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Did Silvergate let FTX and Alameda share funds and bank accounts? Isn’t that illegal? Also, if one of the purposes of KYC and AML procedures is to stop money laundering, why didn’t the actions of Sam Bankman-Fried and company raise alarm bells? They would have done blatant activities in the open. Of course, the answer is that the rules are different for the rich and the famous. However, after the collapse of FTX, Silvergate may need to answer some questions.

Let’s start at the beginning, however. Credit where credit is due, a pseudonymous Twitter user who goes by the name EventLongShort makes the case.

What is Silvergate and how have they served FTX and Alameda?

The vast majority of Silvergate’s clients are in the crypto industry, “exchanges (i.e. FTX), institutional investors (crypto hedge funds), and stablecoin issuers (Circle/USDC)”. Their main product is the SEN Network, “which allows these customers 24/7 access (important in cryptography) to send money between their Silvergate accounts and other participants on the SEN Network.”

So if you wanted to fund an FTX wallet with a wire transfer, they would direct you to their Silvergate account. However, FTX did not have one. Alameda did. There are documents that seem to prove it, but they are not necessary. In this bizarre text interview Vox posted recently, Sam Bankman-Fried described this scenario, “oh FTX doesn’t have a bank account, I guess people can cable Alameda to get some cash on FTX.” Could Silvergate be in trouble for allowing this?

If Alameda was an affiliate of FTX or vice versa, the whole situation would be a non-event. However, “the two organizational charts provided by Sam Bankman-Fried and new court-appointed CEO John Ray show that Alameda was a completely separate company. The only commonality was that SBF owned a majority of both. That means- Did Silvergate violate KYC procedures?

FTTUSD Price Chart – TradingView

FTT price chart for 11/19/2022 on Bitfinex | Source: FTT/USD on TradingView.com

Silvergate and its Risk and Compliance Department

In what might sound like an admission of guilt, Silvergate replaced its chief risk officer two days after FTX filed for bankruptcy. At the time of the egregious activities, the CEO’s son and son-in-law were in charge of the risk and compliance department. Ouch! According to EventLongShort, the two geniuses might have ignored the KYC and AML requirements because “the deposit growth was so massive and attractive.”

The pseudonymous investigator identified another possible reason, perhaps Silvergate didn’t want to do business with FTX directly because “it was banned in the US” and “Alameda was far from it.” That’s not all, “new CEO John Ray has identified ~$1 billion in cash in FTX and Alameda silos suggesting that FTX was the only bank in these entities.” Ouch!

There seems to be a way out of this for Silvergate though. Since Alameda had an OTC office facing the public, it is justifiable for people to wire money to them. Can Silvergate just claim that it was following its client’s instructions and didn’t know the money was going to FTX? Even though it sounds like a bad excuse, it might work in court if there’s no documentation to prove otherwise.

So, are KYC and AML procedures useless?

They could be. Silvergate was a fully regulated bank. Presumably, all of their clients have provided KYC and AML requirements and these have been thoroughly checked. It did nothing. And the FTX fiasco will be remembered as one of the biggest scams in the world, and perhaps one of the biggest money laundering operations.

As another pseudonymous Twitter user put it, “What good is AML/KYC if it can’t catch SBF illegally laundering billions of dollars?” Seems like it’s completely ineffective and unnecessary, just a massive breach of privacy with no benefit. Not to mention Chainalysis. The surveillance company had direct access to all of FTX’s data and they always ended up on their list of creditors. What does this say about their services?

Is it possible that… KYC and AML procedures are only instruments of population control and have nothing to do with the prevention of money laundering? Maybe?

Featured Image by Alexa from Pixabay | Charts by TradingView

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