Snippings

You’re probably heard about The Missing Cryptoqueen. It was one of the best podcasts of all time, a BBC series that explored the story of Dr Ruja Ignatova, a Bulgarian-born German entrepreneur who founded a fraudulent cryptocurrency scheme known as OneCoin, which The Times has described as “one of the biggest scams in history”. Since 2017 she has been on the run and in 2019 she was charged in absentia by U.S. authorities for wire fraud, securities fraud and money laundering. Currently one of the FBI’s “Ten Most Wanted”, she also subject to an international Interpol warrant from the German authorities. In the podcast, Jamie Bartlett presents a story of greed, deceit and herd madness that is fascinating funny and frightening. I cannot recommened his book highly enough.

Jamie has written about how Dr Ruja was a genius at brand association. Knowing credibility was critical to her scam, she made sure to place herself next to trusted brands. She famously gave a speech hosted by The Economist in 2015, for example, where she gave a platitude filled “keynote” that you can watch online here. Well, as it transpires, there was another trusted brand that OneCoin was, as Jamie puts it, “looking to snag”: Consult Hyperion! Jamie writes that

In early 2017 OneCoin appointed someone to figure out what OneCoin needed to do to fix its growing technology mess. He asked Ruja’s London office, RavenR Capital, to come up with names. And the name suggested? ‘I would go for Consult Hyperion’ emailed one staffer, attaching a summary of the company.

 

When Jamie, an old friend, told me this, I was very pleased, as you can imagine. As one of the founders of Consult Hyperion, I have always been very proud of the culture of integrity that we built around our core deep subject matter expertise. We have such great people here and they have helped us to build a global reputation for being the best when it comes to helping scale players exploit new technology aroud secure electronic transactions. To be honest, even after all these years to still feels pretty good every time I see it confirmed and when I get a message on LinkedIn saying “hey , your team did a great job”, or someone says at a conference “those guys got us out of hole”, or a stranger in an airport loungue tells me what a superb analysis one of team delivered for them, I still get the same strange mixture of pleasure and pride that I did all those years ago! 

Jamie asked me what Consult Hyperion could have done for OneCoin, and I told him. We do due diligence on behalf of investors, we provide expert witnesses in lawsuits, we do risk analysis and penetration testing for some of the biggest names in financial services around the world. There are all sorts of ways that we could have helped them prove that their scheme was awesome, their teams was great and they would storm the market

But Dr. Ruja never called.

She never called for the obvious reason that we have some of the best electronic transactions consultants on the planet. It would have taken them at most around five minutes to discover that the supposed claimant to Bitcoin’s crown was nothing of the sort. As Global Ambassador for Consult Hyperion, it is henceforth my proudest claim that the cryptoqueen never called us and if we ever get a coat of arms, I intend to suggest “regina non vocavit” as our motto!

Here I am with Jamie and Erica Stanford (author of “Crypto Wars”, another great book!)

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In the United States, where the telegraph network was controlled by private companies rather than governments, there were no rules banning the use of codes, so they were adopted much earlier. In fact, the first known public codes for the electric telegraph date back to 1845, when two code books were published to provide businesses with a means of communicating secretly using the new technology.

Of course, such codes weren’t all that secret because the code books were widely available to everyone (though in some cases they could be customized). But before long another advantage of using such nonsecret codes, known as ”commercial” codes, soon became clear — to save money. By using a code that replaced several words with a single word, telegrams cost less to send.

By 1875, the use of commercial codes was starting to get out of hand. Some codes involved weird words, like ”CHINESISKSLUTNINGSDON.”

From: THINK TANK; The Granddaddies of All Hackers – The New York Times.

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The messaging business itself was mostly generated by business and institutional users, as the general public had yet fully to understand, let alone domesticate, telegraphy. In 1863, for example, Wynter illustrated the lack of understanding of telegraphy in an anecdotal article that told of a gentleman who had ‘seriously’ requested a telegraph clerk to send two dozen stamps to his wife in the country.

From: Victorian telegrams: the early development of the telegraphic despatch and its interplay with the letter post | Notes and Records: the Royal Society Journal of the History of Science.

