SLP424 Simon Lelieveldt The Problem With FATF and AML Laws

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Simon Lelieveldt, a business engineer with extensive experience in banking, central banking and acting as supervisor joins me on the show. We’re chatting about:

  • The problem of FATF
  • Who are they? 
  • How did this organisation form? 
  • What impacts they’re having on the world
  • Tricks they use to take advantage of crises
  • How to push back

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Podcast Transcript:

Stephan Livera – 00:00:00:

Simon, welcome to the show.

Simon Lelieveldt – 00:00:02:

Thank you for the invitation. It’s good to be here. Thank you.

Stephan Livera – 00:00:04:

So, Simon, I’ve been seeing some of your work. I found it really interesting, and I thought this is a perspective that a lot of the Bitcoin audience would love to hear. Often not all Bitcoin is, but many Bitcoin is anti financial surveillance. And we can see FATF, AML laws, sanctions laws and other associated laws are being bucketed under this category of what’s called so-called financial crime. Now, I know you have a long story and background working in banking, central banking, with a professional view on the world of payments banking and monetary history also. So I guess could you maybe just start with a little just a brief intro on yourself and some of your history and your background in this space?

Simon Lelieveldt – 00:00:52:

Okay, so I’m an industrial business engineer from the Netherlands. I graduated, I think, more than 30 years ago on the first emergence of point of sale in the Netherlands. So that hook me into electronic payments. I remained in the payments business sort of ever since, moved from Ing Post Bank, very big retail bank in the Netherlands, to the central bank where I supervised electronic money at that point in time. The likes of Digi Cash and such. Those were the discussions in those days. I witnessed the development of the Emoney directive, which is sort of the stablecoin directive of 20 years ago, and moved on to work at the Central Bankers Association. And for ten years right now, I’m an independent consultant. So I’ve been around the block, both in terms of blockchain technology or Bitcoin technology, as well as seeing developments in financial regulation develop over time and seeing the institutional boundaries change over time.

Stephan Livera – 00:01:51:

I see. Yeah. And I think it’s also fair to say that we’ve seen this continual creep of AML anti-money laundering laws, a So called anti-money laundering. We’ve seen this continual creep over time, and we’ve arguably seen insufficient concern for human rights effectiveness, cost of all of this. And I know this is something you’ve been quite critical of in terms of FATF, the organization. So FATF stands for Financial Action Task Force. For those listeners who are unfamiliar. And so could you tell us a little bit about how this regime started and how it metastasized it grew to this massive regime that exists today, and it seems so powerful. How did it become this way?

Simon Lelieveldt – 00:02:39:

Well, I’m going to venture out on a bit of history and science here. If you look, there’s a very good dissertation by Maya Vesseling. I’ve hidden it somewhere in one of my numerous threads on Twitter, which outlines the development and the political economy behind the FATF as an organization. But I should say as an organization because if you go to the beginning of the FATF, it starts out as a project around 1989. The G 7 sits around and figures, well, we need to do something about anti money laundering. And there’s always a sort of if you look at financial regulation, at bank regulation, it’s always like first a crisis and then bank regulation, then a crisis, then bank regulation. So that’s the intrinsic dynamics of regulation. Now if you position the same dynamics in the area of money laundering or criminality, then you can see an attack, the 911 attack, and then further legislation, then a new attack and new legislation. So if you’re able to write, if you’re able as a regulator to serve on the right of incidents, on the waves of incidents, you’re able to put in place a massive framework for anti money laundering. Even though the crime of anti money laundering is if you rank it in priority next to a lot of other crimes like genocide, war crimes, you name it, stealing money from government doesn’t hurt that much as other crimes that do hurt society far more. So what you can see is sort of hijacking by ministries of finance of the topic of money laundering, putting it high on the agenda and moving it out of the criminal law area where it should be where it should be prioritized and be irrelevant into the financial supervision domain. And there they said it’s hugely important that everyone starts acting like a police officer and catch all money laundering criminals. And that’s a hijacking trick that has occurred. And if you serve the waves of attacks and incidents properly, you can go a long way and that’s what happened. The project team that the Financial Action Task force is, was set up in 1989 and until today it’s still a project. It has never become an international organization, it’s not a legal entity. If I’m a bank officer and someone asked me can you on board the FATF? It’s impossible to on board the FATF. Actually. If I were to be on boarding FATF, I’d see a lot of red flags, I’d see them being hosted by the OECD. So that looks really reputational, but it’s a reputation trick. Of course the OECD supports the FATF, but the FATF itself is not an international organization and does not bound by international treaties on human rights. So it should have become a formal organization. And the thing that you see governments all around the world doing is pretend that the FATF is an international government organization. And if you read the real letters, the clever writers of the government always make believe that FATF is an organization, but it’s not. It’s still a project and there’s a very good reason for it. You see in some of the evaluations of the FATF that they’re happy with being a project because it allows them to shield all their activity, it allows them to be non governed in fact. And that’s what’s happening. And that’s a classic European or classic international trick. But I’ll explain the trick a bit later then.

Stephan Livera – 00:06:02:

Yeah, sure. And so, as you rightly say, in a way they are pushing all this cost regulation and surveillance onto the rest of the world, but they’re actually not very accountable themselves, as you say. And so you have this great thread. So listeners, I will put the links in the show nodes so you can check all of that there. But you have this great thread breaking down how some of this came about because you mentioned that in a way, it was driven by tax authorities and some intelligence agencies wanting to reap data. So could you just elaborate? How did that happen? Why did it turn out that way?

