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, firstname.lastname@example.org, "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)" [email@example.com, 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
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