud, employee
    embezzlement, and white collar theft but also blatant scams and
    grift that is impractical today.  We're already seeing annual increases
    in embezzlement in the Seattle area from 10-50% over the last 10 years,
    getting similar to the rates around Los Angeles, for example.

 * Reducing trackability of money increases the severity and frequency
    of collusive crimes.  Large-scale political corruption, kickbacks
    and monopolies in the commercial sector, and a whole range of
    outright criminal blackmail become harder to prosecute.  With
    DBS you wouldn't be able to prove a damned thing.

 * The biggest single financial problem I have is mandatory levies
     (tax, utilities, monopolies) by the corrupt government. Your
     DBS will make this much worse by making it even easier to
     channel cash to politicians.

 * Fraud, embezzlement and corruption are in riotous equilibrium.  DBS
     reduces pressure on laundering, requiring other measures that hit
     my civil liberties somewhere else (physical IDs, cops, etc.)

 * Untraceable money *obviously* reduces tax collections.  What the IRS
     fails to collect from tax dodgers, eventually, I must pay more.

You seem to have a subconscious belief that DBS will shrink the government
sector.  This is a false assumption.  The government long ago achieved the
power to tax *as much as it wants*.  There is no natural immunity in our
culture or legal system.

The public sector has stabilized at 25% or 35% of the GNP, which is
apparently the maximum the animal can tolerate without falling over dead
(people striking, quitting work, and business moving overseas.)

Gimmicks like DBS will certainly not reduce the public sector in our
lifetimes. It will require an evolution in individual awareness and
behavior.

In mean time, managing the out-of-control government sector is your civic
duty, to your less intelligent wives, pensioners, and children and
neighbors. The preferred way to manage the governmt is the democratic
process, and public discourse and debate such as this list.

Breaking ranks and disobeying the law breeds further breakdown in
obedience of the whole legal framework.  There are lots of dumber and more
dangerous elements in the population.  The system is already *quite*
unfair to them.  When the superintelligent can steal through high-tech
money schemes, and the wealthy classes violate their own legal framework,
why shouldn't the thief just come and steal our cars, or fuck your daughter?
Frankly, we need laws, a lot more than we need DBS.

Now, what is your solution to prevent the use of DBS in large-scale
financial fraud, political payoffs, etc.?   Or is that outside your
scope, and such problems should be solved by wiretaps, surveillance or
what?

Don't tell me these problems are minor or will just disappear! Do you
know how much money is already wasted on audits and law enforcement in
this country?  Auditing is already hideously expensive, and the only
solid facts in the entire audit process are the goddamn bank statements.

You need a coherent argument on this problem.  You need measures within
the DBS technology itself, to address the need.  Opponents of DBS will
raise all these demagogic arguments.  You'll be hooted off the podium.

I fear you'll end up damaging the reputation of legitimate forms of
peer-to-peer electronic payments, which are badly needed in the economy.

Todd Boyle CPA   Kirkland WA   tboyle@rosehill.net

> >Oops. Looks like you weren't watching your >'s :-). You're actually
> >responding to Unicorn, not me. *He* was responding to something
> Todd Boyle
> >said (well, probably trolled, given his past behavior :-)) on
> the DBS list.
>
> I don't altogether enjoy living in the world I've created.  My
> intent in posting my ideas is so that they'll either be verified,
> or be neutralized or corrected by enzymes on your excellent list!  <G>
>
> But I'm still stuck on these points:

Ok let's work on them:

>  * Thieves exist in large numbers, throughout the world including my
>      own immediate area.  Many more potential thieves in line,
> behind them.
>
>  * If thieves could hide the money they stole, there would be substantial
>     increase in frequency and severity of theft; mostly fraud, employee
>     embezzlement, and white collar theft but also blatant scams and
>     grift that is impractical today.

You miss the point entirely.  Thieves CAN hide the money they stole today.
It's not even particularly hard.  See my previous post for an idea of how
hard it is to detect a thief hiding his money.

>We're already seeing annual
> increases
>     in embezzlement in the Seattle area from 10-50% over the last
> 10 years,
>     getting similar to the rates around Los Angeles, for example.

And so...?

Classic logical flaw.  After the fact, therefore because of the fact.

High tech is available now that wasn't before
The rate of embezzlement is higher
therefore high tech is to blame.

