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In the 1980s, David Chaum, a cryptographer, came up with micropayment system that would achieve cryptographic transaction privacy. Later, in the 1990s, he attempted to build this system, but it did not take off.
Today, would it be legal to create something like PayPal but that does not and cannot record transactions? Or would that be a violation of KYC or AML laws?
Chaum's system takes a centralised approach and his papers refer to the central entity (that takes deposits and provides cash) as a 'bank'.
I don't know if it would be considered a bank in every or any jurisdiction. PayPal wasn't considered a bank by some jurisdictions. In 2007 Luxembourg gave PayPal Europe a banking licence and it then became subject to banking regulations.
Whatever it is, this central entity is likely to be subject to some financial regulations depending on the jurisdiction - including Know Your Customer -type rules.
In the UK, Chaum's 'bank' seems to be an electronic money issuer (EMI) so subject to The Electronic Money Regulations.
All EMIs must comply with legal requirements to detect and deter financial crime including money laundering and financing of terrorism. These include Customer Due Diligence which includes customer identity verification and monitoring (customer-entity) transactions.
As I recall, UK credit or financial institutions have not been permitted to set up anonymous accounts since the early 2000s (if not earlier).
So it seems to me Chaum's system would be legal in many jurisdictions but the customers (account-holders) must be known to the central entity and their incomings and outgoings recorded by the central entity.
[edited to add clarification]
The IRS declared cryptocurrencies property. This means (according to them) that they are subject to capital gains tax, but processors would not subject to the same regulations financial as financial institutions. However, the IRS is not the SEC (or the other financial regulatory agencies) so maybe someone with a better knowledge of the relevant laws can add some specific details on the specific regulations.
But one thing is for sure, when you setup a new payment processor, people need a way to transfer their actual money in and out. This requires you to work with a bank or a credit card company. This requires you to ban people with political views that international finance disagree with. If you are not willing to maintain a ban list that can be dictated from on high, then you will effectively be shut down. Dick Masterson tried an alternative payment platform, New Project 2, and that exact thing happened.
TL;DR: The Federal Reserve and US government have significant control over finance, particularly since 2008 where the precedent was set that the Fed can just transfer unlimited funds to select financial institutions. This has shut out alternative financing options. This consolidated the financial system.
There is a complex set of laws from the Patriot Act that requires financial institutions to take extreme measures to prevent misuse of financial services (which was passed supposedly to combat terrorism). This is enforced on financial institutions by requiring them to (with very few exceptions) ban all transactions and business with people and organizations on the "match list". Not only that, but pressure has been put on them, from somewhere, to put political dissidents on that list.
Patreon and PayPal have banned many people on the right recently. What most people do not know is that they were forced to. financial institutions ordered them to ban those creators with the threat of locking them out of the financial system. New Project 2 refused to ban politically dissident creators. So the financial institutions went through with the threat, and it was put on the "match list". This shut it down.
As far as I know, the only way political dissidents (producing video content) currently get any access to transactions is through DLive. Their personal banks and credit card processing has been targeted, alternative payment platforms have been shut down. This website does process transactions to and from their cryptocurrency, but does not directly handle transactions in USD. It seems that the financial institutions have not gone the step to ban them for allowing these creators cash-out their donations. But the pessimistic view is that these smaller video platforms have so few views that they are satisfied that they have shut down the political discussion from the debate of ideas. I imagine they will ban even this, though, if it became popular enough.
So do what international finance says if you want to create a payment processor.
