Tag: fraud

Is Bitcoin Really Money Laundering?

For those who don’t know, BitCoin is an attempt at a new type of currency, one that isn’t linked to any nation.  In a way, bitcoin is a lot like gold or other commodities, only it differs in that you don’t actually have to ship anything around or even keep trading futures to stay in the game.  Still it accrues similar benefits as gold. In fact there is a bitcoin to gold price, based on milligrams of gold.  As you can see the number of milligrams one gets for a bitcoin has gone from about 300 in January to about 3,300 in October.  Bitcoins have clearly paid off for some people.

One of the other goals of bitcoin is that they be as anonymous as cash.  This is where the problems start.  Let’s say you want to sell a few bitcoins, and receive American dollars.  One question is simply this: do you have to list the sale on Schedule D?  I am no accountant, but I would think the answer would be “yes”.  Now let’s say that instead of selling them, you are just holding them, and let’s for the sake of argument say that you have $500,000 worth of bitcoins.  Do these represent foreign assets?  If so, you are required to file forms with both the Treasury (TD-F 90-22.1) and the relatively new IRS Form 8938.

Those who in any way behave like banks will find that the Treasury department expects them to do all the things banks do.  That includes reporting on suspicious transactions or any transaction over $10,000.

This hasn’t stopped people from attempting to hide transactions.  Here’s an article from CNN about a guy who attempted to do all sorts of nasty things with Bitcoins.  This led to a huge drop in their value, almost overnight.

chart

 

 

So, now the question: are bitcoins here to stay or are they a passing fad (read: pyramid scheme)?   The entire technical premise of bitcoins is in fact that they can be anonymously traded.  The bad news for people with bitcoins is that because there is no single management point that has guns (thus differentiating them from a classic currency), unless the likelihood is that those with the guns will want to limit or prohibit this sort of transaction; especially in large quantities.

A similar situation arose in 2001 when the U.S. government began to crack down on those using the old mechanism known as Hawala, even though the mechanism is legal.  And so one question is simply this: are bitcoins really anonymous?  A researcher named Sarah Meiklejohn will present a paper at SIGCOMM this month on just what law enforcement capabilities there are.  Watch that spot.

 

 

 

 

Time to Takedown: Successes and Failures

Takedown is a term used by Internet service providers and law enforcement officials that means the involuntary removal of a computer from the Internet.  For instance, if a computer has been compromised and is attacking other computers, a takedown is seemingly appropriate.  Tyler Moore and Richard Clayton have done some analysis on how long it takes to get a site off the net when it is doing something anti-social.  They look at about six different circumstances: phishing, defamation, child pornography, copyright violation, spam and bot sites, and generally fraudulent web sites.

Not surprisingly, firms such as banks that actively defend their brand are able to expunge hosts serving bogus content the fastest, and service providers are the most cooperative (the numbers cross jurisdictional boundaries).  Sites harboring material that exploit of children takes 10-100 times longer than banks.  That’s an enormous difference.  There are several likely reasons for this difference.  First, banks are acting in their clear best interest and do not mind shouting at whoever they need to shout at to get rid of material.  They’ve also likely developed strong relationships with service providers to speed the process.

The data on child protection is somewhat skewed by a single source, and that source had substantial jurisdictional issues, in as much as they did not feel empowered to deal directly with certain governments and service providers outside the UK, and in particular in the United States.  Worse, images that were removed had a tendency to re-appear on the very same web sites, indicating that either the site was re-compromised or it was poorly managed or both.

The data points to a clear need for stronger coordination by service providers throughout the world to protect children.  The fact that banks are able to be more successful in removing content that offends them demonstrates that it is possible when self-interest is a factor.

In the area of copyright violation, the RIAA has had success in removing sites that are clearly violating copyrights.  By injecting themselves into P2P networks the RIAA has been able to determine many sources of copyright violation.  The paper does not have a data source to analyze takedown periods.