Cryptocurrencies, Crime and Financial Control

At the end of the day, cryptocurrencies will let black market money back into the legitimate economy faster than cash ever could. We are simply accepting that as a bad thing, but what if it is not? Some of this may repeat what I said at Mozilla in Februrary. Traditionally we used financial services intelligence to limit two types of financial transfers:

  1. The transfer of funds to countries where funds fuel violence, particularly violence against the United States (“terrorism financing”)
  2. The transfer of funds received by committing crimes, when they are not reinvested in criminal activity but rather used for legitimate economic activity (“money laundering”)

In both cases, the money itself is not illegal, but it is tainted by association with prior or future activities. We’ve found an easy proxy for these activities in the “money laundering” and “terrorism financing” crimes, but we have lost sight of the fact that they are merely a proxy. If we could, we would attack these crimes on their faces.

There is an underlying moral problem with limiting these transfers. Limiting type 2 is problematic because it limits a criminal’s ability to engage in legitimate economic activity, activity that could eventually eclipse his prior criminal businesses. From the perspective of pure numbers, placing additional barriers on cashing out skews the reinvest/distribute profits analysis in favor of reinvesting in crime. Worse, it is economic segregation that leads to social segregation. There is never a bad reason to engage in legitimate economic activity. For the criminal, it’s merely a mechanism for controlling his social status.

Type 1 has a similar problem. To limit transfers that support violence, we must make all kinds of blanket assumptions. Those assumptions may not intend to attack socio-economic classes, but in practice they do. It is well known that there is a correlation globally between poverty and Islam. It is also well known that economic and social isolation fuels violent movements. Sweeping bans on outgoing transfers may hurt, rather than help our international interests. In addition it furthers a global hierarchy of “legitimate” and “illegitimate” economies, which have a systemic effect on social justice.

Perhaps we are better off not using money to control people anymore.