With the advent of modern technology, Facebook has planned to launch its own cryptocurrency, Libra. But, before it hasn't even begun, the cryptocurrency has been controversial for central banks and politicians across the globe.
Ideally, Libra continues to face regulatory legal implications from the local and international community. It raises concerns about consumer protection, privacy, and more importantly, money laundering.
If you want to have an in-depth understanding of this hot online issue, here's what you need to know about Facebook’s Libra and its money laundering concerns.
What is Facebook's Libra Cryptocurrency?
Etymologically, Libra is an astrological sign that means "free" in French. It's also known as the ancient Roman unit of weight.
Libra isn't actually a creation of Facebook. Instead, it's a project of the Libra Association, by which Facebook is a co-founder.
The association will act as a monetary authority for operating the cryptocurrency with its purpose to encourage more people without bank accounts and other financial systems to use the said currency.
Once launched, Libra aims to provide a safer, cheaper, and easier way of sending money online. Given that objective, Facebook may have bigger plans in store for Libra. It even created Calibra, a subsidiary that aims to operate services on behalf of the Libra network.
What is Facebook's role over Libra Cryptocurrency?
Facebook doesn't have direct control over Libra. That's because it's only one of the members of the Libra Association, which is a nonprofit association acting as a regulated monetary authority for the currency.
Even if Facebook is responsible for the launching, many founding members will be there to get the project going. These members may be composed of MasterCard, Visa, Uber, PayPal, eBay, Vodafone, and many more. Each of them will have the same degree of the vote in the association. That's why Facebook doesn't have more control over the operation of the currency than any other members.
On the other hand, Facebook still plays a significant role in the initial stage of the Libra project. It’ll be responsible for running the Calibra wallet and for different leadership roles until the launching of the network. After Libra is introduced, Facebook will have the same duties and responsibilities as those of any members.
What Makes Libra Different From Other Cryptocurrencies?
Like most popular cryptocurrencies in the market these days, Facebook's Libra is also in the electronic form. It means you can't touch a Libra coin or note.
When it comes to transactions, the cryptocurrency also uses a technology called blockchain that confirms the completion of the transfer.
However, Libra differs from other cryptocurrencies in the following ways:
Founding members, including Facebook, will manage the Libra blockchain in its initial phases but will soon develop into a full system.
Libra will be attached to a pool of assets that will be the basis of its value. It'll also include major currencies, such as dollars, euros, and other currencies from reputable central banks.
Unlike other cryptocurrencies, Libra's supply will increase or decrease depending on its popularity. If people want to utilize Libra, the association will purchase more assets, and if people request for cash out, they’ll pay them.
What are Politicians and Regulators' Opinions about Libra?
Again, Facebook's Libra cryptocurrency is facing severe concerns in the international community. As reported by CNBC, many politicians and regulations around the world have expressed sentiments and opinions about the launching of Libra as a Facebook cryptocurrency.
Here's what they think about Libra:
French Finance Minister, Bruno Le Maire, opined that he wasn't in favor of Libra to become a "sovereign currency" that gives it an excellent opportunity to race with government-issued currencies like dollars and euros. The reason for Le Maire's disapproval is the possibility of the corporations becoming private states after the launching of Libra.
In addition to French officials, Jerome Powell, Chairman of the Federal Reserve also, expressed opinions about Facebook's Libra. This is by way of calling the attention of social networks to stop their launching plans for their digital currencies.
Powell reiterated that regulators don't receive adequate answers from the association on questions involving consumer protection and privacy. Also, the Chairman of the Federal Reserve said that they've already formed a working group to review the cryptocurrency project.
Bank of England Governor, Mark Carney, even disapproves the introduction of Libra in the currency industry because if it is successful, Libra will operate a systemic payment system. As it involves many users, you need to be active at all times, and you can't afford to lose money out of your wallet.
Carney also said that Facebook couldn't do "learning on the job" technique, which means that Libra should be stable from the start or else it'll not promise success in the long run. Like any other currencies, Facebook's cryptocurrency should be controlled with the highest standards of regulations
The G-7, which is composed of the United States, Britain, France, and many more, is building a task force to check and evaluate the risks that may be caused by digital currencies, like Libra to the world's currency system.
What is Money Laundering?
As mentioned, one of the pressing concerns of Facebook's Libra is the commission of money laundering acts within the financial industry. But before we go to the main topic in relation to Libra, it's best to get familiar with what money laundering is and how it actually works.
Money laundering, in its simplest terms, is a process whereby criminals make it appear that they derive the proceeds of criminal conduct from a legitimate source.
Money laundering has an extensive process. Even if the illegal money is laundered without the participation of the financial institutions, the reality remains that a massive amount of dollars of criminal money is laundered with the help of the financial sector.
On the other hand, money laundering acts are committed in situations where the person is a party to an arrangement of providing financial services, which includes the proceeds of the criminal conduct.