Simon Lelieveldt – 00:06:40:

Okay, so if you go back to about 1999, I think even somewhere in the US. There was like a proposal on we should pop in all kinds of data of customers who are sending a payment and receiving a payment within the payment, because that makes life easy. If we do that, there’s a lot of information to be harvested. It’s the nonbig data world. So we use financial transactions as the data stream of that moment, and we allow police officers to fish in the data stream. That’s the basic idea in the 1990s in the US. So this is being put forward for Congress and basically there’s a storm of people saying, no, it’s a violation of privacy, etc, etc. So it’s impossible to get it through. Apparently there’s a huge resistance against this. So the intelligence agencies still want it because the problem at that point in time, as they presented internationally, is, well, if there’s a crime going on in the US. And someone in Europe has paid a criminal in the US. We want to be able to track it. And to ask a police officer from New York to ask a police officer in the Netherlands to give the data would be very cumbersome. It’s a cumbersome procedure. So if you just put in the data, then the police officer in New York automatically can ask at his bank who sent the info, and he can get the data of the Dutch customer without going to the Netherlands and asking formally on the data of the Dutch person sending it. So it’s a neat trick to avoid the proper international procedures of collecting data from customers that are on the different side of the world. And at that point in time, the Internet was already there. You could say, send an email or do your work properly. But that argument basically stuck within the minds of the regulators, and it felt like, yeah, we want to make sure that there’s no anti money laundering. And that sort of descending of data from the sender and the receiver originated from sort of, well, it’s more easy for the police officers, so they have all the data in hand. So you can only ask local the data that’s the basic conception didn’t really fly too much. They tried to push it in the US. And then with the 911 attack, this was the momentum they added terrorist finance to the mix and said no all these rules are not just for money laundering they are for terrorist finance. Do you want to promote terrorists? You don’t want to put the data in so you’re in favor of 911 attacks and that trick has been repeated ever since. So we wait for the next attack. You can see the regulation in Europe also regulation on prepaid cards. You can see the Commission want more regulation then they wait and the cynical thing is they wait for the Paris attacks then the Paris attacks Charlie Hebdo come in and next up is the European Commission saying yeah we want to add an extra layer of anti-terrorist finance regulation on it. It has nothing to do with that attack. It has everything to do with regulators waiting for their shot to put in the next layer of surveillance regulation. And that’s the cynical reality of anti-money laundering regulation and the cynical reality is that the efficiency and the effectiveness is completely forgotten. I mean there’s been critical questions within the FATF itself on its effectiveness like show me the money show me the goods. How many stuff did you prevent? We have 20 years of this stuff already going on and no success stories. There’s only after the fact stories. There’s no prevention success stories and there would have been if they would have had a case. So there’s really a lot of effort being put in like yeah I was at the bank associate I had to tell them yeah we have to put in all this information and then the bankers ask me okay so do the regulators think that Mr. Openbapen Laden has an account that he wants to send money from and that’s why we need to check the word O.B. Laden in every transaction? Is that the idea? And then you have to say yeah well yeah that’s the duty and everyone knows it’s silly. It doesn’t make any sense. O.B. Laden doesn’t have an account and he does make sure he will never have an account and still be able to move money. So these are all political measures and allowing a lot of surveillance by intelligence agencies and by police officers who can then snoop in local data without anyone else in the world knowing that the data has been harvested.

Stephan Livera – 00:11:04:

And now crucially historically let’s say pre that regime if a police officer or the tax office let’s say wanted to get some of that data they might have to go and ask for a warrant right? They might have had to actually go through some legal process to get access to that data. Whereas nowadays it seems that there is so much data sharing going on and we’re in this environment caused by FATF and caused by this ratchet effect of continually expanding regulation such that now the privacy and security of the everyday consumers and everyday businesses is just being completely given up in favor of this regulation.

Simon Lelieveldt – 00:11:45:

Yeah. Well, to really position this, we must be aware that within a couple of weeks after the 911 attack, the US. Law enforcement achieved to sort of open up the data of Swift, the international banking network, by saying, this is very important, we need to know what’s going on in your network. And Swift is a European company, but it does have a server in Florida. So they opened up the Florida server to look at everything happening in Swift, and that led to a huge political debate in European context, described in this dissertation by Vesseling on the moment in time when this stuff became political. It was like the sort of machine moment on Facebook. But then at that point in time for Swift, and that led to the situation where a couple of companies and industries within the financial sector decided, well, we need to have our local data locally in Europe and not harvest have it on a US. Server, because if it’s on a US. Server, it can be impounded and taken away and be read by US. Authorities. So there are a couple of moments in time where there’s a political discussion on the topic, but most of the time the topic of monitoring is sort of pushed away. Depoliticized made technical, like the travel rule for crypto. It’s made it into a technical discussion rather than principle legal discussion that it should be in a political discussion. Do we want government to be able to monitor everything via these kind of measures? And is it proportional? Those are relevant questions.

Stephan Livera – 00:13:16:

And when it comes to the principled argument, I think, and maybe we’ll get to this later, but in terms of stopping this, does it require some kind of public awakening or at least more people knowing about this? Right? Because I’m sure if you just talk to the average person, if you talk to the average guy on the street and you asked him, okay, maybe if he ever had to send an international wire, he had all this trouble, or he might have occasionally had some banker call him and say, hey, what’s this transaction for? But he doesn’t really know who to point the finger at, right. Because from his point of view, he’s probably thinking, oh, these banks are just being assholes, or they’re just really nitpickers. He doesn’t actually see the root cause of this issue. Right. Because he’s blaming the person who he is interfacing with, but not, let’s say, politicians in his local country or even at the FATF level.

