Are Income Trusts Money Laundering

In an interesting article on Terrorism and money laundering, the old Hot Money contradiction of capitalism is exposed by Prem Sikka in the Guardian. Before the world worried about Bin-Laden Inc., the various American franchise states that got monies from the IMF and from drug running, and being clients of the CIA would ship their funds offshore, to banks in the Caribbean and Switzerland. Canadian banks have a reputation for having been early money laundering operations in the Caribbean. Today billions in hot money transeverses the globe and guess who profits?

What is interesting is that in all the debate in Canada about Income Trusts their role in money laundering was never brought up. Nor has the hot money/money laundering connection been made between mutual funds, international loans, or the infamous mutual fund IOS scandal that has become the modern model of both these.

The corporate scams that aid terrorist money launderers

With the advance of electronic money transfers, easy formation of companies and deregulation, money laundering has escalated to an estimated $2,500bn each year. The laissez-faire US washes about half of this laundry and Britain probably accounts for over $300bn. Secrecy is the key ingredient for this trade.

Banks have technologies to trace suspicious transactions, but profits always come first. Following a US Senate inquiry, it was alleged that General Augusto Pinochet, the former Chilean dictator, used British banks to launder money. There is silence from the British authorities. Of the billions stolen by General Sani Abacha, the former Nigerian dictator, at least $1.3bn turned up in 42 accounts at 23 UK banks. The British government has refused to name these banks and warn the public about their standards. Unlike Switzerland, it has failed to return any of the loot to Nigeria.

Almost every money-laundering scam reveals the use of shell companies: firms that have virtually no assets, employees, physical presence or trade, though large sums of money pass through their bank accounts. These can be formed for a few pounds and are fronted by banks, accountants and lawyers to disguise true ownership. As with other corporate vehicles, they can be owned by foreign and domestic trusts with post-office-box addresses. A recent US treasury report noted that trusts are key vehicles for disguising illicit funds. Yet there is no regulation, registration or public accountability of trusts in the UK and it is impossible to know their beneficiaries.

Also see:
Income Trusts
Corporate Welfare Bums
Criminal Capitalism
Crime



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PAKISTAN

The blind pursuit of growth

Nasir Jamal 

Published September 11, 2023 

The caretaker setup led by Prime Minister Anwarul Haq Kakar has clearly hinted at changing the course and speed of the economy.


Speaking to the media persons on Friday after six hours of deliberations on numerous issues facing the country’s moribund economy at the first session of a two-day meeting of the army-backed Special Investment Facilitation Council (SIFC), the key caretaker ministers minced few words to send across the message that the interim administration is preparing to gun for faster growth by ’revitalising an economy that has seen months of decline due to strict import regulations“.

That appears totally in line with the views of army chief Gen Asim Munir, who was quoted by Karachi-based builder and stock broker A.K. Dhedhi to have told the businesspeople that the country must now move towards growth. Mr Dhedhi had also implied that the army chief is looking beyond the current International Monetary Fund programme as he expects large official capital inflows of $75 billion from the oil-rich Gulf states in the shape of investments, with an additional $10bn as deposits from Saudi Arabia to immediately shore up the country’s foreign exchange reserves.

The ministers said the government had decided to open imports across the board to facilitate exports, job creation and economic activities affected by months of import restrictions to curb the outflow of dollars amid depleting foreign exchange reserves.

The promised investments add up to an improbable 30pc of our GDP but even if they materialise, the economy is in no shape to manage such large inflows

Caretaker finance minister Dr Shamshad Akhtar argued that Pakistan direly needed to revive the economy, for which it was necessary to remove import restrictions across the board since Pakistan was an import-intensive country.

Asked if she agreed with the timing of opening up imports given a tight foreign exchange situation, Dr Akhtar said that managing foreign exchange reserves was a “very high priority for us, and we are closely monitoring the situation”.

In response to yet another question about the strength of the economy to withstand foreign exchange requirements of a possible import splurge, she contended that fresh inflows from multilateral institutions were expected to be around $6bn during the year on the basis of ongoing discussions with agencies like the World Bank, Asian Development Bank and the IMF. Besides, she also anticipated the rollover of the deposits kept by friendly countries with the State Bank of Pakistan. “The situation is reasonably okay for now,” she assured.

Trade Minister Gohar Ejaz, always a proponent of rapid economic growth, low-interest rates and low energy prices, argued that inflation could only be effectively managed by augmenting exports, suggesting that the high dollar price of Rs300 could potentially decrease to Rs250, simultaneously mitigating inflation, by raising exports.

While we will hopefully get more clarity over the caretaker government’s economic strategy under the SIFC framework for the interim period to the next elections in the coming few days, many remain sceptical of an early turnaround of the economy or the Gulf nations’ promises to invest large amounts.

“The amount of investments the government claims the Gulf states have committed is enormous, almost 30 per cent of our GDP. I don’t think they will be ready to pour this kind of money into Pakistan’s economy even if they have promised it. Nor do I think that our economy is in a shape to handle and absorb such large inflows,” a financial analyst based in Karachi says on the condition of anonymity.

As a small economy, even tiny inflows of $5-7bn can rev it up but that is not a sustainable or long-term solution to our structural problems

Some businessmen who participated in recent meetings with the army chief in Lahore and Karachi have quoted him saying that both Saudi Arabia and the UAE have committed $25bn each. Others claim that Qatar will also invest a similar amount. On top of that, Riyadh is said to have promised to provide a $10bn deposit to shore up Pakistan’s foreign exchange reserves in the near term. Most expect the money to start pouring into the country over the next six months.

