a16z says “crypto” money laundering is the fault of evil foreigners

The fight against “crypto” money laundering should focus on these insidious foreigners and not on noble and upstanding American operators, says American venture capital group Andreessen Horowitz (a16z).

On October 14, Michele Korver and Jai Ramaswamy, the chief regulatory and legal officers at tech-focused a16z, published a blog detailing “concrete steps to combat money laundering” related to digital assets.

The authors start with the obvious and say: “Fighting money laundering is really difficult” because it mimics legitimate activities. But they argue that “money laundering is never the case.” Caused criminal activity,” so it is “not a crypto-specific problem.”

The authors point out that money laundering existed before “cryptocurrency” and that if cryptocurrency ever disappears, “its absence “will only drive the few criminals who use cryptocurrencies to use other tools to exploit their ill-gotten gains “To postpone or hide profits.” The authors apparently see no connection between the rise of the cryptocurrency and the subsequent explosion in ransomware attacks and “pig slaughter” scams. These “few” criminals are very busy.

The authors propose a three-pronged strategy that includes expanding federal extraterritorial jurisdiction to target “bad actors abroad” who have some connection to the U.S. financial system; “Strengthening” Treasury Department enforcement capabilities to crack down on non-compliant exchanges, kiosks and other money transmitters; and promote greater information sharing between the public and private sectors.

The authors claim their strategy is “technology neutral” and builds on the authors’ assertion that “it is widely accepted that we do not and should not prosecute programmers for developing software.”

In truth, it is not clear how widely this belief is recognized, given that successful prosecutions have been and are being waged against the programmers behind the Ethereum-based coin mixing service Tornado Cash, a popular tool used by North Korean “crypto” hackers to exploit their ill-gotten gains wash.

The Dutch judges who sentenced developer Alexey Pertsev to 64 months in prison in the spring noted: “Tornado Cash works in the way that the defendant and his co-founders developed Tornado Cash.” So the operation is entirely their responsibility . If the defendant had wanted the opportunity to take action against abuse, he would have had to include it. But he didn’t do that.”

Also remember that a year ago, after the Treasury Department imposed sanctions on Tornado Cash, a16z filed an amicus curiae brief denouncing the sanctions, saying they raised “serious, far-reaching legal questions that do not only affect our portfolio companies, but also the blockchain.” Ecosystem far beyond this case.” So it’s more of a Amicus pecuniaebut let’s not argue.

Everyone is guilty and no one is to blame

To support their argument that crypto is a money laundering afterthought, the a16z authors cited the $3 billion settlement the U.S. Department of Justice (DOJ) reached with TD Bank last week. The Canadian crooks were accused of violating the Bank Secrecy Act and money laundering laws, which benefited drug traffickers and other crooks.

While there is no doubt that traditional financial channels are being used to launder funds, the Treasury Department’s Financial Crime Enforcement Network (FinCEN) has filed its own consent order in the TD case and – surprise! – this saga contains a “crypto” component.

Beginning on page 59, FinCEN describes a TD Bank customer, identified only as Customer Group C, who is described as “purportedly operating in the sales finance and real estate industries.” Group C originally told TD that it did not expect its remittance activity to exceed $25,000.

In fact, Group C transferred over $1 billion through TD, with over 90% of the incoming funds coming from “a UK-based cryptocurrency exchange” and over 60% of the outgoing funds going to “a Colombian financial institution that also provides services related to virtual assets.” “were transferred.”

Despite its initial claims against TD Bank, Group C “carried out an average of over $100 million in transfers each month, most of which appeared to facilitate third-party cryptocurrency trading and affected high-risk industries and jurisdictions, including Colombia, China, and others. “Countries in the Middle East.”

During the period in question, Group C “received more than $650 million from an international cryptocurrency exchange platform, the purpose, originators, and source of funds being unknown to TD Bank.”

