A Wall Street Journal piece recently revealed that journalists at the publication suspected that ‘instant’ exchanges, such as ShapeShift, were being used to launder over $90 million in “dirty money.” So here we are again — cryptocurrencies, especially the so-called “privacy” coins, are being blamed for enabling fraud and Ponzi schemes.
Isn’t ShapeShift a Sellout, Though?
Exchanges like ShapeShift are often accused of enabling the movement of “dirty money”. However, ShapeShift is gradually changing its model from an “account-free” coin swapping service to one that requires accounts and KYC/AML proceedings, leading to accusations that the Luxembourg-based platform has “sold out” to regulators. The move might have been partly sparked by the fact that ShapeShift’s senior staff live and work in Denver, Colorado, where regulators can easily find them and reel them in if desired.
Erik Voorhees insisted as recently as May that KYC/AML requirements put an unfair burden on both exchanges and a certain subset of users, who may have difficulty verifying their identities to the satisfaction of a certain KYC policy. Users may not have the capacity to take a high-resolution selfie with their photo ID, for instance.
“I don’t think people should have their identity recorded to catch an occasional criminal,” Voorhees told an interviewer.
However, ShapeShift’s caving to the regulators likely won’t help the regulators in the long run. Many cryptocurrency insiders still value their privacy even though they might not be doing anything overtly illegal. These cryptocurrency insiders are very likely to move to alternatives like Flyp.me, which still does not require any identifying information to process and complete transactions.
Banks Also Guilty of Enabling Money Laundering
Although American banks have faced stricter rules set forth by the Patriot Act, they are very much inclined to do only the bare minimum required by law. At the very least, bankers might not look too closely at a photo ID that may or may not be forged. This means that financial crime suspects can slip through the cracks, often for quite a while.
Nigerian President Muhammad Buhari has recently called for $100 million in compensation from HSBC for its alleged role in assisting former dictator Sani Abacha with essentially robbing Nigeria of $4.3 billion. Danske Bank is also currently facing an investigation for its alleged role in a money laundering scheme that could involve up to $234 billion in suspicious deposits made at its Estonian branch. United States Congressman Brad Sherman has been called out by cryptocurrency influencers for accepting campaign contributions from a company that forfeited $13.3 million for its role in an illegal gambling operation.
Even if ShapeShift enabled as much of $90 million in money laundering activity, it’s practically peanuts compared to the billions of dollars in illegal financial activity enabled by banks. Despite this, anonymous coin swapping services are naturally the scapegoat for bankers, politicians, and mainstream media outlets, like the Wall Street Journal, that want to make the cryptocurrency industry look bad.