“The markets and investors also remain sceptical of these claims. Otherwise, there wouldn’t be a need for the stick to control the rupee’s free fall in recent weeks. That said, even if we accept the claim for a moment, these investments will be staggered over a long period. For perspective, we should remember that China has invested $25bn in the last eight years under the China-Pakistan Economic Corridor initiative (CPEC),” the analyst said.

“No amount of investment and dollar inflows can fix our economic problems on a sustainable basis unless we implement fiscal and governance reforms and boost our industrial and agricultural productivity. The CPEC investments haven’t solved our structural issues either. Rather, these have multiplied our debt problem.”

Fahad Rauf, the head of research at Ismail Iqbal Securities, agrees. “I think that the focus of the interim setup should be on the issues that the political governments are always afraid of dealing with.”

He says the focus of the caretakers should be on stopping smuggling for good, privatising state-owned enterprises, fixing the energy sector and handling other structural issues facing the economy to increase productivity.

“Pakistan is a small economy. Even tiny inflows of $5-7bn can rev up it. But that is not a sustainable or long-term solution to our structural problems. Personally, I doubt the kind of Gulf investments we are talking about will come due to the global economic conditions,” he says.

He is of the view that political and economic uncertainty in the country means foreign investors would not come to Pakistan. “We have seen that no commercial loans are rolled over, and foreign direct investment is decreasing in spite of the IMF’s $3bn programme.

“Not even hot money is flowing in, although our interest rates have gone up 22pc and increasing. Back in the day, we were successful in attracting hot money at 13pc interest rates. It is because the investors do not have confidence in Pakistan’s economy at present. Local companies will not invest at the present borrowing costs.”

Mr Rauf warns against the blind pursuit of growth without restructuring the economy, as it always results in long periods of economic depression after a brief growth boom.

“A company suffering losses first focuses on eliminating those losses before moving on to making profits. So, we should first fix our issues. Once we fix the issues impeding economic growth, we will start attracting private foreign investment, which is more sustainable rather than always looking for a few billion in deposits.”

Published in Dawn, The Business and Finance Weekly, September 11th, 2023Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

LA REVUE GAUCHE - Left Comment: Search results for HOT MONEY 

'DEBT HAPPENS': Goldman Sachs just ran its first-ever ads trying to sell you something

Consumer debt in Canada is, frankly, a problem.

According to a recent report from credit monitoring agency TransUnion, the typical Canadian now owes $21,686 excluding their mortgage — a number that has not stopped increasing for over a decade now. To give you a sense of the severity of our consumer debt situation, for every $1 of disposable income, the average Canadian owes $1.65. In fact, Canada’s household debt — the amount of money that all adults in a household owe financial institutions—is the highest among its Group of Seven peers, even exceeding the size of our own economy!

SEE 5000 YEARS OF DEBT DAVID GRAEBER

Let us remember that the current Financial capitalist system is the result of the evolution of Capitalism post Bolshevik revolution when for a period of time post WWI the Austrian School of Anti Marx Anti Socialism pseudo market economics, as Karl Polanyi says they crashed the Austrian Kroener causing a depression but hey it proved their theory right.

As Hilferding correctly analysed Capitalism has moved from productive capital, industrialization, to Fiance Capital, banking Monopolies cartels, stock exchanges dominating the market, it was the post war expansion of Capital as Capital for the first time in the past three hundred years,

It lead to Depression globally, despite the magical thinking of Von Mises and Freddy Hayek, and in fact it was Keynes who saved Capitalism , first by clawing back financial speculation which is all the Austrian school is about, Keynes observing the workers revolution in Russia provided capitalism with a future free of revolution, by ending finance dominance and returning to production, in other words State Capitalism, which was historically hegemonic pre and post WWII. See Tony Negri Marx Beyond Marx

Finance capitalism did not return until Nixon ended the use of the gold standard and made the American dollar the basis of the world economy. American Imperialism then spent the seventies crashing economies in Latin America through Hot Money see Robert Naylor Dictatorships and brutal market capitalism ensued With a further financialization of the market Reaganism created the conditions for the financial tech bubble of the nineties.

For the 2000's we spent 16 years evolving into a told financial capitalist economy, where our debt was the 99% is what is fueling capitalist growth, our mortgages, our cars, appliances, our lives are a slavery to debt and capitalism can no longer produce with out our debt. Even if you pay off your debt next week you will quickly once again get into debt, because the system requires it.

The capitalist economists, and the executive of the state and the banks, tell us debt is bad, terrible, and then they offer us unlimited debt through credit cards, car financing a creation of the nineties, mortgages that last thirty and forty years, this is the real capital in circulation.

The 99% are capitalism, the 1% are parasites, coupon cutters, a rentier class, they are not capitalism, we are, only when the proletariat understands this can we say we are seeing a rise in class consciousness.

We have always created capital that is the secret Marx revealed, under advanced capitalism, it reaches a period of decadence where its expansion becomes a contradiction a negation of the negation. Here we see it in the ironic nature of post modern capitalism , it requires us to be in debt to grow, it requires our money, that it pays us to come back to it, to circulate as money M-C-M the earlier productive period of industrialization until the 20th Century was C-M-C which is why the politicians and pundits as well as journalists,today tell you on the one hand you should not be in debt and get out of it as quickly as possible bemoaning our debt load, while the Bloomberg, WSJ, etc. tell us we need to spend more to go into debt in order to keep the market going, its called SPENDING capitalism now requires capital not as production or property but as money, money is making money off money.

