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The author misunderstands the current bank regulatory environment. Banks are not only obliged not to participate in criminal activity, the way the laws work is

The author misunderstands the current bank regulatory environment. Banks are not only obliged not to participate in criminal activity, the way the laws work is that they are increasingly required to do the policing themselves. If a bank does business with some guys and it turns out the guys are money laundering, that can be the bank's fault. For instance, one of the charges against HSBC is that they built up a backlog of fraud alerts. Another charge is that they didn't tune their fraud alert levels in a manner requested by the government. HSBC is also charged with actual money laundering but these two charges I mentioned are not money laundering in the sense understood by most people. And the more ethical reg execs at the more ethical banks have, among their top priorities nowdays, avoiding charges like these. There's even been a sort of reverse regulatory capture: top bankers see among their ethical responsibilities the job of being the world's money police. This is a natural consequence of voters demanding politicians "hold banks responsible" when their accounts are used for nefarious purposes. Many HN commenters, I've noticed, share the same view. Well, be careful what you wish for. A regulatory environment in which banks are liable if they handle digital cryptomoney from who-knows-where is a regulatory environment in which they will refuse to do so. The knee-jerk urge to paint big banks as shady criminals will only intensify, not mitigate, the regulatory pressure.

eterm 13y ago
They also from my reading misunderstand VAT. If they bought BC at £1 and sold at £1.20, then the VAT would be effectively only on £0.20 as they could claim back the VAT from the purchase when they sold. VAT would only scupper them if they were selling BC they had mined themselves, but their talk of trying to set up a bank makes it sound like this isn't the case.
- DanBC 13y ago
  They buy bitcoin at £1. They add a markup of 5%, taking it to £1.05 Then they add 20% vat, taking it to £1.26 The final customer pays the VAT, which is collected from the OP. They reclaim VAT on things they buy, not things they sell.
  - TranceMan 13y ago
    This has always confused me - maybe somebody can help me. I still don't understand how just re-selling something at a profit is 'adding value' in VAT terms. I thought the 'value' added was not monetary but actually doing something to the product(s) to make them more valuable. http://www.investopedia.com/terms/v/valueaddedtax.asp http://www.investopedia.com/terms/v/valueaddedtax.asp
    - tinco 13y ago
      Money is an expression or a carrier of value. If you do something to the product, that only adds value when you sell it for more than it was worth before. Adding value to something can be as simple as buying it in a time when no one needs it, and selling it when everyone wants it. Basically you added value by carrying risk or storing the asset.
    - tspiteri 13y ago
      With a 20% VAT rate, I buy something at 1.20 (1 + 0.20 VAT). So in effect I paid 0.20 as tax. Then I sell it at 1.80 (1.50 + 0.30 VAT). So I have collected 0.30 as tax. But I do not pass on all of the 0.30 tax to the government, I subtract the 0.20 I have already paid as VAT, and give the government 0.10. In effect, the consumer has paid the 0.30 VAT on the final price of 1.50 excluding VAT. I find the definitions in the investopedia link you provided very confusing.
      - Swannie 13y ago
        Well explained. Essentially becoming VAT registered turns you into a tax collector :-)
    - rlpb 13y ago
      The terminology is based around the traditional business model of physical goods. Buy stuff, put them together, sell the result. You reclaim the VAT on your purchases, and charge VAT on your sales. Thus the net VAT you collect is on the "value added". But you collect and your customer pays the full (eg. 20%) on the full sale amount, since he's paying for the complete value added all the way down the supply chain. This is effectively the same as a sales tax; just the mechanism for collection is different. For service-orientated businesses, the mechanism is the same; the terminology just makes less direct sense. In general, a business still get to reclaim all the VAT it pays on stuff it buys, and must charge VAT on all the stuff it sells.
- AlexMuir 13y ago
  They can only reclaim the VAT on BTC they bought IF THEY WERE CHARGED VAT ON THEM. They won't be charged VAT on them in 99% of cases because sellers are individuals.
- blibble 13y ago
  I had a read through the Revenue's guidelines, and it looks to me as if he would be exempt from VAT, because it's just FX: A supplier of an exempt intermediary service is a person who: - brings together a person seeking a financial service with a person who provides a financial service - stands between the parties to a contract and acts in an intermediary capacity, and - undertakes work preparatory to the completion of a contract for the provision of financial services, whether or not it is completed. all three of those apply (but IANATaxAdvisor)
  - Anderkent 13y ago
    Yes, if you only mediate between buyer and seller then you don't need to pay vat. However if he was to do the trading himself (buy from one person, sell to another), then that provision does not apply.
winstonsmith 13y ago
Rather than "be care what I wish for", I'm more inclined to see a warning that holding banks accountable for criminal activity is a bad thing for cryptomoney as a reductio ad absurdum argument against cryptomoney.
- randallsquared 13y ago
  Your statement is ambiguous between "holding banks accountable for their crimes" or "holding banks accountable for the crimes of others". Cryptocurrency advocates mostly dislike the result of the latter, but I don't think most people even understand that the latter is what's driving bank actions, precisely because anti-banking rhetoric tends to conflate the two in the same way.
