Again, the crypto world is in the line of fire, but this time, all accusations seem a little off-target. These recent revelations apply to traditional bank involvement in massive money-laundering schemes and finally shed light on a quite glaring double standard in the financial industry.
It's time to take the elephant by the tusks: the involvement of established financial institutions in illegal activities.
Stuart Alderoty, Chief Legal Officer at Ripple, really hit the nail on the head when he laid into the biased approach of U.S. regulators. If the claims about the New York Federal Reserve's involvement in allowing large illegal transfers to go through, including those that have ties to terrorist groups, are true, then that is something that needs to be brought into the limelight. It seems truly hypocritical that we continue to point to crypto as some kind of villain when these blatant oversights are occurring within more traditional banking.
The Wall Street Journal's exposé on Iraqi banks using the Fed system to transfer billions of dollars illicitly was just the tip of the iceberg.
This went on for a decade or so with nothing being done against these activities, despite warnings given by the Pentagon. One cannot imagine such gross negligence. It makes you wonder: are regulators involved in trying to prevent financial crimes, or are they more interested in maintaining the status quo?
Let's look at the numbers, for a second.
Less than 1% of crypto transactions are related to criminal activities, while as much as $800 billion to $2 trillion is laundered conventionally every year. That is an astronomical difference. Yet, in the financial world, cryptocurrencies still get nightmarish images attached to them.
It doesn't stop there: major banks, including but not limited to HSBC, JPMorgan, and Bank of America, have been implicated in laundering millions for drug cartels and other major criminal enterprises. These names ring a bell, institutions in which we're supposed to trust with our life savings. The fact that they have been caught red-handed in such nefarious activities is deeply troubling.
Again, despite all the accumulated chalking up to the culpability of traditional banks, the regulators of the United States have stuck to crypto as if they needed some kind of scapegoat through the use of digital assets to divert attention from larger issues in the financial industry. This would merely be unfair and highly unrepresentative of the realities to blur the focus, but is also potentially damaging to innovation and advancements within the financial industry.
As Ripple CEO Brad Garlinghouse identified, "the government's animosity toward crypto is a chill on growth." Rather than encouraging innovation and exploring the value-accretive possibilities of blockchain technology, regulators are often creating fear, uncertainty, and doubt. This is short-sighted and ultimately counterproductive.
Reality check: If we ever hope to fight money laundering and other financial crimes, we need to focus on the entire landscape. Crypto isn't the culprit; it's a technological advancement that someday may bring more complete transparency and accountability to financial transactions. The problem is systemic, it's a fault in our traditional banking system.
We need a balancing act that recognizes both the risks and benefits associated with traditional and crypto finance.
What we need is for regulators to come up with nuanced, inclusive guidelines, concerning the very unique challenges that digital assets present, but not in a way that stifles innovation. Equally, they must crack down on traditional banks with precisely the same exacting standards they seek to impose on the crypto industry.