During Occupy Wall Street the Tobin Tax was renamed the Robin Hood Tax and was promoted as a way of reducing debt, since trillions of dollars trade in the FOREX minute by minute. Today those minutes and nanoseconds of computer time, which was created for the international monetary exchange markets, a late twentieth century development,

But let’s broaden the scope. The LinkNYC stations are maintained by CityBridge, a consortium of telecom, hardware, and media companies (notably, the Alphabet subsidiary Sidewalk Labs) under contract with the city government. It’s the kind of public-private infrastructure that excites the urban planners and technologists who imagine New York as a data-driven utopia, a so-called “smart city.”

Today you have M-B-M money bit money; Bitcoin and Fintech, which still maintain the language of capitalism in its industrial stage. It is even applied to this cloud based virtual business interface. You data mine for Bitcoins. Virtual currencies are bits of information, their value is zero yet they increase in value through exchange. The reality is that of course they do we live in an capitalist exchange value system which will twist all to its end of M-C-M.

However bits are just information, calculations, no more real now than when the Tulip Crash happened in the very first bourse. With the advent of fintech capital becomes redundant since all that is transferred now is information, bits and bits of information, and used cybernetically could act as a transformative element for the evolution of autonomous self managed socialism.

           Pricewatch: You'll never guess how much the average Irish family spends

A family of four in Ireland spends about €50,000 a year on basic outgoing the average Irish homeowner were to add up all their spending over the course of a year, the chances are they would be pretty shocked by the total.

When all bills including food, mortgage payments, utilities, insurance and motoring costs, phones, entertainment, education and childcare are totted up, the cost of living for a family who bought even a modest home during the boom years could easily top €50,000.

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DEMILITARIZE, DISARM, DEFUND
Dark Money Is Paying for the Police’s High-Tech Weapons

Corporate donors are funneling hundreds of millions of dollars into police foundations without public oversight, allowing for the police to buy specialized surveillance technology and high-tech weapons that they might otherwise struggle to justify.

By Katya Schwenk

March 30, 2024

Source: Jacobin



Private donors including big-box stores, fossil fuel companies, and tech giants are secretly giving hundreds of millions of dollars annually to law enforcement agencies and related foundations, allowing police to buy specialized weapons and technology with little public oversight.

Experts say this huge deluge of police “dark money” funding, detailed in a new University of Chicago working paper and in an additional analysis shared exclusively with the Lever, leaves law enforcement beholden to the companies and powerful donors bankrolling them, rather than the communities that officers are sworn to serve.

“The big-picture finding is that the world of private donations to police is a lot bigger and more complex than previously estimated,” said Robert Vargas, a professor of sociology at the University of Chicago and a coauthor of the study.

The study, which analyzed a database of nonprofit tax returns, found that from 2014 to 2019, more than six hundred private donors and organizations collectively funneled $461 million to police and to other nonprofits supporting police — a figure that, Vargas said, was “without a doubt an undercount,” as it was based on organizations’ own disclosures about their giving.

The private money comes in part from big retailers like Target and Walmart; oil companies like Chevron and Shell; and Microsoft and other Big Tech players — companies that have touted their support of law enforcement for years.

The new research exposes how easily private donors can secretly funnel money to police. Anonymous donors use asset managers like Fidelity Investments to fund the litany of police foundations and other opaque nonprofit organizations that support police work, the researchers found. The clandestine funds have made Fidelity’s charitable arm one of the largest private donors to police in the country.

In many jurisdictions, private funding for police comes with virtually no oversight and can be used to buy surveillance technology, high-tech weapons, and other items that agencies might otherwise struggle to justify.

For instance, the Baltimore Police Department for years used private money to fund a secret aerial surveillance program that could track the locations of people throughout the city in real time. Billionaire philanthropists in Texas provided money for the program, but routed the funds through a nonprofit in Baltimore, which allowed the program to stay, for a time, out of the public eye. When news of the program became public, it caused an outcry, and was eventually ruled unconstitutional in court.

In Los Angeles, the city’s police department used money from Target — also routed through a local police foundation — to purchase software from Palantir, venture capitalist Peter Thiel’s data analytics company, that provides police massive amounts of sensitive data and purports to identify crime “hot spots.”

In Philadelphia, privately funded police nonprofits have purchased ballistic helmets, drones, motorcycles, and even horses for the city’s police department.

Such surveillance technology and military gear is deployed disproportionately in black communities and low-income neighborhoods. The heightened surveillance intensifies local policing, which research has shown can harm community health and well-being.

Private funding represents a tiny fraction of the money that states and cities spend on police, which by some estimates amounts to more than $100 billion annually.

“In comparison to their municipal budgets, it seems like a drop in the bucket,” said Gin Armstrong, the executive director of LittleSis, a group that researches corporate power and influence.

But the money has an outsized impact, Armstrong argued.

“It’s really important to look at how this [private] money is being spent,” she said. “Most of the money in municipal budgets is going to salaries and benefits. This is going to equipment and experimental technology, and it’s all outside of public discussion, and often even outside of public reporting.” It was, Armstrong continued, a “huge slush fund that is completely unaccountable.”

“Now we have a sense of just how big that slush fund is,” she said.

“A Kind of Shell Corporation”

One of the most common ways that private donations, whether from oil companies, billionaires, or big-box retailers, make their way to law enforcement is through police foundations, nonprofits established to support law enforcement in a particular city, such as the New York City Police Foundation and the Los Angeles Police Foundation.

According to public data from the city of New York, the New York City Police Department reported $30 million in private donations from 2019 to 2022, of which $26.8 million — nearly 90 percent — came from the New York City Police Foundation.

