1994-04-18 - Dirty Laundry…

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From: Peter Wayner <pcw@access.digex.net>
To: cypherpunks@toad.com
Message Hash: 0f6c03a3e8bfaeb7db27df793ccf4ef33bedbeb8f1f9ed3282f5f71fc0533971
Message ID: <199404181750.AA25465@access3.digex.net>
Reply To: N/A
UTC Datetime: 1994-04-18 17:50:23 UTC
Raw Date: Mon, 18 Apr 94 10:50:23 PDT

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From: Peter Wayner <pcw@access.digex.net>
Date: Mon, 18 Apr 94 10:50:23 PDT
To: cypherpunks@toad.com
Subject: Dirty Laundry...
Message-ID: <199404181750.AA25465@access3.digex.net>
MIME-Version: 1.0
Content-Type: text/plain

First, forget about thinking like a mathematician, a gambler playing
or an upstanding citizen of Wall Street. You are some guy A who wants
to move money to some guy B and you want to do it in as untraceable a
way as possible.

The old standbys, gold and gems, are fine, but they are hard to move
safely. Strange business contracts are okay, but they demand some
sort of front operation which takes time and money to run effectively.

So you turn to the futures market for the first try. Lets say you want
to move n dollars. Luckily, both A and B have enough cash and borrowed
funds on hand to sustain a loss of up to (2^i)n dollars. Let i=4 for 
the rest of this example, i.e. 16n dollars of loss reserves. 

In 15 out 16 times, the progressive doubling system will work. 
The transaction will be close to untraceable. The only way that 
anyone would be able to prove that the transaction occured would 
be if they could assemble both trading records and then match
the trades. This can be shielded very effectively by trading in
different countries with different exchanges and relying on
arbitrageurs to keep the markets in line. 

In 1 out of the 16 tries, things will go wrong. You might say they
would go badly wrong if your a nervous criminal B who is afraid that A
is going to screw him. Now you need to get 16 n dollars. But in
reality, A and B are back where they were before futures markets were
invented.  They just need to move 16 times more money. 

You take a bigger truck to haul the gold.  You do some trades with Van
Goghs and Rembrants instead of Cassats or Sisleys.  In general, many
of the transaction costs for security and other stuff are pretty
fixed.  I like Eric's art example. Just remember that auction houses
like Southeby's try to take 10% commissions, but they can be
negotiated to be much lower for expensive works.

So, if your going to do this, choose i to suit your cash/risks profile. 
If you have more cash available, then you have a better chance of success.
But hey, that's life. 

I would guess that many corporations are using similar systems to move
profits around amount their subsidiaries. One corporate financial
officer once bragged to me that he moved a huge amount of cash(~500
milllion) out of a Latin American country to avoid taxes down there. 
He didn't say how he did it, but I would guess he used a similar system.

Notice that both Proctor and Gamble and Dell computers have recently
sustained large losses in the futures markets. Maybe they're gambling,
maybe they're funnelling money someplace. Who knows?  Conspiracy buffs
might take notice of the fact that Bobby Inman is on the board of Dell

The WSJ article on the losses at P&G said that corporate treasurers
are being pressed to become "profit" centers. I find this hard to
believe. Most CEO's are smart enough to know that 1) they're not in
the futures gambling business and 2) the futures gambling business is
nowhere near as solid as selling soap when you control a large
fraction of the market. As further evidence of weirdness, I offer the
fact that P&G knew the trade was going bad, but kept the position
after many gamblers would have cut their losses. Maybe someone 
was asleep at the wheel? Maybe something was going on? Who knows. That's
the beauty of the system.