  - kybernetikos 13y ago
    > precisely because anti-banking rhetoric tends to conflate the two in the same way. I don't think that people conflate them as much as you suggest. All the things I hear people complaining about are to do with misselling of insurance and mortgages, excessive overdraft fees, creating and trading insanely complicated derivatives at insane levels, foreclosing on property they don't actually have an interest in, cavalierly playing with the interest rates that the rest of the world are forced to treat as a fact of nature, insider trading, selling financial products to companies without revealing that they were created with the express intention of failing, breaking sanctions, actual money laundering, running and falling victim to ponzi schemes, paying giant sums of money to people who as far as anyone can tell from the outside failed in their duty and job, unduly influencing elected officials, deliberately manipulating the books so as to cripple entire countries and profiting in the process and then being caught on tape laughing about it. I pretty much never hear people complaining about banks because they offer a good service to criminals. Even if some of those criticisms are misguided, all I'm saying is that there is plenty of direct guilt that people impute to banks and bankers without having to start complaining that they are imputing indirect guilt too.
- gaius 13y ago
  The question is whether banks should be a "common carrier" for money, just as the postman carries no responsibility if you send drugs through the post.
deleted 13y ago
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AshleysBrain 13y ago
I think what the blog post is getting at is currencies like USD, GBP, EUR etc. are still better for fraud than bitcoin. Hence the suspicion of anticompetitive behavior.
stcredzero 13y ago
There's even been a sort of reverse regulatory capture: top bankers see among their ethical responsibilities the job of being the world's money police. So, given the right culture and flows of information, the mechanisms of regulatory capture can also do the right things? EDIT: Nice, HN. Someone asks an interesting question, so it's immediately read as a position then downvoted. How about taking this at face value as a question?
- cynicalkane 13y ago
  If you think big banks should be the world's money police, then yes. Honestly, I would rather have that than have the federal government do it with a giant NSA-for-banks program. But my inner libertarian finds this arrangement suboptimal. And the government is probably watching it anyway. They certainly have an enormous amount of subpoena power, to the extent that big finance companies have IT systems just for satisfying subpoenas and ever-increasing regulatory data requirements. Edit: the answer to your question, supposing it's not rhetorical, is "yes". Elites and their subordinates have the same ethical incentives as everyone else, but are closer to the political source. This can be good or bad. I think a lot of history happens because of elites realigning their moral goals in response to incentives.
  - javert 13y ago
    There is no reason for money laundering to even be a crime. Rather than cracking down hard on everyone's freedom, we should just go to proper war (not a 10-year occupaiton, I mean get in it to win it) when we have to to destroy enemy governments or terrorist training camps. This is a root cause analysis.
    - mercurial 13y ago
      > This is a root cause analysis. Colour me impressed. I'm comforted to learn that the US and its various allied countries did not go to Iraq and Afghanistan to "win it", and did not prosecute a "proper war" in Iraq. Presumably, Saddam's military will emerge any time now. I look forward to the US invading various parts of South America, and escalating to the "proper" level of violence in Afghanistan.
Tomdarkness 13y ago
This is correct. They are also not singling out Bitcoins either. It has been in the news recently with banks closing accounts of money transfer businesses [1] due to the risk of money laundering. Therefore if money transfer businesses dealing with "conventional" currency are too much of a risk it is no surprise they'd not allow a company dealing in Bitcoins to hold an account. --- [1] http://www.theguardian.com/global-development/2013/jun/24/somalis-barclays-remittance http://www.theguardian.com/global-development/2013/jun/24/so...
erichocean 13y ago
I'll also add that a very similar regulatory environment for banks exists in the US—it's not just the UK.
- deleted 13y ago
  [deleted]
mercurial 13y ago
> The knee-jerk urge to paint big banks as shady criminals will only intensify, not mitigate, the regulatory pressure. It may not be money laundering, but if past history is any guide, it certainly looks like your average Goldman Sachs high-ranking executive thinks "ethics" is something that happens to other people. Or, closer to home, the recent Libor scandal. Big banks may not be shady, but they should probably come out of the dark corners they're standing with big bulges in their pockets.
pkinsky 13y ago
> The knee-jerk urge to paint big banks as shady criminals will only intensify, not mitigate, the regulatory pressure. This knee jerk urge is an excellent heuristic: big banks seem to act in shady, criminal ways whenever they think they can get away with it.
- csmuk 13y ago
  It's even worse than this. They actively pay compliance companies to make their criminal activity look legitimate enough to pass audits or find out where they can ship it to that has a more favourable legal environment. I'm disgusted to say that I work in the financial services sector in the UK. Every time the FCA introduces regulations, many people bail out of the financial services market because the loopholes and illegality they built their businesses on are no longer usable. God forbid any legitimacy.

