I am sure that you all have read the numerous articles and news accounts of the $6 billion laundered through Liberty Reserve. My intention is to look at various aspects of the Liberty Reserve case which all of our fellow colleagues in the foreign exchange, precious metals and legitimate money transfer business would never implement. We must not allow anyone to link our totally transparent business activities with an outfit such as Liberty Reserve.
First of all, our fellow business entities operate within the confines of the U.S regulatory system. Thus, many of us are registered with FinCEN as a MSB or obtaining a relevant State Money Transfer License. Others would be registered appropriately in their various industry associations. Liberty Reserve was blatantly conducting money transfer business and did not possess any such appropriate state licenses. Without this license, with no regulatory oversight – who knows what due diligence if any was conducted with their customers and trading counterparties.
Second, with the mentioning of due diligence, it appears that Liberty Reserve accepted customers with the basic requirements of an e-mail address, a name, address and date of birth. But what was not required, it seems was any verification of the customer’s identity. What I am sure of – is that all of our upstanding fellow financial institutions have a strong Know Your Customer protocol prior to accepting anyone as a customer. It is simply not worth the reputation risk of linking our institutions with criminal elements.
Third and here it becomes a bit confusing. From the New York Times Article on May 29, 2013 ‘U.S Says Currency Exchange Was Online Hub for Laundering of $6 Billion’ customers did not directly fund Liberty Reserve. In fact the account holder would direct his or her regulated bank to transfer U.S Dollars to a Third Party Exchanger which was an unlicensed money-transmitting business located in Russia, Nigeria and Vietnam. Then that Exchanger would then convert the money into digital or virtual funds for deposit into the holder’s Liberty Reserve account.
It is here where I am positive that no such payment policy of ours even resembles that of Liberty Reserve. We would require our accepted and approved customer to directly pay our institution’s account at a regulated bank in the U.S. Not to have this simple requirement would mean there is no transparency. And what I cannot comprehend is why the legitimate customers as opposed to the criminals would even conduct such a questionable payment process. Would you or I just arbitrarily wire funds to an unknown entity in all places such as Russia, Vietnam and especially Nigeria! And I would be curious to know what type of ‘due diligence’ were the regulated U.S Banks conducting when wiring funds to ‘questionable’ companies in High Risk Compliance countries.
I have mentioned these differences because I am hoping that the Liberty Reserve fiasco is not going to affect us in any way. I have no idea of what the fall out will be from this situation as it affects the U.S Banking System. We certainly do not want the banks in the U.S to have any additional fears of dealing with legitimate non-bank financial institutions which conduct business with the general public. And we have to disassociate ourselves with entities such as Liberty Reserve so that the legitimate public can trust dealing with us.