Police foundations position themselves as charities, soliciting donations and then providing that money to local law enforcement. Their supporters say that the work can improve officer morale and that the additional funding can supplement strained public budgets — although municipal police tend to be flush with public resources.

“I refer to [police foundations] as a kind of shell corporation,” said Kevin Walby, an associate professor of criminal justice at the University of Winnipeg who studies police foundations in the United States and Canada. “They can move money around in ways that public bodies can’t. They don’t really have robust reporting or disclosure mechanisms.” The term “dark money,” he said, was an appropriate way to describe their support.

Police foundations, like most charities, do not have to publicly report their donors. Until an exposé from the Intercept, for instance, the New York City Police Foundation did not disclose that it received a $1 million donation from the United Arab Emirates in 2012, even when that money was passed directly along to the police to support “criminal investigations” in the city.

There are some two hundred fifty police foundations in the United States, of which nearly 80 percent say that they fund technology and equipment for police, as well as programming for officers and public relations campaigns. While such organizations have been around for decades, Walby said they have grown steadily since the 1990s, particularly in response to calls to limit the ever-increasing public funding for police, which has nearly tripled over the last several decades. Research has documented increasing revenues for police foundations year after year.

“A big period of growth happened after 2020,” Walby said, adding that it was in “direct response” to the protests over the murder of George Floyd in May of that year. “They were using corporate money as a kind of backstop to buttress themselves against the defund [the police] movement.”

The corporate bankrollers of police foundations often appear to get a good return on their investments. Target, for instance, has long funded surveillance and anti-crime programs in cities across the country, successfully promoting crackdowns on retail theft and petty crime in disinvested neighborhoods over other, arguably more pressing, community concerns.

In St Louis, the city’s police chief receives $100,000 a year directly from the local police foundation in addition to his salary, an arrangement that critics say has ensured that the department is beholden to local business interests.

“No Paper Trail”

Previous research has shown that police foundations receive tens of millions of dollars annually from private donors. But the new research by Vargas and his coauthors shows that such local foundations are in fact part of a far broader network of nonprofits and funds dedicated to funneling private money and in-kind gifts to police — one that involves hundreds of millions of dollars.

The new study identified hundreds of dark-money organizations that finance police departments — sometimes donating directly to law enforcement, and sometimes donating to other police nonprofits, creating a tangled web of donors and intermediaries.

Collectively, those organizations gave more than $826 million in donations over a six-year period, and reported revenues of more than $16 billion, according to additional analysis that the researchers shared with the Lever.

The organizations include associations of sheriffs and police chiefs, national nonprofits like the police charity 100 Club, and private foundations like that of wealthy police advocate Howard Buffett, the son of billionaire Warren Buffett. Furthermore, the researchers found, some police foundations — like those in New York City, St Louis, and San Diego — donated not only to the police agency in their own city, but to other law enforcement agencies around the country.

“This is an important set of findings because it reveals in real terms the amount of capital that is flowing, and it reveals the number of corporate nodes in the network,” Walby said.

Financial services companies like Fidelity Investments and Charles Schwab also appear in the data as some of the biggest donors to police dark-money groups. Both companies allow wealthy individuals to funnel money to nonprofits through “donor-advised funds,” charitable investment accounts that are an increasingly popular way to anonymize donations and get a tax break at the same time. Various police foundations have begun advertising this funding arrangement as one way to donate.

“The truth is that if somebody wanted to donate a lot of money and hide their tracks, all they would do is make a donation to a police nonprofit from a donor-advised fund, and then there’s essentially no paper trail,” Vargas said.

While critics have pushed for additional transparency and regulation around donor-advised funds, describing them as an unaccountable form of billionaire philanthropy, federal regulators have appeared hesitant to launch a major crackdown. Last November, the Internal Revenue Service proposed some modest limitations on their use to rein in spending on lobbying and other noncharitable causes — and police charities are among the entities that have opposed the new rules.

Police foundations and other private donors have also found ways to limit disclosure about the gifts they provide to police, the researchers found. When the researchers looked at Chicago as a case study, they found that 90 percent of private donations to police went unreported, revealing, they wrote, “police finance organizations’ interest in keeping their funding of police secret.”

A Push for Accountability

For the most part, the millions in dark-money funding that police agencies receive each year is perfectly legal — presenting a challenge for those who want to see greater transparency.

“There are largely no laws or policies governing foundation donations to the police,” said Evan Feeney, the deputy senior campaign director at Color of Change, an advocacy group that has opposed corporate backing of police.

The foundations have thus created a kind of loophole, one that “legally allows officers and departments to take gifts from vendors, sidestepping conflict of interest and donor disclosure rules,” Feeney said. Palantir, for instance, has donated to police foundations that subsequently funded law enforcement purchases of Palantir’s own data analytics technology.

Even in places that require official city approval of gifts from foundations, like Los Angeles, such a process has often appeared to be a formality, with gifts being rubber-stamped by local officials over the opposition of local communities and activists.

“Cities must end these untraceable donations and require that any equipment, device, technology, or software that is purchased or donated through a police foundation is subject to disclosure, oversight, and accountability laws,” Feeney said.

There has been some movement on the issue. In January, New York City enacted a law, with the grudging support of the local police, that will require the police department to provide an annual report on how it spends the millions in private donations that it receives, both from the foundation and other sources. Unlike its use of public dollars, the department has not previously been required to disclose how it uses private funding.

The law also requires the New York Police Department to provide information on its private donors. But because many of these donations are routed through the New York City Police Foundation, the donors will likely still remain anonymous.

