WebMoney: storm in a teacup or global changes?

July 21, 2008. The height of the summer and vacations. Even the ubiquitous e-commerce with its furious pace has slowed the speed down luxuriating in the warm and tender of July sunshine… The sky of a virtual economy has cleared without any clouds and nothing was betokening a storm…

Suddenly from the Atlantic Ocean came a strong cyclone. A news from one of the most famous and recently scandal-invloved payment systems, e-gold, has brought the weather that made everybody shiver with fear and cold. The administration of e-gold that has got tired of the endless persecutions of the government and constant attacks of the rivals, decided to shoot Niagara and, to be more precise, to make a full reorganization and reconstruction. “A new beginning” is a new course of E-gold that according to Douglas Jackson should restore the system to life. Everything would be great but for a freedom taken by Dr. Jackson in his fiery speech, when he tried to show his system that has already bored to death, to the best advantage. From the speech of Douglas Jackson:

We are requesting that autoexchangers - even though the technical beauty of the autoexchanger concept is sublime – cease supporting exchanges to or from e-gold for the time being. The problem with the autoexchanger concept is that although the autoexchangers themselves may be perfectly compliant with requirements [promulgated by Webmoney and e-gold] to automatically put tracking data in their memo fields, and despite the fact that Webmoney is also committed to aiding in the suppression of cybercrime, the fact is that a substantial proportion of the cybercriminals that abuse e-gold have evolved into a modus operandi that involves autoexchanging possible proceeds of crime into Webmoney, sometimes within minutes of receiving the value, thus making interdiction a matter of catch-up or closing the barn door after the horse is gone.

Everybody curdled in waiting… Nobody dared to predict the reaction of WebMoney Transfer. It is necessary to note that unlike its offender WebMoney showed a greater responsiveness in a matter that was blurring its reputation which is the ideal one today.

A public slap given by Douglas Jackson has turned into a real catastrophe for the whole exchange business world. The heavy black clouds started gathering over the online payment market… And finally on July 23 a stormy wind arose and the news about a number of changes in the Agreement on Property Rights Transfer by Means Of Digital Units has rolled heavily like a thunder.

"Financial or payment instruments, that do not ensure proper KYC procedures and customers identification for the purposes of fighting illicit trafficking, financial fraud, illegal proceeds and money laundering."

Due to the abovementioned policy amendments, WMID's belonging to exchange services, who do not provide appropriate KYC and user's identification will be blocked and expelled from the System starting from August 01, 2008.”

These two sentences made even the most notable exchangers of the world to clutch their head, the business of which seemed to be inviolable. In order to exclude any wrong handling and idle talks, WMT have written in black and white the names of those currencies with which it would like not to collaborate under any terms and conditions. Though it listed the currencies not in the Agreement itself, but in a blog that does not exclude the continuation of this list.

WebMoney Arbitration System determines a list (not limited by the titles below) of financial and payment solutions that are strictly and undoubtedly prohibited from usage/purchase/selling by/from/to WebMoney Transfer System: e-gold.com, liberty reserve, e-bullion, pecunix, goldmoney, inocard, icqmoney, deltakey, imoney UAH.

Later, almost a day after, WebMoney have reconsidered its decision and have significantly shortened its listing, having excluded all the currencies except: e-gold, Liberty Reserve and pecunix. Unfortunately, we have to admit that this shortening have not brought a big relief to the exchangers as their main exchange directions were based exactly on/for those electronic currencies.

However, such a bold step did credit to the system which, in contrast to e-gold, has approached the subject knowingly having avoided any harsh words and without descending to level of noisy market women who sort out their relationship and drag each other through the mud.

We became interested in the reaction of the exchangers and have addressed the representatives of some exchanges with a request to comment on the present situation and try to make a mini-prediction: what will happen next?

“Refuse of WMT from serving exchange operations involving the systems from the black list has already aroused a wave of indignation both among the exchangers and among the common users. Some exchangers who were dealing only with an automatic exchange of WM-Egold are already thinking whether to close the business of to change the principle of work. WMT have refused e-gold and other currencies as it doesn’t want to suffer the attacks of the state agencies.
Just face the truth, E-gold, LR and Pecunix are mainly used in HYIP industry and for other suspicious operations.

