The entry of cryptocurrencies into global finance as a decentralized transaction medium and asset class may offer a new channel for financial secrecy, and many already believe that illicit transactions are behind a large chunk of crypto.
But those who are looking to beef up the value of financial secrecy through cryptowallets and distributed-ledger transactions are likely to be sorely disappointed. If that’s the end game, don’t bother with Bitcoin, or its counterparts.
Financial secrecy can be profoundly beneficial by assuring confidentiality for individuals, businesses, banks, governments and many other — some even consider secrecy a “human right.” It plays a vital role as a catalyst in creating economic and social benefits that wouldn’t be possible without the existence of proprietary information. But it also makes possible the dark underbelly of the system — tax evasion, the narcotics plague, human trafficking, organized crime, sanctions-busting and money-laundering, terrorism, corruption, espionage, suborning elections, and an array of other nefarious activities. Classic tools include cash transactions and money laundering through secrecy havens.
Now, along come cryptocurrencies like Bitcoin
offering total transparency inside their blockchain platforms along with anonymity between cryptowallets and their real owners.
Is crypto a threat or an opportunity for those looking for financial secrecy? The answer matters for the future of global finance, and it doesn’t look good for those in need of confidentiality.
If financial secrecy has value, there must be a “market” for it. So what’s it worth? That depends on where the secret money comes from and what happens if the cover is blown. And who can be trusted with safeguarding financial secrets? The usual candidates cover a whole coterie of lawyers, bankers, accountants and investment advisers who market trust and discretion. Pick the wrong “secret agent” who leaks or can be made to leak, and game over.
Traditionally, the ultimate gold standard for financial secrecy has been highly reputable financial institutions that are operating beyond national enforcement jurisdictions and are based in politically and economically stable countries with a tradition of tough secrecy laws and blocking statutes.
As in any good market, financial secrecy is bought and sold, and both sides can be happy — often at the expense of someone else. Usually, you get what you pay for. As long as bankers and other agents can convincingly promote secrecy along with professionalism, there’s a treasure trove of fees to be earned and high-paying jobs to be had. This is, after all, a global market with plenty of demand and willing suppliers supporting nice fat profit margins.
Much has changed in the global financial secrecy game in recent years, some of which has caused great misery for ordinary secrecy addicts who happen to come up in the net. In the U.S., that includes the 2001 Patriot Act, the 2010 Foreign Account Tax Compliance Act (FATCA), the creation of the FINCen arm of the U.S. Treasury Department, and a 2015 bilateral tax-evasion deal with Switzerland.
Other countries have their own approaches, but none can equal the ability of the U.S. Department of Justice and the New York State Department of Financial Services to leverage the need for dollar-clearing as the big bazooka in disrupting the financial secrecy game.
Read: One SEC commissioner is…