WITH CRYPTO, THE BANKER DOTH PROTEST TOO MUCH

The collision of money with the internet was bound to present risks, many of which became apparent in 2022. While crypto's speculative phase might be experiencing an ice age, the demise of internet-scale always-on open technologies in financial markets is not, writes Circle’s Dante Disparte.

BY DANTE A. DISPARTE

JANUARY 2, 2023

The collision of money with the internet was bound to produce a blend of novel risks, as well as serve as a new terrain for age-old human greed, criminality, and fraud. And yet for bankers to proclaim crypto is dead because 2022 produced a particularly dark and cold crypto winter, is not only disingenuous, it ignores one key thing—the emergence of blockchain-based financial services was never about substitution of their business models, it was about augmenting them. So perhaps, 2022 marks the beginning of a crypto ice age of the speculative phase, but not the demise of internet-scale, always-on open technologies in financial markets. Herein, the promise of crypto (short form for cryptography), could not be brighter or its necessity clearer.

Watch what the biggest and most well-endowed banks do, not what they say with repeated dismissals of crypto, bearing in mind crypto as an industry is no more monolithic than banking, central banking, or any other institution. Indeed, the crypto companies that fared well during 2022—a year punctuated by one epic failure after another—have all the basic preconditions and operating rigor of well-regulated, trusted financial services firms. While some have withered in the face of sunlight, the greatest disinfectant, others were born in it. They have eschewed from the outset the idea that stablecoins should be unregulated internet hot money like Terra-Luna—the collapsed $60 billion algorithmic stable-in-name-only coin. At best, this was a poorly designed digital derivative. At worst, it was fraud. But to link all crypto innovations, the responsible and the irredeemable, together would be like dismissing all banking because of Danske Bank’s $230 billion money laundering pipeline.

Instead, USDC, the dollar digital currency, which has safely processed more than $8 trillion in blockchain transactions, conforms with existing U.S. electronic stored value, money transmission, and state supervisory frameworks—all while guarding against and being responsive to global financial integrity and prudential norms. As countries, global regulators and policymakers call for hardening their regulatory posture towards digital assets, the regulatory principle of same risk, same rules, and technology neutrality should be remembered. All too often, the crypto conversation focuses on risks, which is fair enough especially after an annus horribilis like 2022, despite the fact that most of the failures have human protagonists. However, it is again disingenuous for bankers to criticize the fundamental technologies that underpin crypto, on the one hand, while trying to co-opt its innovations on the other. This is not a dire contest between emerging industries and the technologies that power them and traditional finance, it is convergence.

One of the key ways in which well-regulated payment stablecoins (or Europe’s e-money tokens under emerging regulatory frameworks) are making upgrades is by rejecting the leverage and rehypothecation that makes fractional reserve banking risky. Indeed, the conservative balance sheet construct, asset-liability management, and liquidity coverage ratio underpinning USDC is on par or better than what is expected of globally systemic banks. We have to remember the daisy chain of leverage, systemic correlations, opacity, and dangerous financial alchemy that set off the 2008 financial crisis triggered a multi-trillion-dollar public bailout. Thus far, crypto’s eye-watering losses in 2022 have been “self-insured,” borne by sophisticated investors and speculators, early adopters, or people who may know not to invest more in anything than they can afford to lose—or not to invest in anything they do not understand. All “crypto” losses triggered by fraud, criminality, or race to the bottom regulatory arbitrage, as with the real economy or any other sector, should be categorically rejected, prosecuted, and consigned to history, like the failure of FTX. If policymakers, legislators and regulators, fail to meet their own calls to action for a digital asset rulebook, the next crypto crisis may not be so cleanly contained from the real economy.

As the frothy, speculative waters of 2022 recede taking with them the brigands, crypto corsairs and frauds, an enduring, regulated, always-on financial system will remain. This is solving for what we cannot do with money, banking, and financial services if they remain largely analog and consigned to brick and mortar. The history of both technology innovation and finance teaches us that it often takes a collapse or a bubble bursting for enduring value to remain. Just as the dot-com bubble handed over the development of the internet to durable companies, unlocking novel business models we now cannot live without, 2022 marks crypto’s Dodd-Frank moment. Meeting the moment with rules-based competition and sensible regulation that protects consumers and markets is the only right choice. On this, even crypto’s biggest detractors agree.

About

Dante A. Disparte serves as the Chief Strategy Officer & Head of Global Policy for Circle. He is a life member of the Council on Foreign Relations and serves on the World Economic Forum’s Digital Currency Governance Consortium. He is also a member of Diplomatic Courier’s editorial advisory board.

The views presented in this article are the author’s own and do not necessarily represent the views of any other organization.

CRIMINAL CRYPTO CAPITALI$M

Crypto's 'Tornado Cash' fans money laundering fears, may be 'tip of the iceberg'

David Hollerith

·Senior Reporter

Sun, 30 January 2022,

On January 17th, with cryptocurrency prices being widely routed by risk aversion, Crypto.com flagged a "security incident" that caused the operation to freeze withdrawals.

Days later, the Singapore-based exchange announced that hackers had stolen at least $15 million worth of Ethereum (ETH) tokens — and potentially as much as $33 million, according to independent estimates — but pledged to reimburse those affected. Crypto.com faulted some accounts for a lack of 2-factor authentication for the breach, but didn't provide many other details.

However, information security specialists and amateur blockchain sleuths on Twitter were already tracing the hacked funds, with almost half pointing to a non-custodial Decentralized Finance (DeFi) mixing service called Tornado Cash. That's where the trail goes cold.

