Imagine working at Deutsche Bank in Frankfurt yesterday. Perhaps you’re a mid-level HR executive.
Halfway through your second game of Solitaire, police and government agents storm the building. Not a couple of officers with a polite warrant, but a small army – one hundred and seventy men and women in uniform, tearing through the building in search of evidence to support a case.
Pause to imagine that.
Once positioned to rival the largest Wall Street firms, Deutsche Bank has been hemorrhaging goodwill since it was identified in the Panama Papers as an alleged enabler of money laundering schemes that would make Jason Bateman blush.
Money laundering has been repeatedly cited by regulators as a key concern over cryptocurrency. Quite rightly – those who engage in the act are generally involved in criminal enterprises or attempting to evade taxes.
Anti-money laundering (AML) procedures are, of course, routine for Hans, who is even now feverishly looking to close his game of Solitaire in case this raid is a corporate effort to punish time-wasting. When he opened his account at a local Frankfurt bank, his credentials were checked; larger deposits are reported to the authorities; suspicious activity is flagged.
AML has also become standard in the cryptocurrency world, where customers at exchanges domiciled in regulated jurisdictions are required to subject themselves to AML and Know Your Customer (KYC) procedures. The industry is rapidly moving toward the same level of retail compliance that our friend in Human Resources experiences when he opens a new financial account.
Of course, this was not always so – and the well-deserved reputation that cryptocurrency built as a haven for outlaws in its adolescent years has continued to dictate the mainstream narrative around the industry.
But if cryptocurrency is so eager to grow up, get a haircut, and stop listening to Billy Bragg, what do we make of the ongoing behavior of The Banks?
In a report for Crypto Briefing, bank whistleblower Brian Penny identified that fines totaling $243 billion – handed out to eleven banks since 2008 – suggest the actual amount of fraudulent activity not caught or penalized is likely somewhere in the region of $24 trillion.
$24 trillion, between eleven banks, over ten years. That estimate is one hundred and eighty six times larger than the entire market capitalization of all cryptocurrencies.
It’s a simple fact that the current financial system enables and rewards the tyranny of a vanishingly-small elite. The consequences for bank crimes are slaps on the wrist: fines for settlement agreements made out of court that concede no wrongdoing on the part of the perpetrators.
Can regulators do a better job with digital assets?
This week at Crypto Briefing Connect in New York, I had the opportunity to meet a number of significant investors in blockchain and cryptocurrency businesses. Many of them noted that their comfort level (if not necessarily their returns) would improve as crypto became more similar to traditional finance. At Consensus Invest, I only saw one Satoshi Is Female shirt. Almost everyone else wore a suit.
The influx of traditional financiers is expected and welcome – the vast majority of bankers are smart, thoughtful, honest and hard-working. Their expertise will be invaluable to the growth of this industry, and their ideas and creativity will inspire adoption, technology, and community development.
But there is a caveat.
This industry was born of frustration and resentment around the 2008 financial crash – which was the result of the unparalleled greed and opportunism of a powerful minority, within an industry that had been allowed to deregulate, and then self-regulate, with few reasonable checks and balances.
The complaint about crypto today is that our industry lacks a legislative framework – that it is unregulated. But how do you explain to Hans, as his office is turned over, that the current financial system is well-regulated… and crypto is full of cowboys waiting to rob his pension fund?
I’m all for codifying the rules. I hope there is a strong and clear move toward the recognition of digital assets, toward legislation that protects retail investors, and toward ensuring that the public understands those rules well enough to be able to comply with them.
But more than that, I hope that if this regulatory clarity is forthcoming, it contains something extra. I hope that it is better-planned, and better-policed, than the arcane financial structure for corporate market participants that it will join, and perhaps replace.
I hope it’s a better framework than the one that currently allows banks to consider billions of dollars in fines as merely the cost of doing business.
And that may mean that the people who design the rules should examine cryptocurrency as a New Thing, not an extension of the banks, or any financial system the world has previously seen.
Start again: and eliminate the loopholes.
It could be done – distributed ledger technology holds that promise.
Imagine Hans working as the VP of Human Resources at a crypto company in ten years, free of the fear that his office may be invaded as a result of the wanton greed and malfeasance of his employer.
Because everything is open, transparent, and honest.
Now pause to imagine that.
The author is invested in digital assets.