Simon Lelieveldt – 00:14:07:

Yeah. And the nice here comes the trick. So the thing is the following. I take twelve countries, with the twelve countries, I decide on the Tunnel vision for monitoring. Now, we don’t have any governance or say in this, but we’re going to collectively set up a working group we call ourselves Financial Action Task Force and fraud. It’s a project. Then we’re going to devise standards. We’re going to say, yes, these are our standards. So who are they? Well, twelve persons thinking the same. But if those are from twelve big countries and you mesh up and you make a big billboard on how important you are and such, then you’ll go home and say, you know, there’s this very important international group, it’s myself, but in a different role, very important international group, and that has set a standard for anti-money laundering. And it’s really imperative that we implemented in the Netherlands. It’s the classic bureaucratic trick of getting a home country to implement rules which have no democratic basis, because then the Minister, minister of Finance goes to the parliament and says it’s an important international group, has set standards for anti-money laundering. It has the support of the G 20. It’s excellent. So you throw in all the keywords for politicians, they think like, well, yeah, okay, apparently everyone agrees, no, you’re being tricked. It’s the oldest trick in the political book. You’re just pushing local standards and local rules by make believe that the international organization that has made them, which is yourself, in a different setting, has done that. And it’s an easy trick. It’s been pulled all the time. You see it happening with BIS standards, you see it happening with FATF standards, you see it all over time. And politicians are only human, I would say, and unable to flat the balloon or pop the balloon on this topic. And if you let this flow for a couple of years. And if you let the incidents on terrorist finance and money laundering be your oil on the flames of these regulations. If you are able to institutionalize this into a permanent organization or project form which has a certain standing. Then if you succeed in the first ten years. You will be there forever. Because you’ve set up an institution which will not be disputed anymore. No one in government will know the origins of the institution. So if you pass on your work to the next policymaker in finance, or the next policymaker in the Central Bank, or the next supervisor, they will say the FATF is there forever. They set the rules we implement. They won’t go back to history, so no one will go back to history. So if you got the ball rolling, if you’ve got the momentum, and if you keep fanning the flame, then you’re able to continue. And that’s, I think, two years ago, their 30 year achievement was to have an eternal mandate as the FATF, and they succeeded in sort of solidifying their grip on financial legislation, while effectively they are still Ministries of Finance writing anti money laundering surveillance law. It should be ministries of justice writing the rules with which to dispute personal data around the world. It’s Ministry of Finance. We say we want tax money. Yes. Our concern is so big that we’re going to label everything as money laundering. So money laundering itself is a specific criminal act. But if you just say the proceeds of any criminal activity are also money laundering, then you’ve captured the whole world of crime into your propaganda. And then you see these pictures, like, oh, do you want to sell off ivory of elephants? This is money laundering. No, it’s robbery, it’s all kinds of criminal acts and then somewhere along the line, money laundering. But you see, if you’re able to pull the trick, get it into an institution, get it flowing, there’s no stopping rather than fierce institutional counteraction, that’s the only way that could stop this.

Stephan Livera – 00:18:01:

And I can imagine that there are all kinds of entrenched interests here. Also, because it’s such a big world, there’s so much money in the compliance department, so there’s jobs in this. There is technology vendors who are making money out of selling this kind of sanctions screening software, AML screening software, transaction monitoring software, customer identification, scanning, all this kind of document authorization with various government departments. There’s all this technology and money now, and there are vendors now who don’t want to lose that business.

Simon Lelieveldt – 00:18:36:

So you could almost argue, yeah, that’s very cynical as well. Very early on in my work at the central bank, there was an international project, CLS, it was called CLS, like a big international payments sort of project. And the central bankers wanted something, but the market wasn’t providing. And then they said to the market, you have to provide or otherwise we will do it. And then the market got scared and then they started doing it themselves, while the central bankers themselves figured, we don’t even know how to do it, we just scare them off and then they’ll build it themselves because there will always be someone who is early on and saying, oh, yeah, I’m going to build a solution. So you take the keenest guy wanting to make the biggest buck, the earliest solution, and you promote that. So you can use the market against itself for implementing a measure which you are unable to achieve yourself. It’s a big con game, but everyone is falling for it. You see, the travel rule discussion on crypto is following the same path. Been there, done that, seen it before, and you cannot break that magic. It will always work. So it’s a classical one in the book of bureaucracy. You just say, yeah, this travel rule, it can be done, it’s a technical message, it can be done. We have people, we have companies coming to us telling us that they can do it. It’s the easy trick. And then everyone’s like, who are the companies? And then, yeah, and then there are those who are completely new to the game, who are impressed by authority. And I feel we’ve got to work with the regulators. Yeah, no, no way. If the regulator is out of line, you got to push them back. Don’t have to work with the regulator, that’s out of line. So there’s a balance to be struck, but there’s always within an interest community of marketplayers, a bigger cloud of entities that says we’ve got to work with the regulator to keep good relations. And that means for that reason you will always end up with travel rule like solutions in those kinds of settings because the market as such can be driven to that. And those are the pragmatic dynamics that the United States as a strong force behind the Financial Action Task Force, is able to really exploit. They are able to maneuver institutions and their governance and their flavor into all kinds of areas. And there’s a lot of scientific literature about how they are able to change the flavor of the IMF towards a more neoliberal goal. It’s a piece of cake, institutionally speaking, to move the boundaries. But it takes a long game, a long game perspective to do that. And if you’re early on you’re able to set the momentum, it’s never going to go away until some counter force or counterpower is able to tweak the wheels and put the carriers off the rails. And that’s sort of happening slowly right now.

Stephan Livera – 00:21:20:

Yeah, that’s interesting. And I also want to get to that topic that you mentioned with FATF influencing local countries. And so as we were talking about this, as you mentioned, the trick is that they all sort of get together and say, oh look, see, there’s this big standards and all. Look, here’s a report with the recommendations and oh well, you better implement all of these recommendations country A, or otherwise you’ll be on the Gray list or if not, then you’ll be on the Black list. So could you just explain that dynamic where countries are getting pressured to implement all of these AML regulations even if they don’t necessarily want to off their own bat?

