Author: Syedur Rahman 16 September 2021
Two months ago, the founder of ShapeShift announced that the company would become a “decentralised autonomous organisation” (DAO) and its corporate structure would cease to exist.
Erik Voorhees stated that control of the company he created seven years ago would then “gradually migrate” to holders of ShapeShift’s digital token, FOX.
As a company, ShapeShift enables its users to exchange cryptocurrencies without making their names available to the government or any other parties. Significantly, it no longer believes it has any need to conduct the know your customer (KYC) checks it used to, as it is now no longer regulated. It has said that it is not carrying out regulated activity - arguing that it is “an open-source interface for users to interact with their own digital assets” - and has stated that there are no official regulators of DAOs.
This poses the challenge for regulators of criminals using such loopholes to launder their proceeds of crime. As with much of the development of cryptocurrency, it appears that the pace setters in crypto are finding ways to identify weaknesses in existing regulation, forcing the regulators to find the most effective way of playing catch-up.
With KYC rules being at the heart of authorities’ efforts to curb money laundering, these latest developments will have caused concern among those who have the task of enforcing them. Any means by which the source and ownership of funds can be disguised can be used as a tool by those looking to move their illicit proceeds. The emergence of such decentralised finance (DeFi) and the way that DAOs put control of DeFi platforms into the hands of stakeholders mean that many of those who help the regulators enforce anti-money laundering laws - such as, for example, the banks – are being bypassed.
Three years ago, ShapeShift gave in to the regulators and started collecting user details. But now it is taking a more determined stance, based on its belief that it does not provide regulated services. The regulators now face the challenge of ensuring the effectiveness of any current or future regulation is not surpassed by the rate of innovation in crypto and DeFi.
Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, international arbitration, civil recovery, cryptocurrency and high-stakes commercial disputes.