eterm 13y ago

They also from my reading misunderstand VAT. If they bought BC at £1 and sold at £1.20, then the VAT would be effectively only on £0.20 as they could claim back the VAT from the purchase when they sold. VAT would only scupper them if they were selling BC they had mined themselves, but their talk of trying to set up a bank makes it sound like this isn't the case.

DanBC 13y ago
They buy bitcoin at £1. They add a markup of 5%, taking it to £1.05 Then they add 20% vat, taking it to £1.26 The final customer pays the VAT, which is collected from the OP. They reclaim VAT on things they buy, not things they sell.
- TranceMan 13y ago
  This has always confused me - maybe somebody can help me. I still don't understand how just re-selling something at a profit is 'adding value' in VAT terms. I thought the 'value' added was not monetary but actually doing something to the product(s) to make them more valuable. http://www.investopedia.com/terms/v/valueaddedtax.asp http://www.investopedia.com/terms/v/valueaddedtax.asp
  - tinco 13y ago
    Money is an expression or a carrier of value. If you do something to the product, that only adds value when you sell it for more than it was worth before. Adding value to something can be as simple as buying it in a time when no one needs it, and selling it when everyone wants it. Basically you added value by carrying risk or storing the asset.
  - tspiteri 13y ago
    With a 20% VAT rate, I buy something at 1.20 (1 + 0.20 VAT). So in effect I paid 0.20 as tax. Then I sell it at 1.80 (1.50 + 0.30 VAT). So I have collected 0.30 as tax. But I do not pass on all of the 0.30 tax to the government, I subtract the 0.20 I have already paid as VAT, and give the government 0.10. In effect, the consumer has paid the 0.30 VAT on the final price of 1.50 excluding VAT. I find the definitions in the investopedia link you provided very confusing.
    - Swannie 13y ago
      Well explained. Essentially becoming VAT registered turns you into a tax collector :-)
  - rlpb 13y ago
    The terminology is based around the traditional business model of physical goods. Buy stuff, put them together, sell the result. You reclaim the VAT on your purchases, and charge VAT on your sales. Thus the net VAT you collect is on the "value added". But you collect and your customer pays the full (eg. 20%) on the full sale amount, since he's paying for the complete value added all the way down the supply chain. This is effectively the same as a sales tax; just the mechanism for collection is different. For service-orientated businesses, the mechanism is the same; the terminology just makes less direct sense. In general, a business still get to reclaim all the VAT it pays on stuff it buys, and must charge VAT on all the stuff it sells.
AlexMuir 13y ago
They can only reclaim the VAT on BTC they bought IF THEY WERE CHARGED VAT ON THEM. They won't be charged VAT on them in 99% of cases because sellers are individuals.
blibble 13y ago
I had a read through the Revenue's guidelines, and it looks to me as if he would be exempt from VAT, because it's just FX: A supplier of an exempt intermediary service is a person who: - brings together a person seeking a financial service with a person who provides a financial service - stands between the parties to a contract and acts in an intermediary capacity, and - undertakes work preparatory to the completion of a contract for the provision of financial services, whether or not it is completed. all three of those apply (but IANATaxAdvisor)
- Anderkent 13y ago
  Yes, if you only mediate between buyer and seller then you don't need to pay vat. However if he was to do the trading himself (buy from one person, sell to another), then that provision does not apply.

winstonsmith 13y ago

Rather than "be care what I wish for", I'm more inclined to see a warning that holding banks accountable for criminal activity is a bad thing for cryptomoney as a reductio ad absurdum argument against cryptomoney.

