White-collar crime is not a legally recognized illegal behavior. Yet, it encompasses a wide range of illicit behaviors, including cheating, lying, and stealing, according to the FBI Website. The reason for persons who commit these crimes is monetary; to obtain or avoid parting with property, money, or services, or to gain a business or personal advantage (FBI, 2017, para.1). Yet, this malice is devoid of violence or physical force (Gaines & Miller, 2015, p.427).
People who commit white-collar crimes claim that they are victimless offenses, but this is not the case. A single scam can bring down a company, wreck families by taking away their savings, or lead to the loss of billions of dollars for investors. Moreover, the fraud schemes that take place today are more sophisticated than they were (FBI, 2017, para.2). Some of the significant white-collar threats that the Federal Bureau of Investigation is facing today include money laundering, as well as commodities and Securities Fraud.
Money laundering is the process where criminals hide or mask their proceeds to make them appear as having come from sources that are legitimate. Notably, it helps perpetrators to conceal and acquire wealth, evade taxes, avoid prosecution, further fund their malicious activities, and increase the profits they make through reinvestment. Also, it undermines the stability and integrity of financial systems and institutions, contorts international capital flows, and demoralize foreign investment (FBI, 2017, p.17).
Moreover, the continuing global capital markets integration has created unparalleled opportunities for businesses in the U.S. to get capital and portfolio diversification for investors. As a result, Americans prefer to invest in the commodity markets and U.S. securities. Such developments have led to an adjacent increase in the amount of misconduct and fraud witnessed in these markets. The establishment of complex vehicles of investment and the overwhelming rise in the total amount of money invested has created more tremendous opportunities for businesses and individuals to execute fraudulent investment schemes (FBI, 2017, p.19).
Relevant facts
Investment fraud
They are schemes that involve the purported or illegal sale of financial instruments. A typical scam scheme offers no or low-risk investments, returns are guaranteed, complex strategies, returns are overly consistent, and securities are not registered. A good example of an investment fraud is the Ponzi schemes and pyramid schemes (FBI, 2017, p.20). Ponzi schemes entail the payment of manipulated returns to existing investors from funds provided by new investors. Pyramid schemes, on the other end, are Ponzi schemes where the new investors' money is paid to earlier shareholders in addition to the commissions they receive for recruits. Pyramid schemes tend to be concealed under multi-level programs of marketing (FBI, 2017, p.20).
Virtual Currency
The European Central Bank (ECB) report of 2012 described virtual currency (VC) as a kind of unsupervised digital money, given and habitually controlled by the developers (Bugeja, 2014, para.2). VCs are accepted and used among people of a specific virtual community. Virtual currency is different from electronic money in that the currency in use does not have a physical counterpart with the status of a legal tender. The FinCEN (Financial Crimes Enforcement Network) in the US states that people operate the VC world as Exchangers, Users, or Administrators. Exchangers are people who manage the business of converting VCs for real or other VCs while Administrators have the power to issue, redeem or withdraw the VCs. Lastly, users purchase or buy the VCs (Bugeja, 2014, para.3).
VCs assume several forms. The most commonly used are cryptocurrencies such as Bitcoin modeled to act as government -issued cash substitute (Carlisle, 2017, p.1). The motivation for individuals to use virtual currencies is varied. There will always be marginalized persons in any community who for their reasons, fail to trust the administration or government in the places where they live (Law & Austen, 2015, p.1).
Moreover, such people are nervous and distrust the large corporations' data mining and collection. For this category of individuals, an anonymous online payment and one that is beyond the control of those they do not trust is attractive. Additionally, for people with criminal motive, virtual currencies provide an excellent opportunity to make use of money in a pseudo-anonymous way to execute illegal activities (Law & Austen, 2015, p.1).
Bitcoin
The history of bitcoin depicts the complexity of issues of financial crime that surround the VCs. In October 2008, an individual who is not known, using the nickname Satoshi Nakamoto, wrote a paper online introducing the bitcoin idea. The Satoshi's proposal offered a complete 'peer-to-peer network of payment where users would directly trade the currency without the participation or interference of any financial sector intermediary or government or third party administrator. Therefore, the bitcoin network has a similarity to an open website platform such as Wikipedia. Bitcoin does not depend on a central authority but on the active engagement of its users to maintain it (Carlisle, 2017, p.1).