Simon Lelieveldt – 00:21:58:

Well, basically what happens is there’s a dual game going on. First of all, there’s the formal FATF rules and it’s like a clause of people or it’s a complex organizational structure with direct members, indirect members and such. So the principal idea is we’re going to set ourselves some standards, we’re going to make some best practices and then we are going to do some peer review, sort of peer review like in science, peer review of countries. But it’s called mutual evaluation. They stole the idea from the IMF idea or the World Bank idea, where they do evaluations of country, country evaluation, whether they could get a loan, yes or no. If you take that idea and you put it in the anti money Laundering Standards department, you get the mutual evaluation of the FATF. So it’s a clever copy paste of an international mechanism and as such it’s like every policymaker says, oh yeah, I know the mechanism. We do this also with the IMF and the World Bank. So that rings a bell, it sounds familiar. And you get a structure where you can say, well, we’re going to evaluate each other. So that’s the formal part and we’re going to see how well are you doing, going to help you out, blah, blah, blah. The informal part, which is not in the books, is that the US, as a big buyer in the market, phones up your local ministry and says, hey, listen up. If you don’t pass this evaluation, we’re not going to do A-B-C or D. And then they pull out some geopolitical leverage that they have on the country. So you combine the FATF formal procedure with informal pressure, which is if you don’t live up to the standards, then you’re not going to get some business and that’s going to cost you money. And that creates the incentives for countries to adopt these standards to make sure that they apply. Or there’s the penalty of the gray in the blacklist, of course, but there’s the hidden, unseen penalty of Big Brother US saying, well, sort of handing out goodies compliments taps on the shoulder money or handing out negative incentives if you don’t comply. So there are ways and means of manipulating everyone into compliance behind the scenes. The FATF sort of is the visible side of the metal, but there’s another side of the metal that we don’t even see. I will never get to see it, by the way, but we must be sure to be aware that it exists.

Stephan Livera – 00:24:28:

Right? And as I understand you correct me if I’m getting this wrong, but as I understand, one of the ways they try to leverage this is they’ll say things like, we’ll cut you off from the banking system. Well, we’ll cut you off from Swift if you don’t do X, Y and Z  AML.

Simon Lelieveldt – 00:24:41:

No, that would be too harsh and too direct. It could be more nuanced. It could be like, we’re not giving you first hand intelligence on these and these kinds of things. If you know that the country is dependent on you because you have superior intelligence apparatus, you can put that in as leverage and say, well, you know that previously we gave you information on what happened in the country surrounding you on economic sites, or, for example, economic data, or there’s all kinds of data or information that you can share with other countries on a certain basis. And they said, we’re going to cut you off from this data because we don’t like how you treat. We don’t feel our data stressed with you because you don’t apply our anti money laundering. The relevance of the example is that it’s been documented somewhere in scientific articles that after the application of the travel rule within the banking system, a couple of American companies succeeded in penetrating certain markets due to the information advantage that the Americans would have because of the fact that they knew exactly which data was going where from who to where to whom. So the economic intelligence part of this whole travel rule discussion must also not be overlooked. It’s a tool in the box of the intelligence agencies. You could even go as far as link the fact that they stopped pursuing Phil Zimmerman on PGP from the fact that you can link it to the emergence of the FATF standards. Rather than trying to break open PGP as an encryption algorithm, they opened up the sea of bank transactions. So heck of a lot of information in there. I mean, let those guys with PGP do their thing. If you open up the bank accounts of everyone and you’re able to tap that stream, that’s eternal sunshine. I mean, that’s what you want. So there are advantages to be gotten and there are goodies to be handed out or punishments to be given behind the scenes. And that sets you up for a momentum and a structure in which you can formally I mean, I’m having this view due to my 30 years in the industry looking at institutional change. You can witness this happening very slowly. It’s like a glacier that’s losing some snow every year. You don’t see it, but over 30 years of time you see what’s happened. And this is what’s happening here. And everyone knew in the game. The cynical thing is that new players, new policymakers, new bank, new crypto people, everyone new in the game starts off taking the stuff literally, like it’s literally about money laundering, etc, etc. And they feel they’re doing a good job and they are doing a good job because these are honest, true people, true to their heart, true to their mission. They don’t do anything wrong. But they are doing stuff within a frame that has a history and a context that I would recommend reconsider the frame, reconsider the frame in which you are working. I don’t want to dispute the honesty and integrity with which those people are doing their jobs because a lot of people do want to get rid of money laundering and all that stuff. And that’s a valid goal. But the total structure, the incentive structure, the institutional structure, the lack of governance, the lack of democratic control, those are the things that we should worry about because it leads to a lack of privacy and lack of digital sustainability. We cannot allow our government to do this because our next government in the Netherlands, we are very keen. We have a very serious algorithmic. The tax authority has done algorithmic profiling on people, cut off their benefits, taken away their kids, a couple of thousand and basically violated their human rights by use of IT. So the idea that a government will never infringe on human rights of its own population is disproven in the Netherlands of today. That is what’s happening in the Netherlands. That’s why I think the Netherlands is a sensible place on human rights violations. We’re sort of selling it to the rest of the world like we’re the country where everything is possible. But in fact we are violators ourselves. And the assumption under the FATF rules is that your own government won’t cheat on you. But that assumption is false. It’s been broken, and it’s been broken all the time. If you look correctly in what’s happening, at least that’s what we can see in the Netherlands and other countries I’ll leave to other people. But that’s why I think at least it’s why I’m so fervent on this topic, really, this assumption. The government is not your best friend. The government is your worst enemy. And we must design systems so that it can’t be your worst enemy. Right now the FATF is designed to be the mass monitoring. The effect of the FATF is that people don’t get bank accounts, people are phoned. What’s this transaction doing? If you say, I’ve had a dinner in a Syrian restaurant, your payment will be unknown. You will be put on a list of your bank, you get a phone call. So what’s the Syrian stuff? If you try to send money to a school in Uganda, no way it’s going to get there. And the FATF calls these unintended consequences of their standards. But it’s way more than that. We’ve designed a system where Ministries of finance set up cleverly anti money laundering standards, anti terrorist finance standards. They hypnotize the whole world into going with them. Pushed a little bit of on the background, some incentives to get the system rolling. And once you get it running, it gets its own legitimate flavor. And that’s what’s happening here. And yeah, there are all kinds of dynamics in many of the threads. People will read all kinds of references to scientific articles describing bits and pieces of the puzzle that I explained. But I hope the listener is still with me.

