Most people fluent in the financial world already understand how much the concept of jurisdiction matters in finance. It doesn’t.
Of course, that’s an overgeneralization: there’s plenty of ““bad”” jurisdictions, labeled as such by the US and European Union. These include the DPRK, Iran, Syria, the DRC, Yemen, Venezuela, Somalia and… well, have a look at a basic list yourself. Moving money into and out of these countries is incredibly problematic, especially if you’re attempting to utilize a US bank account or a foreign bank that requires a correspondent bank in the US.
Some countries have come up with unique methods to counter these sanctions — such as the DPRK which made the so-called “SuperDollars,” or spectacular counterfeit dollars created through ingenuity and incredibly complex factories.
These blacklisted jurisdictions are blacklisted precisely because US regulators and authorities are unable to know what’s occurring or validate who controls what and how. That isn’t me, as an author, defending how the financial system works. Rather, it’s trying to understand how it’s required to operate. Basically, if you want to use US dollars — even if it’s something as simple as valuing a good — it means you have to work within the rules and regulations that the sovereign nation producing the money — in this case the US — lays down.
If you choose not to play by those rules, acquiring dollars will suddenly be much more difficult.
The Crumbling Empire is Still an Empire
It’s truly striking how many believe in their core that the US is too weak to mount any feasible resistance against money laundering and tax evasion. Granted, the SEC, IRS, CFTC, and DOJ don’t have the budgets they once did, they are still forces to be reckoned with — and if the US cares about anything, anything at all, it’s money.
They’re also graciously rewarded for nabbing bad actors who are moving US dollars — these catches and confiscations fund these agencies and their budgets and reflect on their ability to take on their definition of criminality.
And maybe this shocks some, but most of the world uses dollars:
To translate: this means the US government is the law and order for roughly 60% of the reserve currencies in the world. The dollar is used to price most commodities, many other currencies are directly pegged to it, and most banks need it in some shape or form.
Outrunning the US Government is Hard
It’s easy to reflect on the US regulators shortcomings: Bernie Madoff, JP Morgan shenanigans, HSBC, the ““Drug War””. While these are absolutely valid criticisms, I urge readers to reflect on why these entities have gotten away with criminality for so long: they pay taxes, they pay fines, and they pay up. If your plan is to straight up avoid US regulators altogether, and you don’t live in a sanctioned country…
This shouldn’t be a new fact for anyone — but it is. Seeing people through the years explain that Tether or Bitfinex aren’t located in the US and ““don’t serve US customers”” has consistently been a source of amusement. The idea these principles shape the way US regulators deal with the movement of US dollars is laughable.
Enter Liberty Reserve
It’s difficult to fathom that many don’t know the story of Liberty Reserve — and I’m by no means an authoritative figure on the subject — but here’s the TL;DR.
Liberty Reserve was founded before Bitcoin, in 2006, and was a website where users only entered an email, username, and password, and could send dollars around the globe. There was no KYC/AML provisions, no regulations, nothing. The black market for drugs, sex trafficking, and Ponzis adored it (so did privacy advocates, to be fair).
Based in Costa Rica, the bros in charge of Liberty Reserve were sure they were outside the scope of US regulators. They were 100% wrong.
In 2013, the US government shut down Liberty Reserve, arrested most of the individuals associated with it, and, in turn, created a big problem for the US government’s definition of “the criminal underworld.”
The US Government, whether it had “jurisdiction” in Costa Rica or not, shut Liberty Reserve down. They were able to shut them down because Liberty Reserve utilized US dollars, and guess what? The Costa Rican government was happy to cooperate, because of course they were.
You can’t outrun the US government as a financial criminal. You have to at least pretend to be working with them.
Here we are, ladies and gentleman. BitMEX, a Bitcoin and alternative cryptocurrency derivatives exchange, and its executives, have been indicted by the CFTC and the SDNY.
There is no fiat trading on BitMEX. They recently instituted a KYC/AML policy. They have offices in Hong Kong and are based in the Seychelles. And none of that — excuse me — fucking matters. They based price in dollars. They moved money that eventually, undoubtedly, ended up in US bank accounts. They, for so, so long, allowed US customers.
The arm of US regulators and law enforcement is long. Don’t be fooled by the weakness of the US empire. It’s still an empire.
Stay skeptical, friends.