PRZ going in for heart surgery

Phil Zimmermann is going in tonight (7 May) for heart bypass
surgery.  
He's not in immediate danger -- he's not having a heart
attack, he's  
not no in immediate danger, but they're pushing him into the
hospital  
quicker than any reasonable person would like. Obviously,
that makes  
for worries. He meets with his surgeon tomorrow morning, and
likely  
will have surgery tomorrow (8 May).

	Jon

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[Read the paper here: 

http://www.cl.cam.ac.uk/%7Erja14/Papers/nonbanks.pdf 
Very interesting 
stuff, but not likely new to most here.]


The Federal Reserve commissioned me to research and write a
paper on fraud, risk and nonbank payment systems. I found
that
phishing is facilitated by payment systems like eGold and
Western
Union which make the recovery of stolen funds more
difficult.
Traditional payment systems like cheques and credit card
payments
are revocable; cheques can bounce and credit card charges
can be
charged back. However some modern systems provide
irrevocability
without charging an appropriate risk premium, and this
attracts
the bad guys. (After I submitted the paper, and before it
was
presented on Friday, eGold was indicted.)

I also became convinced that the financial market controls
used
to fight fraud, money laundering and terrorist finance have
become unbalanced as they have been beefed up post-9/11.
The
modern obsession with 'identity' - of asking even poor
people
living in huts in Africa for an ID document and two utility
bills before they can open a bank account - is not only
ridiculous
and often discriminatory. It's led banks and regulators to
take
their eye off the ball, and to replace risk reduction with
due
diligence.

In real life, following the money is just as important as
following
the man. It's time for the system to be rebalanced.

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Steve Schear wrote:

[snip]

> In real life, following the money is just as important
as following
> the man. It's time for the system to be rebalanced.

In fact, I believe, it is even more important because it is
the 
snail trail that connects the people involved. Significant
sized 
anti-social activities are very rarely one-man bands.

Given this, rather than requiring proof of identity to open
bank 
accounts, etc, we should encourage transactions through the

normal channels in order to better follow the money, if we
are 
truly after criminals. All the extra controls do is force 
ordinary people who can't, for whatever reason, meet the
proof of 
identity standards to create covert channels to transact
their 
business. These then become the means the real crooks then
use to 
commit whatever it is they do.

The best parallels I can think of are Prohibition and the
War on 
Drugs. Look at the total chaos brought on by Prohibition. 
Fortunately we were wise enough to put a stop to that
relatively, 
for social controls, quickly. The War on Drugs; however, we
have 
not been as smart about, and now, just over 100 years later
we 
are spending multi-billions to bring forth an occasional
mouse 
displayed in screaming headlines.

Both Prohibition and the War on Drugs responded to each new

general control by creating covert channels for transacting

business. The $10,000 alert system created smurfing where 
deposits were always less. Now that they have instituted
controls 
on transfers of $5,000 or more, guess what? I think you can
see 
the trend. In addition by imposing general controls what
they do 
is spread the work around. The crooks have to hire more
people to 
do the work which creates a mindset in a larger number of
people 
that laws oppress and that you are better off living outside
the 
law.

To bring it back to encryption, what are the goals we are
trying 
to achieve by using encryption? Are they goals whereby we
create 
barriers between people? Or are the goals to assist people
in 
creating connections that are secure and enhance trust? The
tools 
themselves are neutral.

Best,

Allen

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