compliance

Detecting Suspicious Activity on the Bitcoin Blockchain

It is a globally accepted belief that financial crimes such as money laundering, fraud and the financing of terrorism are societal evils warranting enormous preventative and investigative efforts.  Such a belief has been translated into a corpus of guidelines, principles, statutes and implementing regulations around most of planet Earth known as anti-money laundering (AML) and countering the financing of terrorism (CFT) or AML/CFT.

Generally speaking, AML/CFT regulations are intended to deter criminal activity before it happens, and to detect it when it has happened.  Because doing this on their own would be an impossibly gargantuan task, governments issue regulations whereby they deputize financial intermediaries as crime fighters on behalf of the public.  Each and every financial service provider categorized by law as an “obligated subject” is thus mandated to implement processes, procedures and controls aimed primarily at warding off criminals and, if they manage to penetrate the financial institution, identify them, report them, and ideally stop them in their tracks.

The primary crime deterrent is the obligation to identify customers and beneficial owners, a process known as customer due diligence (CDD) or Know Your Customer (KYC).  The Continue reading →

Bitcoin, Blockchains and Regulation

Blockchain-based technologies could revolutionize not only how companies operate but also how regulators and law enforcement officers perform their supervisory and investigative duties. Could the transparency, user-defined privacy and programmability of blockchains minimize market failures and reduce the need for regulation?

The First Blockchain

Through an ingenious combination of well-known technologies and economic incentives, Bitcoin brought about one of the most exciting and potentially transformative inventions in modern history —the ability to achieve consensus and guarantee truth without a central authority and with censorship-resistance. So revolutionary is this breakthrough that it has ignited a gold rush of investment and creativity similar to the pre-browser years of the Internet.

Blockchains were born with Bitcoin. And by Bitcoin I do not mean bitcoin (lowercase), the volatile and supposedly anonymous virtual currency that is not controlled by any third party, and allows individuals with Internet connectivity to send and receive value in any amount, globally, and almost for free. Lowercase bitcoins are an inextricable component of this new technology, and a uniquely significant one that transcends their monetary nature. They are digital containers that can be programmed to represent digitally “anything of value,” such as a security, a medical record or a work of art.

Bitcoin (uppercase) is an open source software that runs as a distributed network made up of thousands of smaller computers —nodes— that jointly certify the ownership and transfer of value without having to trust one another. In this sense, Bitcoin acts as as a semi-autonomous robot that utilizes advanced cryptography to enforce rules embedded in its core that guarantee everyone’s honest behavior. Part of that enforcement mechanism consists of recording transactions in a counterfeit-proof and immutable ledger that is also distributed to all participants in the network. This public ledger —Bitcoin’s database— is called the blockchain. Continue reading →

“Bitcoin Is the Perfect Way to Transfer Money Globally”

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Interview with Alan Safahi, founder and CEO of ZipZap

Last July, at the Inside Bitcoins conference in New York City, one speaker in particular made a comment that caused the loudest round of applause in the entire conference when he said: “This country was founded on a separation of church and state.  I think we should also add separation of bank and state.”  It was Alan Safahi, founder and CEO of ZipZap, Inc., a San Francisco-based start-up that aims to revolutionize international money transfers around the world.

Alan has graciously accepted to talk about his company, his vision and the future of digital currencies.

Juan: Please tell us about your background and how you got involved with Bitcoin.

Alan: I am a serial entrepreneur with 28+ years of experience with several start-ups under my belt in technology, telecommunications and financial services.  I was an early adopter in the evolution of prepaid cards in the 1990s, so I have been part of the problem for the longest time!  I got involved with Bitcoin in 2010 and have since been a vocal supporter and activist of digital currencies. I currency sit on the Advisory Board Continue reading →

The Value of a Necessary Evil

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Over the past few years, I have been polling compliance professionals around the world, anonymously, of course, on how compliance and risk management are treated by their senior management within their organizations.  Consistently and overwhelmingly, the preponderance of responses has fallen on the A side:

The truth is that, whether we acknowledge it or not, a focus on compliance and risk management has always been a hard internal sell.  Although compliance professionals are partly to blame for that, I believe most of the Continue reading →

No Banking, No Bitcoin

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Last Friday’s news that the Internet Archive Federal Credit Union (IAFCU) had shut down Tradehill’s account must have sent chills down the spine of every virtual currency entrepreneur.  If it didn’t, it should. The IAFCU was supposed to be one of the few, if not the only, Bitcoin-friendly financial institution in the U.S. rescuing virtual currency exchangers from ‘banking oblivion’.  At this point, we can only speculate about the true causes of this unfortunate situation, and we certainly hope it gets resolved favorably, promptly and permanently.

Let’s hope it’s another case of entrepreneurial immaturity, as that would be the lesser evil compared to other potentially more devastating ones.  However, with all due respect to the parties involved in this particular case, there is, in general, a fine line between immaturity and stupidity; one that cannot be ignored in a nascent industry that is riddled with risks, and in which a few bad apples could set the entire industry basket back by years.  My point is: Are convertible virtual currency exchangers doing their homework?

News flash #1 to virtual currency exchangers: you are financial institutions!

Being a financial institution requires a heightened degree of governance –organization, discipline and Continue reading →

“Compliance-Enabled Legitimacy is Key to Bitcoin’s Survival”

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Interview with Megan Burton, founder and CEO of CoinX

Early last month, at a Bitcoin pitch contest organized by Ultra Light Startups, the winner, Atlanta-based CoinX, beat the competition by a landslide.  To be precise, the show-stealer was actually Megan Burton, its founder and CEO.  John Frankel, partner of venture-capital firm ff Venture Capital, one of the three expert judges in the panel, said to me: “It was a strong presentation.  She came across as someone who has done her homework and her strategy seems sound.”

Megan, whom I was delighted to meet in person last week at the Inside Bitcoins conference in New York City, has graciously agreed to an interview.  Enjoy!

Juan: Please tell us about your background and how you got involved with Bitcoin.

Megan: My background is in internet and payments security.  I first came across Bitcoin in the spring of 2012, when reading an article on the BBC website about a foreign currency exchange that had been shut down as a result of a security breach.  Nothing out of the ordinary, except that this breach had been due to an encryption Continue reading →

Performance+Compliance: The Business Challenge of the Day

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As the twenty‐first century unfolds, new and higher stakeholder expectations challenge organizations to achieve performance goals and increase shareholder value while at the same time meeting increased regulatory and compliance standards.

In the eighties, companies realized the strategic significance of human resources and a revolution in management development broke out. In the late nineties, technology and connectivity triggered the phenomenon known as globalization.  Each wave brought about enormous opportunities for economic growth and development.  However, September Eleven and the unprecedented corporate ethics meltdown of the early years of the new millennium revealed that fast change is leaving many gaps behind.

It is a fact that technological innovation has helped streamline business processes and lower costs.  On the other hand, however, issues in areas such as data security remain only partially addressed.  As for us humans, we seem to have learned how to organize ourselves a little better.  However, in general, we are still struggling to work collaboratively across international boundaries, remain creativity‐challenged, and keep Continue reading →