Your favourite subject – banks

Before I launch into today’s blog I would first like to clarify something.  The blog’s title reminded me that I pretty much write these days using American spelling.  I made an exception for the title – however normally I would indeed spell it ‘favorite’.  It would not surprise me to discover that many (most?) of my NZ friends and family are shocked that I would dare to write using American spelling since I was brought up with English spelling.  The answer is simple – I find it easier now to spell using American spelling rules.  When I worked in China I had to use American spelling since I worked for an American company.  Also the default on my computer is always American English and so I get the squiggly red line if I use the spelling of my education.  Believe it or not I’ve used it so much now that if I go back it just looks ‘wrong’.  I’m aware that there will be some purists out there scratching their hands down their faces and whimpering ‘the horror… the horror’.  Making arguments like but it is ‘English‘ spelling!  Still others will be aghast that by using American spelling I’m somehow betraying my country of birth.  I’m under no such illusion and such emotional tripe won’t sway me.  I am a New Zealander and how I spell doesn’t change that.  In fact I’m a little proud that I’m still able to make such changes as I get older and not let it worry me.  So American spelling is on purpose, however other spelling mistakes and grammatical errors are just because I’m lazy :)

So back to the subject.  First let me ask you a question.  I have a job going and wonder if you’d be interested?  Before I go on I’d like to clarify from the outset that the pay is about $116,000 per week (that’s about US$95K ).  Yes that is not a typo, the pay is over $100,000 per week.  With such an enormous amount of money you are probably wondering if it is actually a real job and I quite understand your concern.  How could someone add value to a company to the tune of $116k per week?  It is a real job by the way, this isn’t some Nigerian scheme or inheritance scam.  You also don’t require any unique (that I can tell) qualifications.  From the title you’ve probably guessed which industry this salary belongs to – banking.  HSBC reported in March this year that not one, but 16 people received this level of salary for the past year!  Globally, the article tells us, 204 HSBC employees were paid $35,000 per week (US$28K).  NZ Stats inform me that the latest information available shows median weekly wage / salary for those working in NZ is $806, which comes to about $42K per year.  So the median person in New Zealand would have to save all their income for only about 45 years in order to match what is one year’s income for each of those 204 HSBC ‘lower level’ bank employees.

Yes I do think it is obscene.  Anyway I digress.  What actually led me to that HSBC article was some research into their money laundering activities.  What, you don’t know that the HSBC was laundering cash?  Oh.  Well you see last year (2012) it seems the HSBC got caught laundering money for several drug cartels and doing  ‘business’ with Iran and Syria against International law.  It does sound bad, but let’s give them the benefit of the doubt and get a few more facts.  How much illegal activity did they do?  I can’t find a clear total answer – and perhaps they are unable to check all the records.  However one reuter’s article states that 2 drug cartels, Mexico’s Sinaloa cartel and Colombia’s Norte del Valle cartel, laundered over one billion (US$881 million) through the HSBC.  As a result the US authorities recently fined the HSBC 2.38 billion (that’s US$1.92 billion).  The HSBC stumped up the money for this fine without any complaint (that I can find) which could suggest to some that perhaps they didn’t think the amount was unreasonable at all.  They also paid a fine to the British authorities – however I can’t find that amount to hand.  The scary thing is that this is just one bank in one country, i.e. the Mexico branch of the HSBC.  The reuter’s article goes on to say that there were many many banks around the world involved in money laundering or  sanction violations:

“U.S. and European banks have now agreed to settlements with U.S. regulators totaling some $5 billion” (6.2 billion NZD)

Don’t think that things have now ended for the HSBC.  An article recently out by the BBC states that the HSBC is now under investigation for money laundering activities in Argentina!