Tornado Cash (TORN), itself a smart contract token, is one of a few legal cryptocurrency mixing (or "tumbling") protocols that can be used to obfuscate transaction history.

It can also wash crypto proceeds in ways that are raising alarm among investors and law enforcement — already grappling with a rise in the sector's illicit activity amid a sharpening debate over how to provide regulatory oversight to the booming digital coin movement.

Experts say blockchain mixing services aren't necessarily illicit, even though hackers use them. While part of the growing crypto ecosystem, mixers offer a handy way for criminals to launder funds without being explicitly classified as money laundering.

Still, in December, hackers used Tornado Cash to wash $196 million of crypto stolen from Bitmart, a crypto exchange. According to Victor Fang, CEO and Founder of blockchain analytics firm Anchain.AI, Tornado Cash uses zero knowledge proof.

"This is advanced cryptography, Turing-awarded work from MIT, the highest award in computer science" explained Fang, who chuckled in awe of the technology underpinning the protocol.

Over the past year, Tornado Cash serviced over $10 billion worth of crypto transaction according to Anchain, with a rising number of criminal cases being managed by Fang's firm involving the protocol.

“Privacy is not criminal but criminals are seeking these privacy solutions. This is the tip of the iceberg, the beginning of the future we’re going to see play out,” he added.

Billions in loot being laundered

Money laundering, especially the digital coin variety, is notoriously difficult to track. The United Nations estimates that around 2-5% of global growth (roughly $2 trillion) gets laundered in fiat currencies each year, but the figure is not regularly updated.

Currently, crypto's market capitalization tops $1.7 trillion, and experts insist crime is a shrinking margin of those flows. However, there's still $8.6 billion in blockchain-based loot getting laundered, according to a report released Wednesday by blockchain analytics company Chainalysis.

The firm previously found that crypto-based crime hit an historical high at $14 billion, but at 0.15% of all sector transactions is relatively low. Chainalysis tracked crypto money laundering over the past year, but did not count funds coming from mixing services as illicit, according to Chainalysis' director of research Kim Grauer.

Yet billions in laundered funds were up 30% in 2021 compare to the prior year, and represent the amount of money sent from a crypto wallet that the firm marked as illicit. Those funds then went to another platform for trading, gambling, DeFi, mixing, or other purposes.

And according to Grauer, tracking illicit flows come only from “multi-decade-long and hard-won investigations” into specific financial firms. The rise of the use of digital ledgers, however, could make it easier, some say.

“We can’t say cryptocurrency is better for fighting crime but there’s no equivalent data set for measuring criminal activity in fiat currencies," Grauer told Yahoo Finance.

Mixing services still represent a slim margin for the destination of illicit crypto funds according to Chainalysis data. Yet based on conversations with compliance officers, Grauer said that customer funds sent from a mixing service can be a “red flag,” with firms receiving a significant amount of funds from mixers.

The "blank check"

A representations of cryptocurrency Ethereum is seen in front of a stock graph and U.S. dollar in this illustration taken, January 24, 2022. REUTERS/Dado Ruvic/Illustration

While algorithmic tools offer precise data, curbing crypto laundering relies on coordination between law enforcement and private companies, which in the eyes of regulators need improvement.

The DeFi boom has also fed money laundering, with illicit wallet use up from 2% in 2020 to 17% over the past year, reflecting the sector's high rate of theft. Still, crypto exchanges remain the primary method for thieves to wash hot money, with those receiving 47% of total illicit funds tracked over the last year, largely because of scams.

One way to halt illicit crypto flows hinges around blocking, or at least monitoring exit points, out of the cryptocurrency economy that give criminals on- and off-ramps chance to convert their loot into less traceable cash. Increasingly, regulators want to shore up their surveillance and reach at these critical junctures.

Congress is debating a measure that grants the U.S. Treasury broad authority to prohibit or freeze certain digital asset, particularly if they relate to foreign banking institutions, transactions or if "1 or more types of accounts is of primary money laundering concern."

Amid a broad debate about crypto regulation, some market players see the provision as a "blank check" for regulators to muzzle crypto's privacy and commerce benefits. Two of the largest cryptocurrency exchanges, FTX and Binance, both qualify as foreign banking institutions though they both have U.S. subsidiaries. In theory. they could run afoul of Treasury's interpretation of that statute, some argue.

If cryptocurrency is ever going to get "traction, there has got to be more regulatory constructs around it," according to David Cass, a former crypto and stablecoin researcher at the Federal Reserve who's now a partner with Law and Forensics, a legal and investigations firm.

The marketing of Tornado Cash and other crypto mixers may affect how regulators "facilitate cooperation with those services, Daniel Garrie, Law and Forensics' co-founder, told Yahoo Finance.

“They can say if you are found to interact or engage with this, you're not allowed to participate in the U.S. banking system, something like that but there are a lot of caveats,” Garrie said.

David Hollerith covers cryptocurrency for Yahoo Finance. Follow him @dshollers.

War and the Market State

A tip o' the blog to bradspangler.com for drawing my attention to these articles.

Which led to inadvertent connections between two articles. Because again in the syncronistic universe that is the WWW, I was looking for his link to this, Counter-Economics: review of excellent book on smuggling and came across another article, which describes the actual nature of what folks mistakenly call globalization.

The creation of the new market states is the result of NAFTA, the EU, and other new evolving models of contractual corporate and state cooperation. They are the WTO, APEC , etcagreements and meetings that are occuring that have set in motion the evolution of the market state that Bobbitt speaks of below.

