- The legitimacy and competence of governments and regulators have been questioned after the FinCEN Files expose systemic corruption.
- The crypto industry has condemned the lack of progress seen in the fight against financial crime.
- Some crypto pundits have emphasised how blockchain technology can help address international shortcomings.
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The crypto industry has denounced the failings of governments and regulators after the FinCEN Files exposed mass global corruption and a toothless regulatory environment.
The world’s biggest banks and largest financial centres have been implicated in a litany of scandals, including HSBC allegedly moving millions of stolen funds, and London reportedly giving Russian mobsters safe haven for their dirty money. Crypto pundits have taken notice, criticizing the very foundation of the global financial system.
“What is in question today is the legitimacy and even competence of governments and regulators,” Juan Llanos, compliance executive and advisor at crypto-focused firm Juan Llanos Advisors, told Decrypt.
Llanos added that the FinCEN Files were “the result of a global systemic failure that has to do with poor design, distorted incentives and our flawed human nature.”
Getting regulated by a broken system
With faith in the integrity of regulations and their enforcement seemingly hitting a new low, crypto enthusiasts have drawn a line in the sand between their camp and traditional finance.
This frustration also portrays a loss of patience. Before the FinCEN Files, other major financial leaks like the Panama Papers and Paradise Papers made it obvious financial crime was rampant, yet there has not been enough progress in keeping dirty money out the system.
"The FinCen leaks deal a massive blow to mainstream finance’s ‘holier-than-thou’ stance as regulated, stringent, fair, responsible. They expose just how inept—in a best case scenario, or unwilling—in the worst case, regulators and traditional banks are at fighting money-laundering and fraud," Antoni Trenchev, managing partner of Nexo, told Decrypt, adding, "Fundamental, comprehensive reform is needed and digital finance must be part of this reform, for the obvious reason that it offers greater transparency."
Alternatively, the current laws could actually be applied to everyone. “The main point is to apply criminal law to criminals—irrespective of them working in large institutions or not,” Ingo Fiedler, co-founder of Blockchain Research Lab, told Decrypt.
“The fines that banks had to pay for past money laundering scandals were usually smaller than the profits the banks made from processing the illicit flows,” added Fiedler, saying that it is high time the “criminal law is finally applied to such cases and the responsible bankers go to prison.”
Crypto’s role in the fight against corruption
For some, the FinCEN Files are a reminder of blockchain technology’s role in fighting financial crime. The digital flow of information and smart contract technology are two examples of useful tools the crypto space has in the fight against corruption.
“Cryptocurrency’s inherent transparency combined with blockchain analysis makes detecting, reporting, and investigation financial crime more efficient,” Jesse Spiro, head of policy at Chainalysis, told Decrypt, adding that “this kind of transparency isn’t possible in traditional asset classes.”
On the other hand the crypto industry has fallen victim to its fair share of criminal activity. “North Korea has invested over 400 million USD into the DPRK’s nuclear program, including funds stolen from Mt. Gox. That is the point of asking for the industry to be regulated,” John Jeffries, chief financial analyst at CipherTrace, told Decrypt.
Until regulatory regimes are deployed globally, we will continue to see exit scams, token fraud, and jurisdiction hopping,” Jeffries added.
Looks like better regulation is needed all around.