Why was I researching the HSBC money laundering activities?  Well this past week there has been a huge amount of media attention about Liberty Reserve, an Internet bank involved in currency exchange and payment systems.  Stuff covered it in an article here.  The US claims that the whole business of Liberty Reserve is money laundering and on this claim seized all of their US bank accounts, seized their domain names, and arrested senior staff including the bank founder – some of whom were in other countries at the time (i.e. the US coordinated with those countries law enforcement to get the executives arrested).  People, I don’t make this stuff up!  Of course I am sitting here wondering what the hell happened with HSBC when they were accused of EXACTLY the same thing???  It wouldn’t be that the HSBC makes large donations to the major US parties and Liberty Reserve didn’t….. no no it couldn’t be that.  I did wonder what happened to the whole ‘innocent until proven guilty’ thing that happens in the US though, and all the money of account holders which is now frozen.  Let’s look at some of the details.

The lynchpin of the argument for seizure appears to be that a US investigator was able to open an account with Liberty Reserve using a false name and address.  Don’t take my word for it though, read the Stuff article.  At the press conference the US prosecutors put on an exhibition that a public relations company would wet themselves over.  They claimed:

“(They) had their biggest win yet by shutting down Liberty Reserve…” Notice it isn’t ‘biggest break’ or ‘biggest bust’.  Everyone loves to ‘win’.

They said that they had shut down a “…$6 billion money-laundering operation masquerading as an online currency exchange and payment system.”  What?  They’ve checked every account already (over 1 million according to the article) and found that the total value was $6 billion AND that it ALL was involved in money-laundering?  I thought that they had only just seized it at the time of the press conference?  How did they get the records before they seized it?  Did the owner give them access?  How did they know that it was all laundering if, as the article states, everyone was using fake names and addresses?

Oh, this is the one I really laugh at, Richard Weber chief of US Internal Revenue declared “If Al Capone were alive today, this is how he would be hiding his money.”  Actually Al Capone is alive today in the form of Mexican drug lords, and last I heard they recommended banking with the HSBC, specifically being recorded as saying the place to launder money is HSBC Mexico!

Liberty Reserve is “designed specifically for, cyber criminals dealing in everything from credit card fraud, identity theft and computer hacking to child pornography and drug trafficking, prosecutors have alleged.”  Again, over 1 million users according to the article, with everyone using fake names and addresses – according to the US investigators – and yet they know that it is all to do with credit card fraud, identity theft, child pornography etc. etc?  Hang on, you guys wouldn’t just be throwing “child pornography” in there in order to be able to scream “he’s defending child pornography” to anyone who questions your facts would you?

The writer of the article then drags out a Mr. Nigel Phair of the “Centre for Internet Safety at the University of Canberra” who claims that “A lot of these digital currencies are purporting to be legitimate but aren’t.”  Hang on, Liberty Exchange doesn’t create any currency.  It isn’t creating it’s own “Liberty Dollars” as far as I know.  Instead it transfers existing currencies around the world – including the US dollar, British Pound and all manner of traditional currency.  So why did you bring this comment up Mr. Phair?  We will get to that soon.  However Mr. Phair goes on to say  “The only reason people would use them (digital currencies) is to hide their identities, and the only reason you’re going to do that is because you’ve got something to hide.”  Really?  The only reason you would hide your identity is because you’ve got something to hide?  Aside from the absolute stupidity of that statement (of course if you are trying to hide your identity it means you want to hide it!), I believe that Mr. Phair was insinuating that if one wishes to hide their identity then that means they have something bad which they are trying to hide.   Again, really?  How about the millions of International corporations who have companies formed in “legal” tax havens as their major shareholders or heads as they don’t want their identities revealed?  How about the citizen in Iran, Syria, Afganistan, North Korea or any number of countries (Saudi Arabia) which have punitive laws against its citizens which we in the West don’t agree with and who wish to hide their identity?  Perhaps a 30 year old unmarried Saudi woman corresponding with a man overseas, she hasn’t told her father, and the Saudi authorities are monitoring the Internet.  According to Mr. Phair she is hiding her identity because she is bad!  The only person who EVER makes the claim that if one is trying to hide something then they have done something bad is a person in the pay of a government who wants to spy on every detail of its citizens for power.