The War in the Balkans followed by the war in Afghanistan followed by the war in Iraq is not just the war of Empire and Imperialism but of private armies and private contractors, becoming in effect a state, since they provide privatized functions of the state as I have blogged about.See; War! What's it Good For? Profit

The attack on the Balkans was an attempt to end the last vestiges of State Capitalism and pound the Serbians into submissive acceptance of the privatization of the State through strategic bombing of industries.

It is the same with Iraq. It too was the last state capitalist country in the Middle East that had to be privatized. The other countries were less vulnerable since they are hierarchical societies that had opened their markets to capitalism, while remaining fuedalistic social constructs.

An interesting analysis of this concept of the War of the Market State can be found at Global Guerrillas which reviews this book;

The Shield of Achilles: War, Peace, and the Course of History

by Philip Bobbitt

" A new form of the State — the market state – is emerging from this relationship in much the same way that earlier forms since the 15th century have emerged, as a consequence of the sixth great epochal war in modern history.

The “market-state” is the latest constitutional order, one that is just emerging in a struggle for primacy with the dominant constitutional order of the 20th century, the nation-state. Whereas the nation-state based its legitimacy on a promise to better the material well-being of the nation, the market-state promises to maximize the opportunity of each individual citizen. The current conflict is one of several possible wars of the market-states as they seek to open up societies to trade in commerce, ideas, and immigration which excite hostility in those groups that want to use law to enforce religious or ethnic orthodoxy.

A state that privatizes most of its functions will inevitably defend itself by employing its own people as mercenaries-with equally profound strategic consequences. "

So if the exisiting nation states are using private armies, and further privatization due to the transformation of these new models of transnational corporate/state agreements creates the historic conditions for the development of market states then the current conflict called the War on Terror is a conflict between the black market states, such as Bin Laden Inc. against 'legitimate' transnational corporate states like Halliburton USA Inc.

In fact all of the current 'Stan states (Afghanistan, Kyhrigistan, etc.) which were once colonial outposts of the Soviet Union and were not fully developed state capitalist economies are now home to much of the black market. And while they are dictatorships still, they are ones that capitalism finds friendly, and able to do business with. But within these states exists another state, that is international in scope and is linked with organized crime, international intelligence agencies, terrorist networks, drug smugglers. etc. etc.

The way these black market states are funded is through what Libertarians call counter economics. Piracy by any other name. The very origins of the primitive accumulation of capital under fuedalism that gave rise to banking, trade and eventually full blown capitalism.

The Necessity of Gangster Capitalism: Primitive Accumulation in Russia and China

It is useful at this point to quote from the book review of Illicit from Global Guerrillas

Moises Naim, the editor of Foreign Policy Magazine, has an excellent new book called Illicit on the rise of global smuggling networks. It's a must read.

Globalization Melts the Map

Moises copiously documents how globalization and rampant interconnectivity has led to the rise of vast global smuggling networks. These networks live in the space between states. They are simultaneously everywhere and nowhere at the same time. He shows how these networks make money through an arbitrage of the differences between the legal systems (and a desire to prosecute) of our isolated islands of sovereignty. He also shows how their flagrant use of corruption can enable them to completely take over sections of otherwise functional states.

By all accounts the amount of money involved is immense. In aggregate, the networks that form this parallel "black" global supply chain, have a "GDP" of $1-3 trillion (some estimates are as high as 10% of the world's economy) and are growing seven times faster than legal trade. These networks supply the huge demand for:

• Drugs (both recreational and pharmaceutical).
• Undocumented workers (for corporations, home services, and the sex trade).
• Weapons (from small arms to RPGs, many come from cold war arsenals).
• Rip-offs of intellectual property (from digital content to brand named consumer goods).
• Laundered and unregulated financial flows.

This supply chain isn't run by the vertically integrated cartels and mafias of the last century (those hierarchies are too vulnerable, slow, and unresponsive to be competitive in the current environment). The new undifferentiated structures are highly decentralized, horizontal, and fluid. They specialize in cross border movement and therefore can handle all types of smuggling simultaneously. They are also very reliant on modern technologies to rapidly transport and coordinate their global operations.

I would also reccomend Robert Naylors Hot Money, though dated, from the 1970's, it was one of the first to talk about International Finance and the black market and its impact on the bank meltdowns like BCIC and the connection of the banking industry to the black markets and their involvement in the debt crisis in the developing world. It was published by Black Rose books. A new edition is out as well he has written another work along similar lines, critiquing international relations, crime and hot money, entitled the Wages of Crime.

Thus the War on Terror is a war on two fronts. One to smash and transform the last outposts of state capitalism in Europe and the Middle East, and a war on the unregulated market.

Global Guerrillas says; The similarity between these commercial networks and those of modern terrorism (my global guerrillas) is not incidental.

Nor is it incidental that the American Empire is sowing the seeds of its own self destruction, not only in expensive military operations that rack up thousands of corpses and trillions in deficits, but in the fact that like the British Empire before it in order to finance these wars, it too relies on the black market. The British Empire set itself up for decline as it persued its Opium Wars against China. The US set itself up in the 1980's providing stinger missles to the Mujahadin in Afghanistan who paid for them in opium money. Who transported them through smuggling routes, still with us today used by Bin Laden Inc.