Stephan Livera – 00:30:27:

Yeah, right. I think you’re right. And I think one of the important points pertaining to the rights aspect is that in some ways it’s overturning these hundreds of years old legal principles, like this idea that you are presumed innocent before guilty. And it’s turning a lot of that on its head. Because if I go to sign up for a bank account, or if you go try to send an international wire, it’s now all of a sudden you’re assumed to be a criminal almost, and you have to prove that you’re not a criminal. How can this be? How can we be in this place where in most of the Western world or most of the banking world, you’re treated like you’re a criminal by default?

Simon Lelieveldt – 00:31:07:

Well, to understand this, you need to understand that in law at least, I always divide law in three areas. One is contract law. You and me have a contract. The other one is criminal law that says, well, you cannot steal a car. And in between there’s administrative law and financial supervision law. And that should be about someone who holds your money. You should have a safe bank and a big vault, sort of like those kind of rules. Now, the basic trick that the FATF has succeeded in pulling is putting anti money laundering as a topic onto the agenda of financial supervision. It should not be there. It’s a criminal law thing. It’s anti money laundering, okay? It’s a crime. So deal with it with the rest of the crimes. Hire more police and get the crooks. That’s what you should do. But by putting it into financial administrative law and sort of making everyone turn around like, yeah, you’ve got to catch the criminals, you are responsible for fighting crime. No, not we’re banks, we’re responsible for keeping money safe, or we’re crypto companies. We’re all in crypto or we’re exchanging crypto, but we’re not crime fighters. That’s the police. It’s a different department of our society. It’s a different role for government. But we’ve put the monkey on the shoulders of the private sector, which is not where the monkey should be. The monkey should be back in the cage with the government. That’s where the monkey of crime fighting and anti-money laundering should be. But if you pull the trick clever, and that’s been done, then you can create a sense of normalcy around it, which is where we stand right now. So there’s a challenge.

Stephan Livera – 00:32:38:

Sure. And so then the next question is around reporting. And what we are arguably seeing is a lot of overreporting because it’s quote unquote, cover your ass. Right. So just to explain, just to back up for a second. So some of this regulation, it’s based on different things. In some cases, it’s based on the threshold. So for example, a transaction above $10,000, and in other cases, it’s based on this idea of being a suspicious transaction. And so they have to file a suspicious transaction report based on, okay, if Stephan Livera is sending money to some business in Iran as an example, they’ll be like, okay, that’s for a suspicious reason. We’re going to put a suspicious matter reporting. And they’ve got all kinds of rules and they basically forced the banks to have these kinds of rules to pick this up. And so, as I understand, there’s a lot of reporting. Basically, these banks are just sending thousands, hundreds of thousands, even millions of reports to their local regulator, right? So in each country in the US, it might be FinCEN. In the UK. It’s FCA. In Australia. It’s like AUSTRAC. There’s different ones. And basically they’re just sending all these reports, millions of reports.

Simon Lelieveldt – 00:33:44:

These are sort of illegal data distributions because someone in the private sector is saying that he’s going to disclose your private data because it feels like suspicious. Well, either you go to the police and say this is a crime, or you don’t, or you stop doing business. But why do this snitching? It’s basically snitching. But the advantage of snitching is that if you get them into trouble, it gets you a free pass, it gets you an exemption from everything following on to your reporting. So that’s a goodie for which reason a lot of companies throw in everything they have into this data reporting because you get a free pass if stuff goes on and someone gets fined for money laundering. They can’t put liability on you as a bank who reported him for the stuff because you got a free pass. It’s not your thing. So it’s a clever incentive structure, divised within this whole system to make sure that a lot of information flows to the authorities. And then in the Netherlands, we go beyond we don’t report suspicious transactions. We report unusual transactions, which is even more and for each of the transactions, if we go back to the three pillars of law within the administrative law pillar indeed, as you said, the assumption is that you’re guilty until you prove innocent. And it’s crazy to think that within criminal law we take so much care to worry about due process being innocent until being guilty while at the same time your money is held hostage with the bank until you prove you’re not guilty. So there’s this reversed ransomware system where the bank is keeping your money as a ransom until you show your tax payment or stuff like that. I stole this one from, by the way, a developer here in the Netherlands. He said it’s reversed ransomware. It’s not like they block your computer and then if you pay money, you get your computer back. No, they block your money and then if you show information, you get your money back. It’s the reverse mechanism. But it’s just as effective and it’s improper. It’s a violation of the human right to be innocent until proven guilty. And that’s innocent until proven guilty in a court of law. Not in the court of banks, bank supervisors and FATF officials. Because those are not the people in court. They are just administrative taxpaying tax authorities. They are not the people who have been educated to respect your human rights when being suspected of a crime. So indeed, this violation of the presumption of innocence is very ongoing and worrying.

Stephan Livera – 00:36:23:

And so when it comes to all of this surveillance there’s also this notion that people have said this idea that if physical cash was invented today they’d ban it or they put massive controls on it.

Simon Lelieveldt – 00:36:36:

But they do right now.

Stephan Livera – 00:36:37:

Right.

Simon Lelieveldt – 00:36:38:

That’s happening today, actually.

Stephan Livera – 00:36:39:

Yeah, right. And it’s almost that like because cash has been around for so long and that was the default way for many people that they kind of have to allow it in certain ways. But at the same time, as I understand these organizations, let’s say the banks and so on they are often mandated to do some kind of money laundering risk assessment. And as part of that risk assessment they have to look at, okay, how easy would it be for people to launch money? And if you can send a lot of money through then you’re meant to break that high risk and therefore you should be doing more controls on it. And there’s kind of all these elements and nuances to it and all the while they’ve got this, you know, like a sword of Damocles hanging over their head. If they don’t do enough, their license is gone. And so that’s like this dynamic where each country has their own, let’s say regulator and lawmakers legislators who are sort of holding that threat over any businessman who wants to be a legal businessman in that country.

