Thursday, July 29, 2021

"Anti-Money Laundering, Know Your Customer and the End of Offshore Crypto"

 Christopher Whalen at The Institutional Risk Analyst, July 27:

Back in January, we published a comment (“A Tale of Two Frauds: Bitcoin & GSE Shares”) that compared two recent schemes, namely the bitcoin-tether game and the equally odious pretense of privatizing Fannie Mae and Freddie Mac. In both cases, a large crowd of retail investors are or were convinced of the solidity of the speculation. In the case of the latter, the game now seems to be up. And the former wager involving tether and bitcoin seems headed in that very same direction.

Most recently, The US Justice Department is investigating possible bank fraud by executives of Tether Ltd., according to Bloomberg News: “Federal prosecutors are scrutinizing whether Tether Ltd concealed from banks that transactions were linked to crypto, said three people with direct knowledge of the matter who asked not to be named because the probe is confidential.”

The major complaint against tether is that this opaque market is a leveraged feeder into bitcoin, essentially a dark pool of liquidity of unknown provenance used to manipulate the price of the leading crypto market. Tether Ltd denies allegations that it is a fraud, including through its banker Gregory Pepin of Deltec Bank and Trust in the Bahamas.

While strong denials of wrong-doing are welcome, Tether Ltd so far has not been able to provide an independent audit of its reserves, a key sticking point for many managers, even those who are strong advocates of crypto assets. One post on Twitter recently, replying to Carl Quintanilla at CNBC, summed up the view of some skeptics regarding Tether Ltd and Deltec Bank:....