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They are part of a burgeoning movement of AI models flooding social media, and making it increasingly difficult to figure out if beautiful women posting online are real.

Emily and Fiona were created by artificial intelligence by a savvy tech expert who asked a computer program to create an image of the perfect woman – tall, brunette Emily.

Weeks later, after his creation began to gain fans on social media, Emily’s creator decided to give her a ‘sister’ – busty blonde Fiona, who has 43,000 followers.

From: Instagram’s hottest modelling ‘family’: How an AI model tricked a German footballer into asking for her number -as she and her ‘sister’ make £90k on ‘OnlyFans’-like platform in WEEKS | Daily Mail Online.

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Crypto hedge fund CEO may not exist; probe finds no record of identity

From: Crypto hedge fund CEO may not exist; probe finds no record of identity | Ars Technica.

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And so the Japanese couldn’t see the point of a striking clock that didn’t adjust to the changing hours, although they worked well as status symbols. But it didn’t take long before Japanese artisans started to ‘hack’ the European clocks to fit with Japanese time:

From: 5 January 2023. Geopolitics | Time – by Andrew Curry.

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Elon Musk has talked about plans to turn Twitter, now known as X (or TwiX, to me) into a payments platform that will give it us users the ability to send money to one another and move money into and out of bank accounts. The company has committed to launch peer-to-peer payments, “unlocking more user utility and new opportunities for commerce, and showcasing the power of living more of your life in one place”. This is part of what seems to be a wider vision of X as a a kind of “super app”, a Western version of WeChat, where users will read the news, book travel, paty taxes and everything else. It’s an exciting and challenging goal, but I think it’s going to be difficult to disrupt tjis particular market.

People who are tweeting from time to time (eg, me) tend to think that everyone is on X. But they are not. It is not even in the top 10 most used social media networks. Facebook has some three billion monthly active users, whereas X has some 670 million (half the number that TikTok has) and most of them are not particularly active, since data shows that almost all tweets (92%) come from just 10% of them.  Most people come to X to check in on the news or find entertainment rather than to contribute to the sum total of human knowledge.

Nonetheless, there are users (mostly male, dominated by the 25-34 age group) who do represent a monetisable pool of potential financial services customers and it is a plausible hypothesis that I might pay a friend who uses X for a concert ticket by sending them money from my bank account to their bank account using X (rather than my bank’s Zelle option) if it easy and convenient. There is plenty of competition but if you could DM money, you probably would. provided it was free (back to this later).

Central to this grand vision are Money Transmitter Licenses (MTLs), and at the time of writing X has already obtained a bunch of these licences. Amercia has no equvialent of the European Payments Institution licence, so companies have to obtain these licences in every state, which is time-consuming (Mr. Musk says he undderestimated that) and tedious. It is, however, a necessary first step on the journey to replace Citi and Revolut, Wise and Wells Fargo on users’ home screens.

But what is a money transmitter licence? Writing in the Journal of Payments Strategy & Systems 17(3): 315-322 (Fall 2023), Ximeng Tang (an associate at Goodwin Procter LLP) explains that the Bank Secrecy Act of 19701 (BSA) and the regulations implemented by the Financial Crimes Enforcement Network (FinCEN) impose customer identification, reporting and other compliance requirements on regulated financial institutions, includng Money Services Businesses (MSBs). MSBs provide a number of different financial services, including:

• Transferring money (money transmission);
• Selling payment instruments (e.g., money orders, traveler’s checks);
• Providing prepaid or other stored value products, such as digital wallets; and
• Administering currency exchange (foreign and digital).

Put another way, MSBs are non-bank financial companies with three general functions: receiving and sending money on behalf of consumers; providing products that receive, store, or send money for consumers; and providing an exchange for currencies. MSBs that are money transmitters are regulated and licensed at the state level and, as the Congressional Research Service report on the regulations notes, the terms money transmitter and MSB are effectively synonymous. Indeed, for the purposes of the BSA, a ‘money service business’ (MSB) is a regulated businesses that includes a money transmitter. Most companies providing domestic and international money transfer services are MSBs, such as Western Union and PayPal, as well as some payment processors such as Square and Stripe.