However, it's essential to consider the extent of knowledge or suspicion of the person regarding the sources of the funds. Thus, a money laundering offense can be committed by a person who knows or suspects that the person involved in the arrangement is dealing in criminal conduct.
Given the circumstances, not all crimes are capable of predicating money laundering. It depends upon the different jurisdictions. Typically, different states follow different guidelines for the treatment of money laundering acts.
For some countries, the variations of the degree of severity of the crime committed and the requirements for the recognition of the crime by the laws of the place where it takes place are taken into account. Ultimately, most jurisdictions acknowledge almost all serious crimes, such as fraud, robbery, drug trafficking, corruption, terrorism, illegal gambling, and arms trafficking as capable of predicating offenses involving money laundering.
Many countries recognize the criminalization of money laundering because of the act of taking the profit out of criminal conduct. After all, it's deliberately punishable for people and organizations to help criminals take advantage of the proceeds of their criminal acts by giving financial services to them.
To better understand how money is being laundered, below are the stages that take place in the money laundering process:
1. Placement – It involves the moving of cash from its original source. After that, the proceeds of criminal activity are placed into circulation through financial organizations, shops, and other businesses. In most cases, the process of placement can take in the following ways:
Currency Smuggling – It's the process of illegally moving currency out of a particular country.
Currency Exchanges – With the liberalization of the foreign exchange market, currency exchange can be used for laundering money.
Asset Purchase – It's a standard method of laundering. The criminals convert the bulk cash to some valuable assets through a purchase.
Securities Brokers – It's a process by which the brokers can accommodate the act of money laundering by structuring deposits of cash to hide the original source of funds.
2. Layering – It's the process of making it more difficult to spot and discover a money laundering activity. The purpose of which is to make the uncovering of the illegal funds challenging for the law enforcement authorities.
Layering happens when the cash is converted into other monetary instruments, and material assets are bought with proceeds and then sold the same.
3. Integration – It's an act of moving the laundered money into the economy through the banking system, and the proceeds appear to be gathered in the ordinary course of business.
Unlike the process of layering, the spotting and discovery of the laundered money are made through the informants. The conventional methods of integration include property dealing, false import/export invoices, front companies, and fraudulent loans.
For an in-depth understanding of the basics of laundering money, many resource websites are available online to provide you with valuable information.
What are Facebook's Libra Money Laundering Concerns
Now that you know what money laundering is and its stages of execution, then it's time to tackle the money laundering concerns of Facebook's Libra cryptocurrency.
Below are the reasons why Libra transactions can cause acts of money laundering:
Like Bitcoin, Libra would be using blockchain. Since it uses that kind of technology, the transactions made in such currency lack intermediaries whereby no one can be held accountable when things don't go their right way.
Due to its decentralized nature, it'd be easy for criminals to commit money laundering acts in the platform by converting Libra money into physical money.
Similar to Bitcoin, Libra transactions are more likely public in nature. However, users can use pseudonyms to hide their real identities.
To that effect, anyone can perform money laundering in the platform freely without exposing their true identities. Thus, when the police authorities start to hunt criminals, it turns out to be a challenging endeavor due to users operating under pseudonyms.
Libra blockchain, for instance, will be an open landscape for anyone. It means any user can freely use, transact, and create applications without proper controls and regulators from the government.
Given that general set up, anyone, even criminals, can put the proceeds of criminal activity in the platform to disguise the original source of the funds and later on convert them into real money.
It's also under question if the Libra blockchain platform can handle compliance with the sanctions of different countries regarding cross-border fraud as well as the prevention of the commission of money laundering.
It's also controversial how Facebook and the association will protect their users' data, impose sanctions, and halt money laundering offenses. In addition, another concern focuses on how Libra can tackle the regulations from different countries.
The legalization of Facebook's Libra isn't absolute. Facebook and the Libra Association may have to get approval in places that are essential to their business. Meaning, they need to come up with a workable solution that discusses ways on how to prevent money laundering in their transactions. It's one way of persuading the governments to adopt the new cryptocurrency in the industry.
With the possible explosion of Facebook's Libra in the cryptocurrency market, concerns regarding money laundering, privacy, and consumer protection have surfaced. That's probably because Facebook may not have a good reputation when it comes to privacy protection.
Given that notion, many politicians and regulators from all over the world have raised their worries about how it can actually prevent money laundering and other related crimes once operating. Therefore, it’s imperative upon Facebook and the Libra Association to tackle these issues and provide an effective solution before introducing Libra as a new cryptocurrency. That way, they can be able to open it to a new market of users worldwide who can't send and receive payments internationally.
Together with other digital currencies in the market, we hope we're able to provide an informative overview of what Facebook's Libra is, how money laundering takes place, as well as the money laundering concerns of this new cryptocurrency.
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