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NEW YORK (InsideBitcoins) — Few have more advanced credentials than Juan Llanos when it comes to the regulatory and risk management issues facing Bitcoin. An Argentinean, he was granted permanent residence status by the U.S. Citizenship and Immigration Services “by reason of extraordinary ability” in matters of anti-money laundering and combating the financing of terrorism.
Llanos co-founded and was compliance officer, until early this year, of Unidos Financial Services, a provider to the under-banked and unbanked in Hispanic neighborhoods in the U.S. and elsewhere. In April, he joined Bitreserve as chief “transparency” and compliance officer.
Ahead of his appearance at the Inside Bitcoins Conference in London next month, we asked Llanos about some of the headline compliance issues facing the cryptocurrency.
What are your thoughts regarding Mexico and Ecuador’s push to establish state-sponsored crypto-currencies?
“Being from Argentina, I cannot but take a rather cynical view on this. Let me explain. As opposed to the USA and Western Europe, in our countries there is no state. There’s only nations and governments. Of course, there are varying degrees of development and maturity, but the truth is that we have historically been unable to establish solid republican infrastructures supporting the functioning of our unstable democracies.
“Therefore, as a South American I cannot but look at who is pushing for a change or a measure. In the case of Ecuador, the current administration is aligned ideologically with Venezuela, Bolivia and Argentina, whose governments are populist, protectionistic and very corrupt. When I see a country like Ecuador pushing for a digital currency and aligning with Iran, for example, I cannot but suspect that there’s an ulterior motive of internal control, of its citizens, and external retaliation, against the United States. In other words, I see Ecuador’s push as purely political.
“I haven’t seen the details of the proposed currency, but I suspect it will just be a digital manifestation of a currency issued under a fractional reserve scheme. Of course I may be wrong, but with a limited-supply, floating currency like Bitcoin, countries would lose the ability to manipulate their monetary policy to their advantage, and it would only leave them with the second benefit — the increased opportunities for surveillance and control. Countries like Ecuador and Argentina rely heavily on electronic surveillance for tax compliance and other controls, such as dollar purchases in the case of Argentina, so it shouldn’t be any wonder that officials may have interest in crypto-currencies for that reason alone.
“With respect to Mexico, my understanding is that there has been public-private initiative for creating a digital, block chain-based payment mechanism, so I see this less as a political push, and more as an institutional initiative with clear, rational goals. The challenge is always, generally in all of South America, execution. God knows how well and how far any endeavor of this kind will go.”
You have said that the New York State Department of Financial Services BitLicense proposal is strict, but not unexpected. What do you think will be the biggest challenge it will present to applicants?
“That’s right. The reason is that in the U.S., it’s incumbent upon state-level financial supervisory authorities to establish and enforce prudential regulation, with the primary goal to protect consumers against business mismanagement, imprudence or abuse.
“The category of non-bank financial institutions known as Money Services Businesses (MSBs), and its various subtypes (check cashers, money transmitters, currency exchangers), have been subject to licensing in most U.S. states for decades. So some form of fit-and-proper test was to be expected of virtual currency companies.
“However, NY has gone way beyond what was expected and even reasonable. To begin with, practically any and all types of virtual currency companies [would be] required to be licensed — even pass-through wallet services like Blockchain.info, which had been spared by federal regulation (which only regulates exchangers or administrators of virtual currency).
“Furthermore, it will be prohibitively expensive for many early stage startups with scarce resources to meet the operational maturity requirements of this license. This is the most tragic aspect.
“Today many of the best ideas and innovations are generated within lean environments. By setting the barrier of structural prerequisites too high New York will effectively be committing a technological genocide of sorts, thereby depriving humanity of potentially hugely beneficial and long overdue changes in payments and financial services.
“The biggest challenge, however, is in my opinion, the imposition of financial crime deterrents that are more rigorous than those in force at the federal level and applicable to other financial institutions globally. In Bitcoin’s current form, for example, it is simply not possible technically to identify by name and physical address the recipient of a transaction.
“The NYDFS even requires verification of customer identification for all customers of a ‘virtual currency business,’ while it does not have such a requirement for customers of other money transmitters. Thus, this Bitlicense proposal will effectively be forcing an entirely new technology to eliminate the features that make it so promising and disruptive.”
And can you give us a brief preview of what you’ll be speaking about next month at the Inside Bitcoins Conference?
“Sure. This time around I will be taking part of a very interesting panel on Africa and what’s required for mass acceptance in that continent.
“My focus will be on the structural prerequisites for development in general, and the hurdles that curb the spread of remittances, payments and inflation-proof currencies. My work in money remittances for the past 12 years, primarily in the U.S.-South America corridor, has given me the opportunity to observe first-hand the environmental realities of recipient countries, many of which share similar if not identical traits anywhere in the world. So I hope I can share valuable lessons learned and in some way stimulate and give the audience food for thought and action, which is always my goal.”
By Hal M. Bundrick