A fundamental element in FinCEN’s interpretation of a money transmitter is that the person must engage in both ‘acceptance’ and ‘transmission’ of money to be a money transmitter. Although “acceptance” is not defined (and as it happens neither is “transmission”), a number of interpretive letters issued by FinCEN suggest that they key is the control of the funds and where they are directed to, which seems liek a good working definition: if X routest the money from me to person with the Taylor Swift tickets, they are a money transmitter.

Now, money transmitters play a crucial role in America’s financial ecosystem which is why they are subject to these regulatory obligations including background checks on officers, maintaining sufficient liquid assets, periodic reports and (here comes the hard part) AML compliance including customer identity verification and transaction monitoring. The mixture of varying state regulations and the fact that America has no digital identity infrastructure (nor does the UK) so that means compliance is expensive and inconvenient and, as has been obvious for some time, undeniably inhibits valuable innovation by forcing startups to spend dollars on lawyers instead of new products and services.

(It should be noted that things are changing on the MTL front.  Many states have already opted to adopt the Model Money Transmission Modernization Act (MTMA), sample legislation developed by the Conference of State Bank Supervisors to establish nationwide standards and requirements for licensed money transmitters. For traditional money transmitters and new fintech entrants, the MTMA has the potential to reduce compliance burdens, encourage innovation, and remove barriers to entry for new market participants.  It is very important given the growth in person-to-person payments via apps. Among all US consumers, half of P2P payments were sent using noncash methods in 2022, up from less than a third two years previously.)

But back to Mr. Musk and his plan. It’s now, as American Banker puts it, a “more modest plan” than the global payments system that he was going to build sometime this year, but it is realistic. But what I keep wondering is why he is bothering. In order to offer payment services to American users., X will need approval in every state, a process that could take up to 18 months and cost several million dollars according to Aaron Klein, a senior fellow focused on financial technology and regulation at the Brookings Institution.

Why would Mr. Musk want to spend a ton of money on AML compliance and identity verification? My crackpot theory is that this is really all about identity, not money. Mr. Musk doesn’t care if he earns a single cent on you sending a couple of hundred bucks to someone for that Taylor Swift ticket. But he does care who you, who you are sending money to and why you are sending it. Your data is worth vastly more than any transaction fees he might be able to collect from you.

PWC forecast from July 2023 xxx

As the global economy heads back into growth, and inflationary and interest rate pressures ease, global asset management revenues will bounce back to reach US$622.1 billion by 2027, topping the record highs of US$599.1 billion generated in 2021. We anticipate that this increase will be led by a continued surge in private markets revenues, which will account for around half of global asset management revenues by 2027, up sharply from 37.6% in 2020 (see chart below).

From: Asset and wealth management revolution 2023: The new context.

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This result reveals that political connections facilitate rent-seeking from banks. As regulatory oversight in MENA countries is poor, politically connected CEOs and/or directors expect banks to “pay them back,” leading to rent extraction at the expense of bank efficiency. Furthermore, comparing the effect of each type of political connection, CEO political connections exhibit superior explanatory power.

From: Bank efficiency in Middle East and North African countries: Does political connection type matter? | Financial Innovation | Full Text.

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Most Bahrainis know BenefitPay as an app that makes it fast and convenient to pay and move money using their phones. But BenefitPay is also crucial to Bahrain’s digital transformation, economic growth, and its leading role in financial technology innovation in the Arabian Gulf region.

In a single platform, BenefitPay allows consumers to pay with a tap at retail stores; check out online without entering card details; transfer funds instantly from bank to bank; pay bills and invoices; and more. The app has spread widely within Bahrain, an island nation in the Arabian Gulf. In 2022 it hosted 252 million electronic fund transfers—up 70 percent from the year prior—and grew to a user base of 1.2 million.

Meanwhile, more than 15,000 merchants now use BenefitPay to accept digital payments easily and securely, even on smartphones. The platform tracks transactions in real-time and includes tools that help merchants analyze their sales performance.

From: Paid Program: How Digital Payments Lead the Way to Financial Innovation.

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