The stuff article then goes on to explain “how it works”.  In this section they quickly bring up the digital currency Bitcoin.  This is the bit that got me worked up enough to write this lengthy blog.  I’m guessing that most of my readers… ok ALL of my readers (that is both of you) don’t know what Bitcoin is.  Bitcoin is a wonderful new digital currency that is NOT in the control of any Government or Bank!  What Bitcoin is is not in the scope of this blog today however you can read a really quick summary of how Bitcoin works here.  Suffice to say Bitcoin is a legal currency which one can buy through any of the many legal exchanges, and use it to pay for thousands of goods and services – all totally legal.  Right off the bat I’m wondering what the hell Bitcoin has to do with Liberty Reserve.  Actually it has nothing specific to do with Liberty Reserve!  The link is ONLY that previously Mr. Phair said that “not all digital currencies are legitimate”, and now in the same article is specifically saying that Bitcoin is a digital currency!  Oh – sneaky aren’t they!  Mr. Phair, not all Australians are honest… and you are an Australian!

Now that the article has done a little psychological number on us, it goes on to say that Bitcoins operate in the same way as Liberty Reserve!  What?  How?  Apparently one can buy Bitcoins with your “hard cold cash” such as Aussie dollars, and then you can use those Bitcoins to carry out “unregulated” transactions.  In case you weren’t clear, Mr. Phair spells it out for us ” drug trafficking and other illegal activities in Australia have been traced to Bitcoin”.  Oh Bitcoin, you dirty little currency….

But wait. I’m scratching my head here.  Hasn’t drug trafficking and other illegal activities in Australia been traced to….. Australian dollars?  Doesn’t every drug dealer in every country do business in their country’s currency?  We don’t claim that those currencies are therefore “bad” and need to be stopped.  So why the hate on Bitcoin?  We also don’t claim that “Australian Dollars operate in the same way as Liberty Reserve” when of course one could use these dollars to carry out “unregulated” transactions.  I would dare to say that the vast majority of unregulated transactions in Australia are carried out with Australian dollars, not Bitcoin!

Regarding anonymity with Bitcoin, when I buy something at the local Aussie shop (or any shop in any country) and get my change – do I have to show my identification in order to get that change?  No.  So I am getting local currency without anyone knowing who I am.  It is an anonymous transaction unless I tell someone who I am.  Just like Bitcoin then!  Back to those drug dealers, if someone uses Aussie dollars to buy drugs I’m sure that the drug dealers aren’t demanding to see that person’s identification before they make the sale!

If Mr. Phair was here I’m sure he would be spluttering “but but but” right about now.

What is the real reason that authorities have dragged Bitcoin into this story?  Liberty Reserve was doing transactions in US dollars to the value of millions and millions, far more than Bitcoin, but nowhere have they said that the problem is the “US dollar”.  I think that the reason they are trying to cast Bitcoin in a bad light is because Bitcoin is not in the control of any bank or any government.  And that makes them scared.  They can’t attack it directly and they can’t stop it, so they are trying to imply that if you use it then you are using it for illegal purposes.  To anyone with that argument I would direct them again to this website listing all the goods and services one can purchase with Bitcoin.  I also just remembered that Bitcoin transactions happen at a ridiculously low price.  In Thailand I can choose to pay for something in the US with Bitcoins and pay no transaction fees if I’m happy to wait about an hour, or if I want faster confirmation I can pay 5 cents.  If I use Paypal the vendor has to pay a fixed transaction fee (of multiple dollars) AS WELL as about 3% of the value of the transaction.  If I send money via bank transfer it will cost AT LEAST $30 as well as exchange fees.  Which will I choose to make my purchase?  That is a no-brainer.  Yes those banks have good reason to fear Bitcoin.

I can hear those bankers’ knees shaking from here.



Disclaimer:  I have never used Liberty Reserve and don’t know anyone who has.  I do have Bitcoins.

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