Big banks enable drug cartels, but bitcoin use seen as criminal

FILE - This April 3, 2013 file photo shows bitcoin tokens in Sandy, Utah U.S. prosecutors say Monday, Jan. 27, 2014, that two men are charged with conspiring to commit money laundering by selling more than $1 million in Bitcoins to users of the black market website Silk Road, which lets users buy illegal drugs anonymously. (AP Photo/Rick Bowmer, File) less FILE - This April 3, 2013 file photo shows bitcoin tokens in Sandy, Utah U.S. prosecutors say Monday, Jan. 27, 2014, that two men are charged with conspiring to commit money laundering by selling more than $1 ... more Photo: Rick Bowmer, Associated Press Photo: Rick Bowmer, Associated Press Image 1 of / 4 Caption Close Big banks enable drug cartels, but bitcoin use seen as criminal 1 / 4 Back to Gallery

Last month, Charlie Shrem, the 24-year-old founder and chief executive officer of a leading bitcoin payments company, was arrested at New York's John F. Kennedy Airport after getting off a plane from Amsterdam. Shrem, along with a Florida man named Robert Faiella, was charged with conspiracy to commit money laundering linked to alleged sales of more than $1 million in bitcoin to people who wanted to buy drugs on Silk Road, an online marketplace that accepted only the crypto currency.

The arrests underlined growing concerns among law enforcement that bitcoin, a purely anonymous means of exchange, had become the preferred currency of the criminal underworld, and that payments companies like Shrem's had become the enablers of drug trafficking and other nefarious enterprises. But you know what else has a history of enabling nefarious criminal enterprises? Banks.

Last summer, HSBC agreed to a $1.9 billion settlement with the federal government over charges that it failed to monitor $670 billion in wire transfers and $9.4 billion in purchases of U.S. currency. According to the U.S. Justice Department, Mexican cartels would deposit hundreds of thousands of dollars in cash every day at HSBC Mexico branches, in boxes specially designed to fit the dimensions of the HSBC teller windows.

In addition, a Senate report accuses the bank of doing business with companies with ties to terrorist organizations and skirting rules meant to prevent dealings with the governments of Iran, North Korea, Burma and Cuba. Wachovia, which is now part of Wells Fargo, has also admitted its failure to report suspected cartel money laundering going through the bank. ING and Standard Chartered, among others, have settled in similar cases.

In none of the cases, however, were criminal charges brought against the banks. Justice Department officials argued that doing so would pose too great a risk to the financial system - too big to fail, in the familiar phrase. Nor were there charges brought against any employees, something that would not have posed the same systemic risk. Contrast this with the instance of Shrem, who faces a potential prison sentence of 30 years in a case where the amounts are a rounding error next to those handled by HSBC and Wachovia.

Some bitcoin enthusiasts have seized on this divergence to argue against money laundering laws in general. Libertarians see the statutes as just one more way that the government, under the guise of protecting us from criminals, exerts control over our lives, insisting that we disclose the intimate details of our financial lives to Leviathan under threat of confiscation.

You don't have to go that far, though, to see something unbalanced about the way the nascent currency system and the established financial giants are being treated.

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There's the wild difference in the amounts of money, for one thing, and there are also the clients. Both cases involve drugs, but the suspects in the bitcoin case are accused only of helping people buy drugs. The banks, on the other hand, were helping cartels - organizations that, in addition to feeding the ample American appetite for recreational narcotics, are responsible for the violent deaths of tens of thousands of people.

Seen one way, the decision to prosecute bitcoin entrepreneurs is evidence that the government is taking the currency seriously. We'll really know it's important, however, when the Justice Department decides it's too risky to prosecute financial institutions like Shrem's that support it.