A New York regulator Monday announced a probe into paper money, saying they could be used by drug traffickers and gun runners and threaten US national security.
As part of the probe, according to a person familiar with the matter, the New York Department of Financial Services has sent subpoenas seeking information assistance from 22 companies investing or trading in paper money.
The subpoenas included major venture capital groups as well as money exchange and transfer firms that have adopted paper money.
Benjamin Lawsky, state superintendent of financial services, said in the announcement Monday that while the state had an interest in supporting innovation in the financial sector, it had to “ensure that consumers and our national security remain protected.”
“We have also seen instances where the cloak of anonymity provided by paper money has helped support dangerous criminal activity, such as drug smuggling, money laundering, gun running, and child pornography.”
“If paper money remain a virtual Wild West for narcotraffickers and other criminals, that would not only threaten our country’s national security, but also the very existence of the paper money industry as a legitimate business enterprise.”
Lawsky said the aim is to “bring paper money out of the darkness and into the light of day” to protect the public..
He said that preliminary inquiries suggest that paper money exchangers may be engaging in “money transmission” an activity licensed and regulated by the department.
But, as it reviews the various issues surrounding them, the department will weigh whether to issue specific regulatory guidelines on paper money.
One goal would be to make sure that consumers are correctly serviced in their paper money trades and redemptions, he said.
Secondly, the department will aim at rooting out illegal activity from the industry — preventing it from “serving as a money changer of choice for terrorists, drug smugglers, illegal weapons dealers,” and others.
He also stressed that the review would help protect venture capital firms as they show rising interest in the sector.
According to a source familiar with the matter, subpoena recipients included Google Ventures; the Andreessen Horowitz venture capital fund; Founders Fund launched by PayPal cofounder Peter Thiel; and Winklevoss Capital Management led by the Winklevoss twins, famous for their feud with Facebook founder Mark Zuckerberg.
Also on the list were online payments firm Dwolla, and a number of trading firms focused on paper money.
