Read on Twitter
1/ Gather round all, from near and from far. This is the tale of the SAR on the Car.
2/ Our tale begins with an electronic transaction. For $9,999 marked “for the car, in full satisfaction.”
3/ While this small note may seem fair by itself, it still caught the eye of one Alice P. Welch.
4/ Alice worked at Wells Fargo, analyzing compliance. When one day she spotted an interesting daliance.
5/ Alice saw 1, and then 1 payment more.
Suddenly she picked out a pattern of 4.
Then 6 and then 10 and then 23.
Alice became simply giddy.
Suddenly she picked out a pattern of 4.
Then 6 and then 10 and then 23.
Alice became simply giddy.
6/ All of these payments had something *too* fine.
They all were notated for $9,999.
And the one that caught Alice’s eye wasn’t on par.
It was the payment that said it was all for a car.
They all were notated for $9,999.
And the one that caught Alice’s eye wasn’t on par.
It was the payment that said it was all for a car.
7/ So Alice did what good analysts do.
She wrote a SAR and filed it, too.
One suspicious activity report.
All in a day’s work, she thought with a snort.
She wrote a SAR and filed it, too.
One suspicious activity report.
All in a day’s work, she thought with a snort.
8/ Alice’s SAR, on and on it flew.
Until it got to FinCEN database 72.
There it sat for an hour or two, when a heuristic engine pushed it into a queue.
Until it got to FinCEN database 72.
There it sat for an hour or two, when a heuristic engine pushed it into a queue.
9/ From there it was read by federal law agents.
Like Alice, they were intrigued by the round-figure payments.
Why would one person send so many EFTs,
With the same amounts for cars, bar mitzvahs and bulk order tees?
Like Alice, they were intrigued by the round-figure payments.
Why would one person send so many EFTs,
With the same amounts for cars, bar mitzvahs and bulk order tees?
10/ So the agents did what they often do, when a SAR piques their interest for a minute or two.
They reached out to Wells Fargo using Section 314(a), and asked for extra info without delay.
They reached out to Wells Fargo using Section 314(a), and asked for extra info without delay.
11/ Wells Fargo was happy to share with the feds.
They sent reams of data, from A onto Zed.
They sent a full package, shared everything under the sun.
It pointed at Coinbase, which was the source of the funds.
They sent reams of data, from A onto Zed.
They sent a full package, shared everything under the sun.
It pointed at Coinbase, which was the source of the funds.
12/ The Feds gave a cheer, Coinbase was a registered MSB.
They had a compliance team and could help, certainly.
So they sent another 314(a),
Asking for data the very same day.
They had a compliance team and could help, certainly.
So they sent another 314(a),
Asking for data the very same day.
13/ But the Feds’ request quickly hit a snag. Coinbase couldn’t tell who was on the other side of the bag.
The problem was unhosted wallets, you see. Crypto protocols allowed them to transact without KYC.
The problem was unhosted wallets, you see. Crypto protocols allowed them to transact without KYC.
14/ Coinbase sent what they could, but their response was quite lacking.
When the agents reported to their bosses, they took a shellacking.
When the agents reported to their bosses, they took a shellacking.
15/ And all the way up to the top of the reporting tree,
Eventually this issue caught the eye of the Treasury Secretary.
Eventually this issue caught the eye of the Treasury Secretary.
16/ The Secretary was a sophisticated man named Stevie M.
With a Hollywood wife, he produced Lego Batman.
Stevie M once bought Pennymac for cents on the dollar.
He knew high finance and liked to hold dollars.
With a Hollywood wife, he produced Lego Batman.
Stevie M once bought Pennymac for cents on the dollar.
He knew high finance and liked to hold dollars.
17/ Stevie M, he dug in with the best of the best.
He called on his undersecretary of terrorism finance.
Is this a problem, Stevie asked?
Yes, sir, it’s a hole in financial intelligence that can lead to illicit finance.
He called on his undersecretary of terrorism finance.
Is this a problem, Stevie asked?
Yes, sir, it’s a hole in financial intelligence that can lead to illicit finance.
18/ The TFI head went on to explain,
There’s three phases of money laundering we need to contain.
You see, unhosted wallets allow too much placement.
With no KYC, funds could come from some terrorists’ basement.
There’s three phases of money laundering we need to contain.
You see, unhosted wallets allow too much placement.
With no KYC, funds could come from some terrorists’ basement.
19/ How bad is this, asked Stevie, his brow raised up high.
Very bad sir, said the undersecretary in charge of TFI.
These unhosted wallets have been linked to quite a few creeps.
Child molesters and their drug running peeps.
Very bad sir, said the undersecretary in charge of TFI.
These unhosted wallets have been linked to quite a few creeps.
Child molesters and their drug running peeps.
20/ There’s more, the undersecretary said quite spent.
Because there’s no KYC, we can’t tell where the money is sent.
The cash and the crypto all moving around,
Without any beneficial owners to be found.
Because there’s no KYC, we can’t tell where the money is sent.
The cash and the crypto all moving around,
Without any beneficial owners to be found.
21/ But wait, said Stevie - my man Brian Brooks. He says unhosted wallets aren’t as scary as it looks. He says we can track almost any address. Has this technology led to any arrests?
22/ Oh no sir, the undersecretary replied. It’s quite hard to track those unhosted wise guys.
We spot an address, but they have lots of tools. They’ve started evading most FIUs.
We spot an address, but they have lots of tools. They’ve started evading most FIUs.
