1994-04-17 - Laundering money through commodity futures

Header Data

From: hughes@ah.com (Eric Hughes)
To: cypherpunks@toad.com
Message Hash: 496587d11f98e9b3e6558eb08556a6013867cbf8f78c535f1f8b50ec1c945ea0
Message ID: <9404170417.AA28879@ah.com>
Reply To: <9404160625.AA00695@toad.com>
UTC Datetime: 1994-04-17 04:26:02 UTC
Raw Date: Sat, 16 Apr 94 21:26:02 PDT

Raw message

From: hughes@ah.com (Eric Hughes)
Date: Sat, 16 Apr 94 21:26:02 PDT
To: cypherpunks@toad.com
Subject: Laundering money through commodity futures
In-Reply-To: <9404160625.AA00695@toad.com>
Message-ID: <9404170417.AA28879@ah.com>
MIME-Version: 1.0
Content-Type: text/plain

>This zero sum nature is the key to laundering the money. Person A and Person B
>get together and guess that the price for a commodity is going to go up. 

Guess.  Read that word again; it's important.

>means that who ever buys a contract will make money. So Person A, the intended
>recipient buys a contract and Person B sells a contract. If they're right,
>then Person A gets the money and Person B loses the same amount.

>Bingo. The money moved from B to A and no one can trace how it got there.

_If_ they're right.

>You may wonder why B bothered to sell a contract and lose money. This is the
>safeguard against guessing wrong. No one is correct all of the time. Even the
>people who try and rig the markets and corner them get burned as often as they

So then, let's take the probability of guessing right at 1/2.

[then is described the double-up strategy]
>Ideally, you play this game with two players with relatively deep
>pockets. This means that A can cover the short term loses. 

Here's the flaw, in full glory.  This scheme is the classic
double-or-nothing martingale.  It doesn't work.  The "relatively deep
pockets" of A have to be infinite, because that's the expected value
of the amount of A's intermediate loss in the random walk to the
completion of the transaction.

The example is ludicrous, but the conclusion is valid.  More
transactions means more interactions between them and more possibility
to hide something inside the ever-increasing flux.