Role played by Virtual Currencies in White Collar Crimes
From the perspective of the Law Enforcement, the problem of virtual currency is that there is no outlined way to determine whether online accounts for bitcoin are registered using the actual name of the user (Cohn, 2014, para. 11). Therefore, bitcoin is attractive for people who want to take part in the white-collar crime. For instance, it is easy to avoid paying taxes for transactions made with bitcoin. Also, virtual currencies are well modeled to facilitate money laundering by converting the illegally obtained funds into bitcoins (Gaines & Miller, 2015, p.427).
Further, as technology advances, crimes change. Money laundering is not immune to the way we do business regarding the making of alternative currencies that can get processed without passing through recognized financial organizations such as credit card companies and banks. The problem is, as virtual currencies such as Bitcoin alter the way cross-border business is operated, they may also change the way money laundering is viewed in the legal regulations (Spatz, 2017, para. 2).
Consequently, since the introduction of Bitcoin, there has been a rising concern by the law enforcement about its use in concealing illegal activities and on the black market. The bitcoin is favorable because it is anonymous in exchange. Additionally, the U.S. has struggled to find out exactly how laws apply to Bitcoin since several legitimate enterprises accept it. Hence, to be able to fight the vague nature of crimes committed using bitcoins, the lawmakers in Florida are proposing a bill that will include virtual currencies in the money laundering statute of the state (Spatz, 2017, para.6).
The statute would mean that the people involved in the hiding and transfer or use of illegally obtained Bitcoins can get prosecuted as money launderers. As such, this will be very helpful because as it is, money launders are continually getting away with crimes. Additionally, if the law was to get passed to include Bitcoin as a currency, then the illegal transactions can be considered as laundered. However, prosecutors would still have to prove that the defendant intended to hide dirty currency using an array of operations in the same way that money launderers are prosecuted for traditional currencies laundering (Spatz 2017, para.6).
Silk Road
The success of bitcoin as a technological feat, despite being impressive, hastily led to a controversy. The first huge incident was the US law enforcement Silk Road crackdown. The black market Website, well known as Silk Road would not have been developed without the virtual currency (bitcoin). U.S. Attorney, Richard Zabel, argued that instead of the need for hard cash, users could buy illegal drugs from any place in the world with just a push of the button. However, Bitcoin is not inherently illegal; it is purchased and sold online, and it is accepted by legitimate Internet Businesses such as Overstock.com (Gaines & Miller, 2015, p. 427; Dhillon, 2016, P.4).
Securities fraud
Recently, a former e-currency banker pleaded not guilty to criminal charges in a federal district court. The e-banker was charged with two criminal charges: one securities fraud count and one wire fraud count. The e-banker managed the now-defunct virtual hedge fund known as Bitcoin Savings & Trust. According to the charges presented in court, he managed a Ponzi scheme in 2011 and 2012 with the use of bitcoins as currency. The accused e-banker had made promises of large payouts to investors who ventured into Bitcoin Savings & trust, but he was paying the earlier investors using funds invested by the new investors. The charges state that approximately half of the investors lost a part of their investment (Petersen, 2015, para.5).
The legality of the Virtual Currencies
However, in spite of all the opportunities for the success of white collar crimes that the Bitcoin has created, the court ruled that selling Bitcoin is money laundry and that selling criminals Bitcoin is not a crime. In the Florida v. Espinoza court case, the Miami court dismissed the charges filed against a Bitcoin exchanger. The bitcoin exchanger was arrested after accepting to sell bitcoins to an undercover detective pretending to need them for the purchase of stolen credit cards. The court argued that just selling bitcoins to a person who intends to use them for a criminal purpose, even if the intent is clear at the time of the sale, is not enough evidence for a charge in money laundering (Latham & Watkins 2002, p.1).
Alternative courses of action
Alternatives to the problem
Therefore, to curb money laundering and secure investors from fraud, economists believe that there is the need for some regulations to form cryptocurrencies. However, those that should most probably be regulated are digital coins that at times act like securities but do not get subjected to any of the strict mainstream regulations. In late July, the Securities and Exchange Commission released a report for investigation, stating that companies with plans to use block chain-enabled ways or distributed ledger to acquire capital, ought to take the right stages to abide by the federal securities laws of the U.S (Choudhury, 2017, para. 19).