Simon Lelieveldt – 00:37:33:

Yeah, well the interesting thing is that if you speak to bank supervisors and try to address the human rights element they are completely gone. They think you’re from a different planet. And that’s very interesting to note because when the sanctions on Russia came in, the consequence was that everyone from Russia was being blocked by banks are better safe than sorry, let’s block everyone. And this is like this categorical blocking because there’s a big risk and you don’t want to be safe rather than sorry. But by being safe rather than sorry, you’re denying a lot of people access to the banking system. And this is exactly where the FATF is hurting already for 10 or 15 or 20 years. A lot of people in society, this whole system where you need to go look for risk and say no, we’re not going to do it, there’s a risk of money laundering, etc. Or this categorical denial. Then the FATF quickly writes up no, we never wrote down that there’s a categorical denial. No. And then the central bank in the Netherlands the last month also said no, no, we’re not asking for a categorical denial.

Stephan Livera – 00:38:32:

Ha ha ha.

Simon Lelieveldt – 00:38:33:

I mean if you get fines for not doing certain stuff, the message is pretty clear kick everyone out, there’s a big risk. Kick them out, cash out, high risk. Are you sure you want to keep it? You get three times the same question are you sure you want to deal with high risk customers? The fourth time compliance officer is not going to say yes, we’re going to keep them. He’s going to go to his board and say we’re going to kick out high risk because I get the supervisor on my neck all the time. It’s killing me. So this is the structure you can deny as a supervisor and a regulator that you’re pushing out all kinds of risk while the effect is completely the same because you’re throwing in a lot of fines, a lot of hefty fines for violating So called only money laundering rules. We’re really keeping each other busy with a lot of lot of work and energy that we could spend on making the planet more durable, sustainable and happy place rather than seeing a terrorist behind each tree. Everyone knows it’s a waste of time and a waste of resources but we’re still in the same dance routine and we keep on dancing the dance routine and it won’t ever stop until we make it stop somehow, right?

Stephan Livera – 00:39:39:

And I think part of making that stop is the principled approach, as you outlined earlier, and I think many others in the world who are anti surveillance from a principle point of view, whether they are libertarians or otherwise, they see a principled reason to resist these things or to speak out against FATF, against AML, against these things like this. Now, I guess one other question and area topic here is that in some cases it seems like there’s a bit of shooting the messenger going on because as an example, people will often point out, as I’m sure you’re familiar, there’s this historical example with HSBC where they were, I think, apparently helping launder some money for the Mexican gangs or cartels and stuff. But at the same time, is that like how much of that is on the so as an example, here’s what might happen. So as an example. People say. Well.

Simon Lelieveldt – 00:40:30:

Look.

Stephan Livera – 00:40:30:

The HSBC did we’re helping launder money for the gangs in Mexico as an example. Or whatever. Then what happens is the public in that country. Or in other countries. Let’s say. And I’ve seen. I think arguably you can say you’ve seen this in Australia where some AML scandal comes and then the public get angry at the banks and then it’s almost seen like. Oh. See government. You need to regulate those bank harder because they’re letting all this money laundering happen. So I’m curious, how do you sort of just disentangle that in terms of the principle of the matter and FATF and AML versus those individual banks in those countries, let’s say?

Simon Lelieveldt – 00:41:09:

Well, I think the error of judgment is the following. If you want money laundering to stop, it’s the same as if you want the wings of an aeroplane not to wiggle when it flies. If you want an airplane where the wings do not wiggle, it’s going to crash. Systems need slack. Systems need slack and areas which are gray, unregulated, doomed, dirty, leaking. That’s what a true system is. There is no such thing as a clean system. Any system in the world is sort of rotten, has its feedback loops or whatever. But you mustn’t try to eradicate something because you will never succeed. And it’s not a natural state of things. A terrorist is only a terrorist as long as the government is a good government. If the government is a terrorist, then the terrorist is a legitimate citizen. If you reverse the roles and you create tools in the hand of governments with which you can eradicate stuff that you don’t like, at some point in time the government’s going to change and you’ve given a very bad actor in the far or distant future or in the near future, a tool in hand to basically be the dictator for everyone in the world. And this is what’s concerning me in the sanctions area as well right now, because we’re sort of using the sanctions tool too much, too hefty. I mean we need to use it in this terrible situation in Russia that’s happening right now in the war. There are reasons to do so. But the mechanism that we are using, we are politicizing our money system into this is good, this is bad, and you can have your money and you cannot. And I’m not certain where that’s leading us. I think we crossed the rubric on there and I’m very concerned that we find this way of thinking. Normal money should flow everywhere. You should use different tools from the different toolbox to get the stuff to catch the crooks, to catch the criminals. But you should not misuse the money system, the money supervision system to achieve those goals and that’s those objectives and that’s what’s happening here and that’s the error in design. And then it’s an easy part of the natural local dynamics to say, well, because the government wants to present good deeds and they’re going to do the blame game and it’s easy job, you’re going to blame the banks and the banks are already ripping you off, but they’re also laundering money. Yeah, that’s possible. But I mean, what we need to solve this is good freedom of information. Request open responses of government, good lawsuits that challenge the government to be open and proper and precise in their dealing of things and then we can slowly lift the views of what’s happening and create awareness. But that’s for insiders, interesting to see, but for outsiders it’s too far gone, it’s too far off. It’s well you don’t care at your bank. Oh yeah, they were involved in money laundering. Well fine, let them be fined and I didn’t trust my bank anyway. I mean these games are already clouded with standard politics of blame gaming bankers for everything that happens in the world. And that’s not fair to bankers. It’s not fair to crypto if you do this to crypto. But it’s the reality of our current society where a lot of social media creates these spins where you can just pull the card. It’s anti terrorist measure, okay? And then you get a green pass for anything you propose. It’s the reality of this moment and we can only try to let the sunlight of information and lawsuits correct some of those things. And luckily this happened in the Netherlands. I assisted the company in reverting the course of history because the Dutch central bank was already implementing an FATF Travel rule via the sanctions law. It wasn’t in the sanctions law at all, but they sort of made believe that this was the case. But we were able to get it to court quickly because they effectively required a mass monitoring of every transaction. Which is a profiling AVG GDPR discussion. It hits all kinds of buttons in the human rights area and the privacy domain and that create an urgent call for the justice to say we’re going to quickly resolve this because Central Bank behind the screens had been saying. Oh. Well. Try and get to court quickly. It’s going to take years. It’s corona time. So see you in court in two years. And then we pulled out the mass monitoring GDPR card and said, okay, see you in three weeks. Here’s the deed, and explain to us what happened. And then they tried to say, we never asked a question or we never asked this requirement. So the whole industry had to write a letter. They did require it. And last week a Feed of Information request came out which outlined neatly how the Central Bank was doing this all along, anticipated it and on purpose. So by Freedom of Information Request, you get the word out, you get the information on table and you have to combine it with lawsuits and make sure that anyone acting improperly is being sued so that it’s corrected in court and damages are being paid and such. If everyone would dare to do this and keep the relation with the supervisor, good, because it’s just a matter of different interpretation. There’s no harm in ensuring the regulator. Everyone’s afraid of it. No, it’s a game. They’re going to say, well, this is our territory, and then you have to say, no, no, it’s not. This is your territory, we disagree. Okay, we go to the judge. And then the game is that a lot of companies don’t want to go to the judge and he’s going to be scared on the regulator. No, just having a different opinion. Just go shoot a regulator. That’s the advice.