Clearly, therefore:

Merlyn waved his hands
the moon passed before the sun
therefore Merlyn caused the moon to pass before the sun.

I'll wager the percentage of embezzlement in your area has increased in
rough proportion to the growth of the local economy.  Check for me and get
back to us.

>  * Reducing trackability of money increases the severity and frequency
>     of collusive crimes.  Large-scale political corruption, kickbacks
>     and monopolies in the commercial sector, and a whole range of
>     outright criminal blackmail become harder to prosecute.  With
>     DBS you wouldn't be able to prove a damned thing.

You could hardly reduce the trackability of money anymore today.  A 500
million dollar fraud transferred through the world financial system hides in
about 20 trillion in funds which move every day.  That FinCEN actually can
detect crime via its network is a fantasy.  I've just been over the math
which demonstrates how difficult a task it really is.  Review it.  Crimes
are discovered and caught by good police work.  The fact that the
constitution makes "good police work" that much harder is a price to live
with in a free society.  Choose your poison.  Clearly technologies like
wiretaps and funds tracking are sold as investigatory tactics which result
in new cases being brought, but (at least in the case of money laundering)
this just isn't the case.  It's simply not supported by the numbers.  What
you don't hear today is how many cases get dropped because of lack of
evidence with plain ole banking today.  It's painfully easy to make money
vanish.

Given that a police state has the lowest incidence of crime you need to make
a fundamental decision about what kind of world you want to live in.  A
story for your consideration in the meantime:

The AIDS rate in Cuba is a fraction of the AIDS rate in the rest of the
world.  This despite the fact that prostitution is rampant, and Cuba is a
third (even fourth) world country.  Why is this so?  Because Castro ordered
all HIV+ citizens into HIV camps and isolated them from the rest of the
population immediately, like "civilized" countries used to do with Scarlet
and Yellow fever before people infected with a life threatening disease
became a minority group worthy of political protection.

So is it worth the price?

Perhaps you view the threat of DBS as so significant that it requires
dramatic, even draconian measures to prevent its adoption.  Unfortunately,
you have painted yourself into a corner because DBS and cash are identical
except with respect to medium of exchange.

>  * The biggest single financial problem I have is mandatory levies
>      (tax, utilities, monopolies) by the corrupt government. Your
>      DBS will make this much worse by making it even easier to
>      channel cash to politicians.

Then, by your argument, we should ban Cash as well.  What if I told you that
a new technology would allow armed robbers unprecedented mobility, the
ability to escape the scene of a crime in an instant, and provided them with
the ability to traverse long distances in making their escape while
protected from scrutiny.  What if this same technology gave them the means
to conceal from the view of any law enforcement the proceeds of their heist
and could make their path entirely untraceable to police?

Well, I suppose automobiles are going to have to go.

>  * Fraud, embezzlement and corruption are in riotous equilibrium.  DBS
>      reduces pressure on laundering, requiring other measures that hit
>      my civil liberties somewhere else (physical IDs, cops, etc.)

Again, there is no pressure on laundering today.  It's a trivial exercise.
Money laundering regulation has bred a cadre of professional launderers.
Even by the best numbers the authorities seize less than 0.006% of illicit
funds and spend 20000 times what they seize to seize it.

>  * Untraceable money *obviously* reduces tax collections.  What the IRS
>      fails to collect from tax dodgers, eventually, I must pay more.

Vote with your feet.  (I don't really agree with this assessment, but
regardless, if you believe it, reduce your tax burden by expatriating).
Again, taxes in countries with less financial regulation (almost all of the
non-U.S. countries) are typically less, if not substantially less than in
the U.S.  How do you explain this if your point is true?

> You seem to have a subconscious belief that DBS will shrink the government
> sector.  This is a false assumption.  The government long ago achieved the
> power to tax *as much as it wants*.  There is no natural immunity in our
> culture or legal system.

Again, then move.  I don't really care what DBS does to the government
sector.  I only care what it does to the costs of transactions.  I handle
the political and regulatory issues by moving.  (You might take John
Walker's example.  He bailed primarily to avoid the "bullshit factor" not
the tax).

> The public sector has stabilized at 25% or 35% of the GNP, which is
> apparently the maximum the animal can tolerate without falling over dead
> (people striking, quitting work, and business moving overseas.)

Uh, all those conditions are present today.

> Gimmicks like DBS will certainly not reduce the public sector in our
> lifetimes. It will require an evolution in individual awareness and
> behavior.