randallsquared 13y ago
Your statement is ambiguous between "holding banks accountable for their crimes" or "holding banks accountable for the crimes of others". Cryptocurrency advocates mostly dislike the result of the latter, but I don't think most people even understand that the latter is what's driving bank actions, precisely because anti-banking rhetoric tends to conflate the two in the same way.
- kybernetikos 13y ago
  > precisely because anti-banking rhetoric tends to conflate the two in the same way. I don't think that people conflate them as much as you suggest. All the things I hear people complaining about are to do with misselling of insurance and mortgages, excessive overdraft fees, creating and trading insanely complicated derivatives at insane levels, foreclosing on property they don't actually have an interest in, cavalierly playing with the interest rates that the rest of the world are forced to treat as a fact of nature, insider trading, selling financial products to companies without revealing that they were created with the express intention of failing, breaking sanctions, actual money laundering, running and falling victim to ponzi schemes, paying giant sums of money to people who as far as anyone can tell from the outside failed in their duty and job, unduly influencing elected officials, deliberately manipulating the books so as to cripple entire countries and profiting in the process and then being caught on tape laughing about it. I pretty much never hear people complaining about banks because they offer a good service to criminals. Even if some of those criticisms are misguided, all I'm saying is that there is plenty of direct guilt that people impute to banks and bankers without having to start complaining that they are imputing indirect guilt too.
gaius 13y ago
The question is whether banks should be a "common carrier" for money, just as the postman carries no responsibility if you send drugs through the post.

deleted 13y ago

[deleted]

deleted 13y ago

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AshleysBrain 13y ago

I think what the blog post is getting at is currencies like USD, GBP, EUR etc. are still better for fraud than bitcoin. Hence the suspicion of anticompetitive behavior.

stcredzero 13y ago

There's even been a sort of reverse regulatory capture: top bankers see among their ethical responsibilities the job of being the world's money police. So, given the right culture and flows of information, the mechanisms of regulatory capture can also do the right things? EDIT: Nice, HN. Someone asks an interesting question, so it's immediately read as a position then downvoted. How about taking this at face value as a question?

cynicalkane 13y ago
If you think big banks should be the world's money police, then yes. Honestly, I would rather have that than have the federal government do it with a giant NSA-for-banks program. But my inner libertarian finds this arrangement suboptimal. And the government is probably watching it anyway. They certainly have an enormous amount of subpoena power, to the extent that big finance companies have IT systems just for satisfying subpoenas and ever-increasing regulatory data requirements. Edit: the answer to your question, supposing it's not rhetorical, is "yes". Elites and their subordinates have the same ethical incentives as everyone else, but are closer to the political source. This can be good or bad. I think a lot of history happens because of elites realigning their moral goals in response to incentives.
- javert 13y ago
  There is no reason for money laundering to even be a crime. Rather than cracking down hard on everyone's freedom, we should just go to proper war (not a 10-year occupaiton, I mean get in it to win it) when we have to to destroy enemy governments or terrorist training camps. This is a root cause analysis.
  - mercurial 13y ago
    > This is a root cause analysis. Colour me impressed. I'm comforted to learn that the US and its various allied countries did not go to Iraq and Afghanistan to "win it", and did not prosecute a "proper war" in Iraq. Presumably, Saddam's military will emerge any time now. I look forward to the US invading various parts of South America, and escalating to the "proper" level of violence in Afghanistan.

Tomdarkness 13y ago

This is correct. They are also not singling out Bitcoins either. It has been in the news recently with banks closing accounts of money transfer businesses [1] due to the risk of money laundering. Therefore if money transfer businesses dealing with "conventional" currency are too much of a risk it is no surprise they'd not allow a company dealing in Bitcoins to hold an account. --- [1] http://www.theguardian.com/global-development/2013/jun/24/somalis-barclays-remittance http://www.theguardian.com/global-development/2013/jun/24/so...

erichocean 13y ago

I'll also add that a very similar regulatory environment for banks exists in the US—it's not just the UK.

deleted 13y ago
[deleted]

mercurial 13y ago

> The knee-jerk urge to paint big banks as shady criminals will only intensify, not mitigate, the regulatory pressure. It may not be money laundering, but if past history is any guide, it certainly looks like your average Goldman Sachs high-ranking executive thinks "ethics" is something that happens to other people. Or, closer to home, the recent Libor scandal. Big banks may not be shady, but they should probably come out of the dark corners they're standing with big bulges in their pockets.

pkinsky 13y ago

> The knee-jerk urge to paint big banks as shady criminals will only intensify, not mitigate, the regulatory pressure. This knee jerk urge is an excellent heuristic: big banks seem to act in shady, criminal ways whenever they think they can get away with it.

csmuk 13y ago
It's even worse than this. They actively pay compliance companies to make their criminal activity look legitimate enough to pass audits or find out where they can ship it to that has a more favourable legal environment. I'm disgusted to say that I work in the financial services sector in the UK. Every time the FCA introduces regulations, many people bail out of the financial services market because the loopholes and illegality they built their businesses on are no longer usable. God forbid any legitimacy.