Stephan Livera – 00:46:50:

Well, that’s cool to hear. And this is an interesting case because it was one where, let’s say freedom won back a victory, whereas over the last, let’s say, ten years has been a lot of Ls for those people who want less regulation or zero regulation, at least government regulation. Yeah.

Simon Lelieveldt – 00:47:11:

What’s interesting in this case is that they asked for information at the European Supervisors and the European Banking Authority, which is the Group of Supervisors publicly stated in the midst of June 2020. There are a couple of countries basically being Switzerland and the Netherlands, that are overshooting in terms of regulation. And even though their boss, the European Banking Authority, said, well, you should stick to the level playing field and not overdo it locally for the Netherlands, they just went on doing it. So this was on purpose against the advice of the European Banking Authority. It was fascinating, but imagine being one of the 17 companies being forced to shut down or provide a copy of a screenshot of a wallet as a measure. It was very interesting. But somewhere in the notes, I think there’s a reference.

Stephan Livera – 00:48:01:

Yeah, of course. I guess the big topic, Dan, of course, is like around in Bitcoin world also in the EU, particularly is this whole travel rule conversation also. So could you just give a basic for people who aren’t aware. What is the travel rule? What does it require companies to do just in the normal transaction world? And then we’ll take it into what happens in Bitcoin.

Simon Lelieveldt – 00:48:23:

Okay, so in 2008, in the normal fiat world, the idea was you need to put in the name and address of the sender of a payment and of the receiver. And both entities on both sides of the transaction need to do this and check this and have a role in making sure that the information passes on through the network. This rule in 2018, when the FATF had a US. President, there was more energy on crypto, and I figured, we’re going to apply this rule on crypto as well. There was a discussion within the FATF where the FATF actually wanted each crypto provider to be a licensed institution. But a lot of other players in the FATF said, no, we won’t do that because it creates too much legitimacy. And then the FATF decided, okay, we’re going to apply the financial rules to crypto as if they are banks. But there’s one caveat. They could have allowed for domestic regimes on the travel rule, which means you just send a reference number, and if someone calls you with the reference number, you give the personal data. But they kicked that one out, said, no, no, crypto is international in nature, so you need to throw in your data internationally from A to B, even between Belgium and the Netherlands, there needs to be all the name from the sender and the receiver in the transaction. Well, then the crypto world said, this is impossible. It’s a blockchain. How are we going to change the blockchain code? Okay, there’s the bureaucracy trick. We don’t know how it works, but you are able to make it work. We have already seen a couple of companies doing it. So then you set in motion that mechanism, and it’s being set in motion for a couple of years now. And then those companies that say that they can do it, you put them on a stage in Vienna or any FATF stage in the world and say, here are the good guys, and say, look, this is how we can do it. So the European discussion is, we’re going to do the same as with the FinCEN rule. We’re going to sort of allow or oblige everyone to put in information of the sender and the receiver of a crypto transaction into the transaction or, well, there’s a concession, or you can send it later. So everyone’s going to make some swift, like, international network structures in which this information is going to have to be shared. There are some goodies in the sense that they left Socalled Unhosted wallet out of the discussion or not out of the discussion. There’s yeah, there’s some messing around where people say, well, we got a big deal. They’re coming there, they’re doing concessions. No way. There’s no concessions. We’re going to be eaten alive. It’s a silly idea for banking from start on and applying it onto the crypto is just as silly as it was for banking and it’s going to cost even more because it’s the future technology and we should solve this problem in a different way. But we’re locked into pursuing our previous errors. So we’ve already heard the banking sector to a degree where people don’t bank anymore because of those rules. And now we’re going to hurt the crypto industry to a degree where the people want crypto anymore due to these rules. That’s the foreseeable future.