Again, see above.

> In mean time, managing the out-of-control government sector is your civic
> duty, to your less intelligent wives, pensioners, and children and
> neighbors. The preferred way to manage the governmt is the democratic
> process, and public discourse and debate such as this list.

Again, vote with your feet.  I'm too busy for civil disobedience, voting in
sham elections, and the two party system.  Grass roots political activism
changes nothing in my experience.  Even if it did, I still just don't have
the time.  I prefer supporting political processes that are forward looking
and interested in DBS.  These do exist.

> Breaking ranks and disobeying the law breeds further breakdown in
> obedience of the whole legal framework.

Which laws?  Those of the United States?  Well get cracking, the U.S. has
195 countries to invade, overthrow and pacify to harmonize foreign ideas
about how things should be done with the much more enlightened and effective
crime preventing methods prevailing in the United States today.  Stop
laughing, the integrity of the whole legal framework is at stake.

Actually, after some reflection I think that you're right.  Now if only we
could get all those blacks back in line we could get some real law and order
done.  How did we allow their civil disobedience to gain them anything?  Are
we going to _reward_ that kind of behavior?  It's a threat to the entire
system.  Now where did I put my sheets?

> There are lots of dumber and more
> dangerous elements in the population.  The system is already *quite*
> unfair to them.  When the superintelligent can steal through high-tech
> money schemes, and the wealthy classes violate their own legal framework,
> why shouldn't the thief just come and steal our cars, or fuck
> your daughter?

I see.  So DBS is going to be responsible for an increase in property and
violent crimes?  DBS will cause the poor to rise up because "Da Man" has
more power now?

Of course this is silliness of the highest degree.  The tendency to
overstate the power of DBS in here seems to be an affliction of both sides
now.  It's a technology, not a way of life.  Get over it.

> Frankly, we need laws, a lot more than we need DBS.

I won't even comment on the need for yet more regulation other than to say
that healthcare in e.g. Switzerland is a fraction of the cost of health care
in e.g. the United States because physicians don't have to carry $10 million
dollars in liability insurance.

> Now, what is your solution to prevent the use of DBS in large-scale
> financial fraud, political payoffs, etc.?   Or is that outside your
> scope, and such problems should be solved by wiretaps, surveillance or
> what?

What's your solution to prevent the use of cash and international wire
transfers in large-scale financial fraud, political payoffs, etc.?  Or is
that outside your scope?

> Don't tell me these problems are minor or will just disappear!

I'm telling you they already exist.  What are you going to do about it?
You're an accountant.  You should have answers for these things.

> Do you
> know how much money is already wasted on audits and law enforcement in
> this country?  Auditing is already hideously expensive, and the only
> solid facts in the entire audit process are the goddamn bank statements.

I think you might find that the cost of auditing is directly linked to the
likelihood of a civil suit against the auditors in the United States.
Address tort reform if you want to impact that.  You're a CPA, get cracking.

These aren't issues that are specific to DBS, they are endemic to the
current system

> You need a coherent argument on this problem.  You need measures within
> the DBS technology itself, to address the need.  Opponents of DBS will
> raise all these demagogic arguments.  You'll be hooted off the podium.

In the U.S. perhaps.  I'm not a resident there anymore so I could care less.
Any DBS system can be made to comply with country laws based on internet
address location or the front end dealer's compliance requirements.  The
underwriter in the system passes the responsibility for compliance to the
local issuer, which is as it should be.  What's the big deal?  You think a
global system has to comply with the highest level of regulation of any of
the participating actors...?  Of course that's nonsense.  The United States,
much as it might like to be, is not the final authority on world financial
regulation and is unlikely to be any time in the near future (thank god).

Opponents of DBS may raise all these arguments but they, and you, still have
not addressed the basic point that all these things are already possible
with cash.  Will they ban cash, and if so when and by what means?

> I fear you'll end up damaging the reputation of legitimate forms of
> peer-to-peer electronic payments, which are badly needed in the economy.

I'm unconcerned about "legitimate forms of peer-to-peer electronic payments"
because I am unaware of any.  Even mondex isn't truly peer to peer.

The silliness quotient of this discussion exceeded my tolerance level after
the "evils of civil disobedience" discussion.  (I also don't read
cypherpunks anymore so I won't see replies not copied to me personally).