And quoting Bobitt again;
The current conflict is one of several possible wars of the market-states as they seek to open up societies to trade in commerce, ideas, and immigration which excite hostility in those groups that want to use law to enforce religious or ethnic orthodoxy. States make war, not brigands; and the Al Qaeda network is a sort of virtual state, with a consistent source of finance, a recognized hierarchy of officials, foreign alliances, an army, published laws, even a rudimentary welfare system. It has declared war on the U.S. for much the same reason that Japan did in 1941: because we appear to frustrate its ambitions to regional hegemony.

Capitalism has outgrown the Nation State. It reguired it for its period of ascendency. Now that it is the real domination of everything , of all social relations it needs a new state, a market state. One that can continually destroy its overproductive capacities. As capitalism evolves better technonological production, increases productivity and reduces the need for real labour, it amasses capital, which becomes unproductive. It is here that the new market state can use this capital to create permanent war, small scale localized war, that does not threaten its global expansion, but allows it areas for wide scale destruction of productive capabilities to offset its cancerous growth.

If war is privatized and all state functions are privatized, then the individual is no longer identified as a citizen, or as a wage labourer, but as 'free' individual, a contractor in a market state. Capitalism will have evolved to its logical conlusion; that we remain wage slaves but no longer to a particular boss or business but to the market. Our alientation will be complete. And it will be a society of barbarism, of all against all.

Labour 'is and remains the presupposition' of capital (Marx, 1973, p. 399). Capital cannot liberate itself from labour; it depends on the imposition of necessary labour, the constituent side of surplus labour, upon the world's working classes. It has to posit necessary labour at the same time as which it has to reduce necessary labour to the utmost in order to increase surplus value. This reduction develops labour's productive power and, at the same time, the real possibility of the realm of freedom.

The circumstance that less and less socially necessary labour time is required to produce, for want of a better expression, the necessities of life, limits the realm of necessity and so allows the blossoming of what Marx characterised as the realm of freedom. Within capitalist society, this contradiction can be contained only through force (Gewalt), including not only the destruction of productive capacities, unemployment, worsening conditions, and widespread poverty, but also the destruction of human life through war, ecological disaster, famine, the burning of land, poisoning of water, devastation of communities, the production of babies for profit, the usage of the human body as a commodity to be exchange or operated on, the industrialisation of human production through cloning etc.

The existence of Man as a degraded, exploited, debased, forsaken and enslaved being, indicates that capitalist production is not production for humans - it is production through humans. In other words, the value form represents not just an abstraction from the real social individual. It is an abstraction that is 'true in practice' (cf. Marx, 1973, p. 105). The universal reduction of all specific human social practice to the one, some abstract form of labour, from the battlefield to the cloning laboratory, indicates that the separation which began with primitive accumulation appears now in the biotechnical determination to expropriate human beings. Capitalism has gone a long way. Indifferent to life, it 'was satisfied with nothing more than appropriating an excessive number of working hours' (Dalla Costa, 1995a, p. 21). It is now engaged in the production of human-workers.

The Permanence of Primitive Accumulation: Notes on Social Constitution

CRIMINAL CAPITALI$M

‘Silicon Valley’s Party Animal’ Convicted on Fraud and Money Laundering Charges

A federal jury found his schemes resulted in approximately $18.8 million in 'missing money'

Published 11/18/23 

Rocio Fabbro

The 39-year-old Michael Rothenberg was known for extravagant parties and his mixing of business and pleasure as spoofed in HBO’s “Silicon Valley.”LinkedIn

Aformer San Francisco venture capitalist dubbed “Silicon Valley’s Party Animal” was convicted earlier this week on several charges, including wire and bank fraud, and money laundering.

Michael Rothenberg, 39, known for extravagant parties and his mixing of business and pleasure as spoofed in HBO's Silicon Valley, was convicted by a federal jury of committing wire and bank fraud totaling nearly $19 million in “missing money,” according to the U.S. Department of Justice.

Rothenberg committed wire fraud with millions of dollars of investments into his venture capital funds, and later committed money laundering by transferring those funds through several bank accounts, the jury found.


He was also found to have defrauded Silicon Valley Bank, which was acquired by First Citizens Bank in March after its collapse, deceptively obtaining a $4 million line of credit to pay back a shortfall at one of his funds.

He founded Rothenberg Ventures Management in 2012, a venture capital management company, which for six years managed his four venture capital funds aimed at investing in Silicon Valley start-ups, specifically in virtual reality technologies. In 2015, however, Rothenberg started his own company, River Studios, to produce content used in virtual reality headsets.

While he told employees and investors that the studio had been “self-funded” and that no venture capital funds were used to get the company off the ground, Rothenberg used venture capital fund money to pay for the studio’s operations, according to evidence at the trial.

A 2015 Bloomberg report, which first gave Rothenberg the "party animal" title, described the lavish culture at the then three-year-old firm, including hot-air balloons rides on wine tours of Napa Valley, visits to San Francisco's Samovar Tea Lounge and free seats to Giants and Golden State Warriors games in Rothenberg’s luxury boxes

In 2018, Rothenberg settled civil charges with the Securities and Exchange Commission and agreed to a five-year ban from the brokerage and investment advisory business, without admitting or denying the charges. The SEC said Rothenberg and his firm misappropriated millions of dollars in funds, including an estimated $7 million of excess fees, over three years.

Rothenberg allegedly used the funds to finance a racing car and crew and threw private parties and events at high-end resorts, among other extravagant expenses, using the misappropriated funds, according to the SEC complaint.

Rothenberg’s sentencing is scheduled for March 1 and he remains out of custody on pre-trial bail. He could face a maximum of 60 years in prison and about $1.5 million in fines across all charges.

CRIMINAL CAPITALI$M BUSINESS AS USUAL

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