Stephan Livera – 00:51:15:

Sort of, yeah. So if I had to make a silly analogy, it’s almost like if the regulators back when automobile cars were coming out, if they mandated that you had a horse to pull your car as a backup as well, it’s almost like they’re trying to say you’re not allowed to have these cars unless you’ve got a backup horse as well. And it’s just kind of like completely unsolving the problem of automobiles that solve. And so what we are arguably seeing is to use the regulator pilots, they call it VASP, virtual Asset Service Providers. And they’re saying these vast VASPs have to set up this kind of consortium network amongst each other. And so in bitcoin and quote unquote crypto world, they have to set up I guess this is what they’re looking at, right? Like the large exchanges and perhaps the large custodians are looking at this as a way of saying, okay, well this is how we’re going to try to comply with the FATF rule. And then all the while we have people talking about, well, what’s the response to this? Is there some way to push back on this or is it just going to have to all go fully underground? What are some of the ways that are there any avenues to push back here?

Simon Lelieveldt – 00:52:29:

Okay, so I’m going to limit myself to formal avenues because I think it’s basically an institutional game. There’s a big institution messing around with the rules. So we must start out with a lawsuit against the OECD. The OECD has rules on human rights and they want companies or they want countries to abide with human rights laws and they should do so themselves. They are sponsoring with their secretariat, the FATF as a project group. As a project group. If I would rebrand the participants of the project group into Google, Facebook and Apple and say, well, these are the standards of Amazon, Google, Facebook, Apples for monitoring and risk management in ecommerce, it would be completely gone. The OECD would not be allowed to host a mass monitoring project group of big techs. Why would they be allowed to host a mass monitoring group of governments? Because they are governments. No, it doesn’t matter whether they are governments. It matters whether they violate human rights. They violate the human rights because they prescribe mass monitoring and that’s a violation of a UN charter on privacy in the digital age. So we have our privacy charters, we have our UN charter on human rights, which are being violated consistently by a sectarian hosted by the OECD. So the OECD should be held to their own standards. And I would be looking forward to any lawsuit by an NGO in Paris towards the OECD, violating them for hosting a criminal crime syndicate that does structural violation of human rights. That’s the institutional approach that you would have to take to sort of make sure that they organize themselves as an international organization because as such, once they turn into an international organization, they have to abide with the human rights standards and all kinds of governance rules which are not applied by now. So we need to get the governance in order. It’s a longstanding criticism of the FATF, but they keep ducking the issue. They’re a project for 30 years. That’s not a project. That is serious. Law evasion on the side of people who want people not to avoid the law. I mean, there’s an interesting dissertation or a script. It’s slightly less than a dissertation. You must not turn into the monster that you’re trying to fight. I think the FATF has turned into the monster that it’s trying to fight. The only ones benefiting are the terrorists, which scared the whole Western nations into setting up rules where we inflict harm onto ourselves by controlling everything without any benefits. So the true winners are the terrorists who achieve the fact that we are basically keeping ourselves busy with rules that don’t go anywhere. But firsthand, OECD as a host of the Secretariat, there’s a lawsuit over there and in each country and constellation, the European Union, you’ll have to use the institutional structures, file complaints, file lawsuits, be vocal about the violation of human rights and repeat the message over and over again, and that might set the wheels in motion. Best way would be, of course, if any highprofile politician is being somehow subject to the negative consequences of these rules, which will happen in due time because we have a register on all assets coming up in Europe, so all assets must be disclosed. We have a UBO Ultimate Beneficial Ownership register. A couple of things going on that I would suspect will lead to more publicity, incidents, problems, and I would hope the institutional wave would flow the other way around, but we’re never sure.

Stephan Livera – 00:56:08:

Yeah, well, I think you make some great points there on ways that people can push back in an above board manner. I’m curious, Simon, are there any organizations that exist like this today? Like, can we donate to that or do we need to set something up for this? Do we need to make a website, make an organization that’s going to drive the fundraising to make this kind of lawsuit happen?

Simon Lelieveldt – 00:56:27:

Yeah, we might want to do that and think about setting it up or making sure we find. Those organizations. This is really a niche area. I’ve been pondering a thought myself. I’ve set up a website, Humanrightsinfinance.EU. But that’s really a mockup website because the idea is, in my mind, to do something about it. But your question is very, very good. I think I think we should go for this lawsuit in Paris with Fine, amnesty International, bits of Freedom, privacy International, electronic Frontier Foundation, whichever group wants to join and tries, first of all, to kick out OECD as being the sectarian of the FATF. That would be step one. Yeah. We’d have to think about it. In principle, I’m on a sabbatical right now, but this topic is too important to let it go. So, yeah, I would favor anything that would flow that direction.

Stephan Livera – 00:57:20:

Well, I tell you what. I think there’s probably a lot of listeners of my show and just Bitcoiners out there who are anti-financial surveillance. And they would probably donate for this kind of thing. Because I think many of us see. I can understand the general population. Like many of them. May not really kind of be interested in this kind of thing. But I could imagine those people who are privacy focused might be interested in finding a way to push back. So maybe that’s something a good French lawyer.

Simon Lelieveldt – 00:57:45:

Good French lawyer. Because the OECD is in Paris, so we certainly need a good French lawyer and take it from there.

Stephan Livera – 00:57:51:

Well, if you’re out there, get in touch.

Simon Lelieveldt – 00:57:53:

Yeah, good idea.

Stephan Livera – 00:57:55:

Simon, I think it’s been a great chat with you. We’ll probably have to do this again at some point. There’s so much stuff to cover, quite a lot. But for now, where’s the best place for people who want to find you online or just get in touch, I.

Simon Lelieveldt – 00:58:07:

Guess my Twitter account. @finhstamsterdam. On financial history, there’s an abbreviation of financial history of Amsterdam because history matters. I think that’s the issue here. That’s the best way to get in touch or see my website. You’ll find me. If you look for me, you’ll find me.

Stephan Livera – 00:58:24:

Fantastic. Well, I’ll put the links in the show notes. Simon, thank you for joining me.

Simon Lelieveldt – 00:58:27:

Okay, you’re welcome.

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