MasterCard's Payment Pain: A Regulatory Nightmare.

In my previous blog The Rise of the Crypto Currency: The Central Bank Catalyst I briefly described how the collusion of the various central banks post-2008 crisis had the real impact of delegitimizing their mandate of protecting the economies of the world and its populations. The advantages of the Bank bailouts in the U.S, the bond purchased programs of the European Central Bank (ECB) and the Historic Japanese ETF purchases were largely concentrated in those market participants that had substantial resources, and could buy into this asset appreciation scheme. When the institutions which we expect to represent us fail to do so a general vacuum of legitimacy is created, and the invisible hand of the market will enter to bring the marketplace back to equilibrium. Money looking for a productive use has fled the central banking fiat monetary system, and at the exit of that system the gatekeepers of liquidity have been reluctant to facilitate its exit. Specifically, I have firsthand business experience with Mastercard in my line of work, and will and will provide some brief insight into their reaction to this liquidity push into alternative cryptographic currencies post 2008 credit crisis.

Payment processer such as Mastercard find themselves in a tough spot related to facilitating fiat credit system to digital currency transactions. The regulators of these various payment processor have very strict standards for Know Your Client(KYC) and Anti Money Laundering (AML) which are designed to ensure that fraud and money laundering are mitigated. The Risks of individuals and groups utilizing complicated corporate structure via offshore banks to skirt tax responsibility in their local jurisdiction is a well document phenomenon just think Panama Papers. Furthermore the risk of individuals opening offshore account with the explicit aim of tax evasion has not necessarily increased, but the regulators awareness of this risk has. The risk is that these individuals utilize these offshore accounts to funnel funds derived from criminal activities through the account to a MasterCard. The recent Loyal Bank indictment which shows just how sophisticated these operations can be as “Six Individuals And Four Corporate Defendants Indicted In $50 Million International Securities Fraud And Money Laundering Schemes”. Just the perception of being related to an offshore entity can cause an international corporate or business structures to face severe and often crippling compliance requirements when using the Mastercard’s payment network. Added to this, the extra regulatory scrutiny applied to crypto related business creates a very hostile business payment environment that is crippling to the adoption of this new crypto technology.

Although Crypto currencies solve a major liquidity problem for companies and individuals attempting to transact within a network of payments, they may increase Mastercard’s risk of being reprimanded by its regulators. These regulatory gatekeepers perceive the risk to the central banking fiat system of allowing capital to flee into alternative competitive crypto asset classes. The risks of not being able to ensure the source of funds related to a crypto transaction are from legal activities, and the possibility of money laundering via the crypto to Mastercard fiat purchases or cash advances are a very large concern of Mastercard. It is a net loss to the central banking system when fiat money is converted to cryptographic currencies, and a compliance AML/KYC nightmare to ensure source of funds are from legal activities for crypto coming back into the fiat system. For Mastercard these represent net losses in both scenarios, so it is not a surprise that they remain hesitant to accommodate this flow of funds.