10.8.1. "What's the legal status of digital cash?"
- It hasn't been tested, like a lot of crypto protocols. It
may be many years before these systems are tested.
10.8.2. "Is there a tie between digital cash and money laundering?"
- There doesn't have to be, but many of us believe the
widespread deployment of digital, untraceable cash will
make possible new approaches
- Hence the importance of digital cash for crypto anarchy and
related ideas.
- (In case it isn't obvious, I consider money-laundering a
non-crime.)
10.8.3. "Is it true the government of the U.S. can limit funds
transfers outside the U.S.?"
- Many issues here. Certainly some laws exist. Certainly
people are prosecuted every day for violating currency
export laws. Many avenues exist.
- "LEGALITY - There isn't and will never be a law restricting
the sending of funds outside the United States. How do I
know? Simple. As a country dependant on international
trade (billions of dollars a year and counting), the
American economy would be destroyed." [David Johnson,
privacy@well.sf.ca.us, "Offshore Banking & Privacy,"
alt.privacy, 1994-07-05]
10.8.4. "Are "alternative currencies" allowed in the U.S.? And what's
the implication for digital cash of various forms?
- Tokens, coupons, gift certificates are allowed, but face
various regulations. Casino chips were once treated as
cash, but are now more regulated (inter-casino conversion
is no longer allowed).
- Any attempt to use such coupons as an alternative currency
face obstacles. The coupons may be allowed, but heavily
regulated (reporting requirements, etc.).
- Perry Metzger notes, bearer bonds are now illegal in the
U.S. (a bearer bond represented cash, in that no name was
attached to the bond--the "bearer" could sell it for cash
or redeem it...worked great for transporting large amounts
of cash in compact form).
+ Note: Duncan Frissell claims that bearer bonds are _not_
illegal.
- "Under the Tax Equity and Fiscal Responsibility Act of
1982 (TEFRA), any interest payments made on *new* issues
of domestic bearer bonds are not deductible as an
ordinary and necessary business expense so none have been
issued since then. At the same time, the Feds
administratively stopped issuing treasury securities in
bearer form. Old issues of government and corporate debt
in bearer form still exist and will exist and trade for
30 or more years after 1982. Additionally, US residents
can legally buy foreign bearer securities." [Duncan
Frissell, 1994-08-10]
- Someone else has a slightly different view: "The last US
Bearer Bond issues mature in 1997. I also believe that to
collect interest, and to redeem the bond at maturity, you
must give your name and tax-id number to the paying
agent. (I can check with the department here that handles
it if anyone is interested in the pertinent OCC regs that
apply)" [prig0011@gold.tc.umn.edu, 1994-08-10]
- I cite this gory detail to give readers some idea about
how much confusion there is about these subjects. The
usual advice is to "seek competent counsel," but in fact
most lawyers have no clear ideas about the optimum
strategies, and the run-of-the-mill advisor may mislead
one dangerously. Tread carefully.
- This has implications for digital cash, of course.
10.8.5. "Why might digital cash and related techologies take hold
early in illegal markets? That is, will the Mob be an early
adopter?"
- untraceability needed
- and reputations matter to them
- they've shown in the past that they will try new
approaches, a la the money movements of the drug cartels,
novel methods for security, etc.
10.8.6. "Electronic cash...will it have to comply with laws, and
how?"
- Concerns will be raised about the anonymity aspects, the
usefulness for evading taxes and reporting requirements,
etc.
- a messy issue, sure to be debated and legislated about for
many years
+ split the cash into many pieces...is this "structuring"? is
it legal?
- some rules indicate the structuring per se is not
illegal, only tax evasion or currency control evasion
- what then of systems which _automatically_, as a basic
feature, split the cash up into multiple pieces and move
them?
10.8.7. Currency controls, flight capital regulations, boycotts,
asset seizures, etc.
- all are pressures to find alternate ways for capital to
flow
- all add to the lack of confidence, which, paradoxically to
lawmakers, makes capital flight all the more likely
10.8.8. "Will banking regulators allow digital cash?"
- Not easily, that's for sure. The maze of regulations,
restrictions, tax laws, and legal rulings is daunting. Eric
Hughes spent a lot of time reading up on the laws regarding
banks, commercial paper, taxes, etc., and concluded much
the same. I'm not saying it's impossible--indeed, I believe
it will someday happen, in some form--but the obstacles are
formidable.
+ Some issues:
+ Will such an operation be allowed to be centered or based
in the U.S.?
- What states? What laws? Bank vs. Savings and Loan vs.
Credit Union vs. Securities Broker vs. something else?
+ Will customers be able to access such entities offshore,
outside the U.S.?
- strong crypto makes communication possible, but it may
be difficult, not part of the business fabric, etc.
(and hence not so useful--if one has to send PGP-
encrypted instructions to one's banker, and can't use
the clearing infrastructure....)
+ Tax collection, money-laundering laws, disclosure laws,
"know your customer" laws....all are areas where a
"digital bank" could be shut down forthwith. Any bank not
filling out the proper forms (including mandatory
reporting of transactions of certain amounts and types,
and the Social Security/Taxpayer Number of customers)
faces huge fines, penalties, and regulatory sanctions.
- and the existing players in the banking and securities
business will not sit idly by while newcomers enter
their market; they will seek to force newcomers to jump
through the same hoops they had to (studies indicate
large corporations actually _like_ red tape, as it
helps them relative to smaller companies)
- Concluson: Digital banks will not be "launched" without a
*lot* of work by lawyers, accountants, tax experts,
lobbyists, etc. "Lemonade stand digital banks" (TM) will
not survive for long. Kids, don't try this at home!
- (Many new industries we are familiar with--software,
microcomputers--had very little regulation, rightly so. But
the effect is that many of us are unprepared to understand
the massive amount of red tape which businesses in other
areas, notably banking, face.)
10.8.9. Legal obstacles to digital money. If governments don't want
anonymous cash, they can make things tough.
+ As both Perry Metzger and Eric Hughes have said many times,
regulations can make life very difficult. Compliance with
laws is a major cost of doing business.
- ~"The cost of compliance in a typical USA bank is 14% of
operating costs."~ [Eric Hughes, citing an "American
Banker" article, 1994-08-30]
+ The maze of regulations is navigable by larger
institutions, with staffs of lawyers, accountants, tax
specialists, etc., but is essentially beyond the
capabilities of very small institutions, at least in the
U.S.
- this may or may not remain the case, as computers
proliferate. A "bank-in-a-box" program might help. My
suspicion is that a certain size of staff is needed just
to handle the face-to-face meetings and hoop-jumping.
+ "New World Order"
- U.S. urging other countries to "play ball" on banking
secrecy, on tax evasion extradition, on immigration, etc.
- this is closing off the former loopholes and escape
hatches that allowed people to escape repressive
taxation...the implications for digital money banks are
unclear, but worrisome.
By Tim May, see README
HTML by Jonathan Rochkind