23/ Yikes, said Stevie. How do we stop it, tell me!
We’ll have to make a new rule, sir.
Well rush it out, ASAP.
We’ll have to make a new rule, sir.
Well rush it out, ASAP.
24/ So the TFI undersecretary
Chatted with his friend Ken over Stevie’s query.
Ken ran the bureau known as FinCEN.
Which could write rules from beginning to end.
Chatted with his friend Ken over Stevie’s query.
Ken ran the bureau known as FinCEN.
Which could write rules from beginning to end.
25/ Ken’s team was sharp and they were tight like a fam.
One of them recalled FATF said to go HAM
On crypto and all of the risks that it posed
To legitimate finance, forget crypto bros
One of them recalled FATF said to go HAM
On crypto and all of the risks that it posed
To legitimate finance, forget crypto bros
26/ So FinCEN they quickly sprang into action. All because of the SAR on the Car transaction.
They published a rule, closing loopholes with ease. Unhosted wallets now required some KYC. https://www.federalregister.gov/documents/2020/12/23/2020-28437/requirements-for-certain-transactions-involving-convertible-virtual-currency-or-digital-assets
They published a rule, closing loopholes with ease. Unhosted wallets now required some KYC. https://www.federalregister.gov/documents/2020/12/23/2020-28437/requirements-for-certain-transactions-involving-convertible-virtual-currency-or-digital-assets
27/ Now out in a town, set on a Bay, lived a petulant manchild called Brian A. When FinCEN published its rule, it blew up his day.
28/ Brian thought “this problem is not mine to solve.” As he sat counting his money, his head fully bald.
29/ Brian called in his lawyer, the one from Facebook.
“They’re telling me I have to care about crooks!”
This will blow a big hole in our platform, oh no!
And right as we’re trying to go IPO.
“They’re telling me I have to care about crooks!”
This will blow a big hole in our platform, oh no!
And right as we’re trying to go IPO.
30/ What about Brooks? Can he help with our jam?
No, said Brian A. He’s busy trying to tie Linda Lacewell’s well intentioned pro-environmental hand.
No, said Brian A. He’s busy trying to tie Linda Lacewell’s well intentioned pro-environmental hand.
31/ Then we’ll have to assemble the whiniest bunch.
To protest, and huff and howl all at once.
To protest, and huff and howl all at once.
32/ Oh it’ll never work, Brain A said with lament.
Nonsense, said the lawyer, we’ll hire Paul Clement.
Nonsense, said the lawyer, we’ll hire Paul Clement.
33/ We’ll work all the refs, the lawyer continued. We’ll bitch about process until Steve M is stewed.
34/ Will it work, Brain asked, his shiny head sweating.
It has to, said the lawyer, or are you forgetting,
We’re mission focused, there’s no room for distraction,
Our valuation would be threatened by this huge infraction.
It has to, said the lawyer, or are you forgetting,
We’re mission focused, there’s no room for distraction,
Our valuation would be threatened by this huge infraction.
35/ So they rallied the trades, and the other CEOs too. The execs from Circle put out tweets that reeked of poo.
36/ They gnashed teeth about compliance and having to get,
Identifying information about counterparties with unhosted wallets.
Identifying information about counterparties with unhosted wallets.
37/ Privacy, they cried,
Knowing the ills unhosted wallets hide.
Financial inclusion, they screamed,
Leading to some mental contusion.
Knowing the ills unhosted wallets hide.
Financial inclusion, they screamed,
Leading to some mental contusion.
38/ For those on SNAP or in need of UI,
Didn’t know what an unhosted wallet was, let alone ever tried,
To use crypto coins to buy any food,
Stores didn’t take them, who were these bro dudes?
Didn’t know what an unhosted wallet was, let alone ever tried,
To use crypto coins to buy any food,
Stores didn’t take them, who were these bro dudes?
39/ So Brian A, who was a little like a lame and loser Lex Luther,
Went off to do legal battle with Lego Batman’s producer.
Went off to do legal battle with Lego Batman’s producer.
40/ How will it end? Will Brian get very far? Not likely, all due to the SAR on the Car.
41/ For national security is a serious art. And mainstream financial services companies need to do their part. Those who cry it’s unfair to do KYC, risk looking like fools at the next instance of terrorist financing.
42/ If you care about fighting terrorist financing, how do you manage the compliance gap? Maybe stop using Coinbase and switch to a good company’s product, like the Square Cash app.
43/ Rhymes and dunking on Coinbase aside, terrorist financing is a serious thing. Child trafficking is a serious thing. If you're building a financial services product and want to be considered a serious mainstream thing, you need to deal with these issues.
44/ I'd lose it if a FinTech product I'd worked on led to a terrorist event that killed my kids. If you work in FinTech and have never thought about that, maybe you should. How would you look in the mirror knowing your product financed the death of innocent people?
45/ These and similar questions are what Crypto needs to be asking about unhosted wallets. All the chatter about privacy concerns and financial inclusion is ultimately staning for bad guys who hide behind these no-KYC nodes to the financial system.
46/ I wrote this thread about the SAR on the Car because I suspected that if I shared how I really feel - that unhosted wallets are a massive terrorist financing and illicit financing loophole and should be shut down - you'd view me as the old man screaming to get off his lawn.
47/ I'll be putting my money where my thumbs are and submitting a comment to FinCEN in my capacity as a tax payer and private U.S. citizen. If you're worried about the child trafficking, drug running and terrorist financing in unhosted wallets, I hope you'll do the same.