It’s clear that TD Bank’s compliance regulators were either asleep at the wheel or simply complicit in allowing these unspecified crypto entities to operate outside of regulatory boundaries. And the fact that no TD executives seem to be going to prison makes your blood boil. But Garland said the DOJ isn’t necessarily done filing prosecutions in this case, so we’ll wait for the other shoe to drop.

Increase the volume

On October 16, a16z released the latest edition of its annual “State of Crypto Report,” which (surprise!) claims that the future of crypto is so bright that a16z founders Marc Andreessen and Ben Horowitz need to wear sunglasses.

Among the report’s key findings is that crypto “activity and usage” has reached all-time highs. This is a bit strange, as crypto news sites continue to express their unease that the dominant BTC token’s transaction and trading volume remains on the rocks despite an increase in the token’s fiat value.

This phenomenon is particularly pronounced at the retail level, suggesting that the unwashed masses have washed their hands of any sustained interest in converting their savings into “crypto.” But if you read a16z’s report a little further, you’ll see that the “usage gains” come almost entirely from users flipping utility-free memecoins for fun and (not very often) profit.

a16z notes that there were 220 million monthly active crypto addresses in September, a new all-time high. But 100 million of those addresses were on Solana, while another 22 million were on Base, the Ethereum Layer 2 network controlled by exchange Coinbase (NASDAQ: COIN).

Both Solana and Base are memecoin factories that produce thousands of new tokens every day. Few, if any, of these tokens have any real purpose other than being used as chips in rigged “crypto casinos,” and even fewer have a shelf life longer than the gestation period of a tsetse fly.

And yet, memecoins continue to exist, and people continue to bet on them in the unnatural hope that if even a single token goes “moon rich,” the returns will be astronomical. Real money players joke that lotteries are a voluntary tax on people who can’t do math. It’s not that different with memecoins: many will play, a small handful will win big, while the rest will never see their money again.

Back in April, a16z CTO Eddy Lazzarin stated that memecoins “undermine the long-term vision of crypto,” adding that “at best it looks like a risky casino.” Or a series of false promises obfuscating a casino.” I guess , he missed the internal memo about how positive this “use” was for the sector.

State of denial

Further claims in a16z’s report state that crypto will become “a key political issue” in the 2024 US elections. The report omits the fact that crypto-funded political action committees (PACs) are the largest outside donors in congressional elections and that the largest of these PACs, Fairshake, received almost a third of its funding from a16z. And yet none of the crypto-funded campaign ads even mention crypto because it is such a key issue for voters.

Stablecoins have (supposedly) “found product-market fit” and account for nearly a third of daily crypto usage. Stablecoins found this fitting because they “enable, among other things, fast, cheap and global payments.” In the case of the market-leading USDT (Tether), which has a market cap of $120 billion, which represents almost 70% of the total market cap of stablecoins, these “other uses” include crime. All types of crime.

a16z is also celebrating the rise of Ethereum Layer 2 like Base as transaction fees on these networks have fallen following this year’s Dencun upgrade. This has actually led to a surge in activity (the memecoin mania mentioned above), but it has also led to a drought of transactions on Ethereum’s base layer, meaning the validators running Proof-of-Stake (PoS ) control consensus mechanism of the network, this has not done much to do.

L2s were intended to address Ethereum’s long-standing scaling bottlenecks, but their success means that fewer ETH tokens will be “burned” compared to issuing new ETH tokens. This “inflationary” dynamic is widely blamed for ETH’s failure to keep up with BTC’s fiat price rise, which may explain why Ethereum co-founder Vitalik Buterin has recently threatened to rain fire and fury on L2 , which he considers to be insufficiently “decentralized”. ‘

But whatever. According to a16z, L2s are proof that Ethereum is “suddenly becoming more popular – and efficient.” After three episodes, you realize that a16z’s gushing reports might as well come with pompoms and marching bands, because rarely do you hear a discouraging word about that wretched hive of scum and villains that is “Krypto.”

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