Moreover, Singapore's MAS made it clear that it would regulate the digital tokens sale in the city-state if they include products regulated by the Singapore's futures and securities regulation. The regulatory oversight for ICOs would witness net benefits. Additionally, most economists agree that having proper rules will help to protect investors just like they are safeguarded in the securities market (Choudhury, 2017, p.22).
Constraints
A common criticism for such regulation is that it will remove or reduce privacy layers, which goes against one of the core reasons behind the introduction of cryptocurrencies. Users of the virtual money are convinced that the tangible coins are corrupted by banks and the central government's heavy-handed intervention. Cryptocurrencies are designed to be decentralized and anonymous, meaning that decisions that affect them are not centrally dictated. However, investor protector favors regulation. The problem is it may be complex to reconcile the two perspectives. Moreover, cryptocurrencies is a new technology though many regulators still do not completely understand this growing industry. Further, implementing policies that are poorly planned may cause more harm than good to the cryptocurrency technology (Choudhury, 2017, p.31).
Solutions
Cryptocurrencies pose significant challenges to regulators. However, one should not be in a hurry to regulate bitcoin without entirely comprehending the implication of blockchain technology, especially the impact they have towards competition, innovation, and regulation. Given the temporary state of blockchain technologies, the law needs to be elaborated with caution and using an informed way to help stop precautionary measures from curtailing new technologies in the future. Additionally, to draft a sound framework for regulation, policymakers should account for the general-purpose and horizontal nature of the blockchain adequately (Filippi, 2016, para.16).
New questions
Up to this point, it is essential to ask ourselves some questions
Based on the above and other existing literature, do white-collar crimes qualify as unlawful acts?
Can a plaintiff use fact defense to hold a perpetrator of such a crime culpable?
Will the inhibition of virtual currency reduce the current rates of money laundering?
References
Bugeja, D. (2014, February 17). Virtual Currencies: A New Reality in the fight against Money Laundering. Retrieved December 17, 2017, from BLL Portal: https://www.brightlinelaw.co.uk/White-Collar-Crime-Portal/virtual-currencies-money-laundering.html
Carlisle, D. (2017). Virtual Currencies and Financial Crime: Challenges and Opportunities. London: RUSI.
Choudhury, S. R. (2017, August 5). It's a perfect time to be the money launderer, and you can thank cryptocurrencies. Retrieved December 14, 2017, from CNBC: https://www.cnbc.com/2017/08/04/icos-may-be-seen-as-securities-by-u-s-and-Singapore-regulators.html
Cohn, S. (2014, April 23). Financial fraud in 25 years: A Virtual Madoff at lightning speed. Retrieved December 13, 2017, from CNBC: https://www.cnbc.com/2014/04/22/financial-fraud-in-25-years-a-virtual-Madoff-at-lightning-speed.html
Dhillon, G. (2016). Money Laundering and Technology Enabled Crime: A Cultural Analysis. San Diego: Virginia Commonwealth University.
FBI. (2017). White - Collar Crime. Retrieved December 13, 2017, from What we Investigate: https://www.fbi.gov/investigate/white-collar-crime
Filippi, P. D. (2016, January 3). We must regulate Bitcoin. The problem is, we don't understand it. Retrieved December 14, 2017, from WIRED: https://www.wired.com/2016/03/must-understand-bitcoin-regulate/
Gaines, L. K., & Miller, R. L. (2015). Criminal Justice in Action, The Core. Boston: Cengage Learning.
Latham, & Watkins. (2002). Virtual Currencies: Court Rules that Selling Bitcoin is not Money Transmitting and Selling Bitcoin to Criminals is not a Crime. White Collar Defense & Investigations Practice.
Law, K., & Austen, J. (2015). Virtual Currencies and their potential role in the cyber crime. Royal Holloway, 1-6.
Petersen, H. D. (2015, April 10). White Collar Crime trial underway for former bitcoin tycoon. Retrieved December 13, 2017, from Hymel Davis & Petersen: http://www.hymeldavis.com/blog/2015/04/white-collar-crime-trial-underway-for-former-bitcoin-tycoon.shtml
Spatz, R. (2017, April 26). Is Bitcoin Virtual Currency included in Florida Money Laundering Laws? Retrieved December 13, 2017, from White Collar Crime Attorney: http://www.spatzlawfirm.com/blog/2017/04/is-bitcoin-virtual-currency-included-in-florida-money-laundering-laws.shtml