Operations with e-gold are not our principle ones and we haven’t witnessed any special change, more over, we have stopped receiving this currency… Though we still hope for a happy end on the market of e-currencies,” – concluded the admin of MyXchange exchanger.

Oleg Pokrovsky, Business Development manager for Roboxchange has even drawn a picture in iridescent colors: “We haven’t suffered much from such changes, the share of the banned currencies in our turnover was very low. I think that the changes will be favorable both for the market appearance and for the image of e-currencies. Webmoney will enter the civilized and controlled channel. As for the uncontrolled currencies that serve suspicious businesses such as hyips and others, their number will decrease or will vanish at all.”

Dmitry Myatelkov from Menyala.ru also agreed with his colleagues: “On the one hand we want to believe that this measure will allow seeing a significant decrease of “dark” money on the Internet, as well as the decrease of fraud and other fraudulent schemes…. On the other hand many of our clients were using the “banned” currencies in quite legal spheres of business and continue using them nowadays. The changes in Agreement have brought a plenty of inconveniences and it is still not clear how to avoid them. We don’t exclude the idea that the step taken by WebMoney will allow avoiding the situation similar to the e-gold’s one but in our country. If this happened it would be a great crush for the whole e-business in Russia and in CIS.”

A kind of idyll! All those who principally suffer from such “showdown” seemed to be pleased and completely in agreement with the system’s decision. But here a question aroused: is it the truth? As by banning the exchange of the currencies listed above to WebMoney currencies, the system has prevented them from a regular profit and has affixed the existence of the most part of the exchanges for whom such operations were a beckon.

Only one representative of the exchange business decided to tell all the truth. For an obvious reason he decided to stay anonymous: “For WebMoney this ban can cause nothing as for the other ones. By banning the exchange of WM currencies the system has killed the market of the automatic exchangers for whom the exchange of WM currencies was the main source of profit. So, the owners of autoexchangers will have to go to work to the plants. Or to exchange at least 7 westen currencies backed by nothing… The value of WM-WM exchanges is very low, besides people can exchange WMZ to WMR on WM stock portal. In other words WM has closed the circle around itself and don’t want any other e-currencies to enter the market…”

So, that is a severe reality. And after this comment you unwillingly start thinking: was the comment of D. Jackson a real reason for such significant changes? Or probably WebMoney was just seeking for the cause of surrounding the market of Russia and CIS with an invisible wall, allowing it to have a complete domination and not to be afraid of any rival…

But that just the unconfirmed thoughts. Thinking of the step that the authorities of Webmoney decided to take we can suppose that the system took a ply to the struggle against money-laundering and anonymity of the users. The system turnovers have matched and even exceeded the balances of some banks that automatically have attracted the attention of the government. However, one can suppose that the main culprit was Douglas Jackson, who falling into an abyss, decided to take webmoney with himself. It seems that Jackson made a deal with the justice and in exchange to the shortened sentence started tipping the good guys. He was clearly realizing that E-gold is connected with Webmoney and this meant that if the FBI pull a string it would lead to webmoney. As a result webmoney decided to lock WMIDs of the exchangers as it was already mentioned. The company understood that the international cooperation of state anti- money laundering agencies will enable the FBI to find the connection of some operations of e-gold with webmoney.

What will be the next? Knowing the business scale of Webmoney one can say with confidence that system will not be afraid of a tough policy and blocking of WMID exchangers. And if to take into consideration that such exchange operations as WMZ – LR, Pecunix, E-gold make up 60 and for some exchangers are 90% of the whole turnover наоборот составляло более 60 а у некоторых обменных пунктах все 90%, то всем нам, вall of us can witness the collapse of exchange market. We cannot say about the complete vanish as people will always need to exchange e-currencies however many owners of exchange service can refuse the business due to the low profit and this will result in appearance of major players and a complete vanish of minor ones.

July of 2008 became a significant month and it’s high time for Webmoney, usually a quiet and ambitionless, to show the whole market who is a real master and to tighten screws. However, the system omitted that it can lose a great number of its clients and big part of its turnover.

Was the system right or not? Will the risk be justified or not? And the main question: what will be next? A plenty of questions… However to forecast in electronic economy is as difficult as to predict the earthquakes though we admit that sometimes it is possible. Everybody can become the e-weather forecaster, it is necessary just to learn to see the first signs and to react immediately. And as for now we need just to wait. August came…

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