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Re: Regulatory Considerations running an ILP node (Re: [Ledger] Bootstrapping Interledger)

From: Tony Arcieri <bascule@gmail.com>
Date: Thu, 10 Nov 2016 16:09:13 -0800
Message-ID: <CAHOTMVJHAMieceHWjmr+pegdRe61i=3apqJmJgUB8=LHW0sjsw@mail.gmail.com>
To: Ken Griffith <kengriffith@gmail.com>
Cc: Interledger Community Group <public-interledger@w3.org>
On Thu, Nov 10, 2016 at 3:08 PM, Ken Griffith <kengriffith@gmail.com> wrote:

> That is the fundamental weakness of an open system like Interledger. The
> regulators will never allow a regulated node to connect to the unregulated
> nodes.  Maybe in 50 years this will be possible.  But the world we live in
> today is bogged down with AML rules.

I am definitely curious to hear how Interledger plans on solving these
problems. I certainly strongly agree that e.g. AML/KYC shouldn't be a core
part of the Interledger protocol, and for privacy reasons it would be bad
to e.g. expose the customer identity to the connecting ledgers in the
payment chain, but at the same time you do still want to know, end-to-end,
AML/KYC is being complied with.

My personal solution for this, building atop Interledger primitives, would
be to use atomic mode and outsource your compliance concerns to notaries.
Notaries could offer a CA-like "EV" service for ensuring that certain
ledgers are AML/KYC compliant, i.e. you as a ledger sign up for one or more
notaries who, at signup time, do the due diligence work to verify the legal
status of a ledger and confirm AML/KYC compliance.

When you perform an atomic mode transaction in this scheme, every ledger in
the chain loops in their notary/notaries, the notaries ensure they trust
each other to vouch for AML/KYC compliance, and conduct the transaction. If
an AML/KYC issue ever comes up, all participants in the transaction have a
cryptographic receipt of the notaries who authorized it, and that
notary/notaries would share culpability (along with the ledger that was
actually in violation).

If you do that, the nice thing is that it's just a legal framework for
operating Interledger in a compliant manner: you don't need to change the
protocol or add additional layers or functionality. Obligatory IANAL, but I
think it could work.

Tony Arcieri
Received on Friday, 11 November 2016 00:10:06 UTC

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