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Is this the Next Shoe to Drop for Bitcoin?‏

In the largest such case ever brought by the US federal government, the Department of Treasury shut down virtual currency provider Liberty Reserve as a ‘primary money laundering concern.’

If you’re not familiar with Liberty Reserve, it was a Costa Rica-based platform that allowed its 1+ million users to convert fiat currency into an online virtual currency that was loosely connected to the financial system.

Users could hold Liberty Reserve Dollars, euros, etc. which were tied to fiat dollars, euros… or even gold. And they could quickly transfer funds across the Liberty Reserve network.

Liberty Reserve’s cardinal sin was not making any effort to validate the identities of its customers. And for this reason, the US government labeled it a ‘primary money laundering concern.’

After all, only criminal terrorists want to bank anonymously.

The charges against Liberty Reserve are vicious, to say the least. The Financial Crimes Enforcement Network claims that the service ‘is not designed for legitimate use’, and that it is ‘designed to facilitate money laundering and illicit finance.’

They go on to list a number of terrorists and criminals who have used Liberty Reserve… because, of course, that’s how they accomplish everything these days – by citing the threat of terrorism.

In fact, the government is deriving its authority to bring charges against Liberty Reserve (and seven of the company’s principals) from a little-known section of the USA PATRIOT Act.

This section, 311, authorizes the US government to blacklist any foreign bank it sees fit from the US financial system. And given that the world still relies heavily on the US financial system for international trade and banking settlement, being cut off from it is fatal.

The biggest issue is what this may mean for Bitcoin…because it certainly does seem to be a huge flashing warning sign that the government is out there targeting digital currencies.

One major difference is that Liberty Reserve was centralized. There was one key platform involved with technology to maintain customer accounts and process payments.

So, to take down Liberty Reserve, they only had to go after a single node.

Bitcoin, on the other hand, is decentralized. Account and transaction data is distributed across the entire user base. There are literally millions of players involved, so it’s a bit of a tougher nut for the government to crack.

But as they’ve already gone after Mt. Gox, the largest Bitcoin exchange site, it certainly follows that they will continue to harass other Bitcoin exchanges… even those that are based outside of the US.

The Liberty Reserve case shows that they’re perfectly willing to use any means available, even citing absurd anti-terrorism legislation, to exceed their jurisdiction and take down their target.

Regards,

Simon Black
for The Daily Reckoning Australia

 

Join The Daily Reckoning on Google+
 

Ed Note: This article first appeared here.

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3 Comments

  1. Ross says:

    A topic I raised recently on the consequences of the curtailing of fiat has blowback issues subsequently being raised on queue.

    http://www.economist.com/news/business/21578400-more-governments-are-insisting-weapons-sellers-invest-side-deals-help-them-develop

    countertrade and offsets was big business up til the 90′s funny money era when the freshly minted USD collateral took over.

    unthinkable says TE ….

    wake up junkie from your drug induced coma says Ross

  2. masalai says:

    So does that leave only one option for users of bitcoin et al – - boycot the US$ and USA? – Oops – did someone say something?

    Perhaps one Australian bank may be pissed off at USA interference? and in USA another got “exemption” for not being prosecuted for its own for money laundering for the drug cartels some years ago? – so much so that the USA backed down when a bank threatened to close its doors or some such thing – too big to fail or withdraw from the system and starve USA from access to cash money? – what a garbled response but when I read it a year or so ago, I laughed and forgot the detail on how to screw the USA…

    Will the USA succeed in biting itself in the testicles?

  3. justin king says:

    Liberty Reserve seems to be a VALID CASE, even it upsets Libertarian values.

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