The prosecutors of the Southern District of New York must love Twitter.

In the indictment filed against KuCoin yesterday, they cite a public tweet from the accused money launderers explaining that “KYC is not supported to USA users, however, it is not mandatory on KuCoin to do KYC. Usual transactions can be done using an unverified account.”

Separately, a KuCoin customer representative responded to a tweet from a US resident, saying “rest assured that you are not obliged to do KYC on KuCoin.”

Everything Southern District prosecutors needed to know about FTX was uncovered by on-chain sleuths on Twitter, Sam Bankman-Fried and Alex Mashinsky both perjured themselves on Twitter and now KuCoin has announced their crimes on Twitter.

It’s making their job too easy and it’s yet another black eye for the crypto industry — although maybe unfairly this time, because money laundering is hardly unique to crypto.

The $4 billion of “suspicious and criminal proceeds” that KuCoin is accused of laundering since its inception pales in comparison to the $160 billion that the same prosecutors accused Danske Bank of laundering over several years — and even that seems to be just the tip of the criminal iceberg.

A UN report on money laundering estimates that the criminal proceeds laundered through the global banking system amount to as much as 5% of global GDP per annum.

5% of global GDP is $5 trillion.

Importantly, this astounding sum is not just a product of crypto exchanges like KuCoin choosing to forgo KYC entirely — banks and exchanges that conscientiously enforce KYC don’t do much better.

Anti-money laundering policies are “almost completely ineffective in disrupting illicit finances and serious crime,” according to the researcher Ronal Pol, who has an entire website dedicated to exposing AML/KYC regulations as “the least effective anti-crime measures, anywhere, ever.”

The result is that “professional money launderers are running billions of illegal drug and other criminal profits through the banking system with a 99% success rate,” according to the Director of Europol.

Because of that impressive hit rate, Pol estimates that the cost of complying with current AML law is more than 100 times higher than the amount of illicit money that’s seized by law enforcement — the cost/benefit analysis of AML policies is skewed wildly in favor of cost.

Those costs are borne by legitimate banking customers everywhere.

Worse than failing to prevent crime, AML policies sometimes even enable it.

The personal identification data that banks and others are required to collect from customers is a honeypot for hackers who can make a quick profit by selling that data to identity fraudsters on the dark web.

So KYC’ing with a bank or an exchange may be just as likely to make you the victim of a crime as it is to stop someone else from committing one.

Just invite them in, maybe?

To sum up then, KuCoin’s “no-KYC policy” may have been only marginally less effective at preventing money laundering than a fully compliant KYC policy, and its lack of KYC at least ensures that KuCoin’s customers will not be the victims of identity theft (because there’s nothing to steal).

This does not, however, mean that crypto is off the hook.

AML/KYC policies are effective enough to force at least some money launderers to seek alternatives to the banking system and crypto appears to be their first choice.

In a recent blog post, JP Konig detailed how a Russian buyer of sanctioned Venezuelan oil was able to bypass the US banking system by using Tether’s USDT stablecoin, which the buyer turned into $17 million of physical cash at the location of his choice.

Crypto, I believe, is the only way to move real US dollars at scale without the help of a US correspondent bank — and that’s a problem for US law enforcement, which has increasingly used US correspondent banks to enforce its will abroad.

Konig writes that the US is now seeking jurisdiction over stablecoins for this reason and that unfortunately makes sense to me — Tether is like a US correspondent bank with a no-KYC policy, just like KuCoin.

Given how ineffective AML regulations are, you might argue that no correspondent banks should do KYC.

But the status quo may be the worst of both worlds: KYC makes legitimate banking difficult and crypto makes illegitimate banking easy.

There might be another way.

The finance blogger Dave Birch suggests that “instead of trying to prevent criminals from getting into the system, we instead let them in and monitor what they are up to.”

This seems like a common-sense solution, and one that crypto could be a big part of — not just because cryptocurrency is uniquely traceable, but because cryptographic identity could do away with those honeypots of personal information that every financial company now collects.

I’m not sure this would “solve all corruption,” as Larry Fink recently prophesized for tokenized finance, but it would at least flip crypto from being part of the problem to being part of the solution — and make the crypto industry a significantly harder target for Southern District prosecutors, too.

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