The last twenty years have seen tremendous changes in how we interact, both personally and professionally. Social media and crowdfunding have, to varying degrees, impacted our daily lives. There is no question that these platforms have had a positive effect: users can raise funds on a large scale for disaster relief, track down old friends, or connect with like-minded people. However, these same platforms offer opportunities for abuse as, for example, funds can also be raised for extremist groups, social media can be used for online bullying, and scams can be perpetrated against the vulnerable. Recent events, including the January 6th Capitol riot and the unusual trading activities in GameStop shares, show that some Internet platforms present unusual challenges for regulators and, more broadly, society in general. This quandary—i.e., how to benefit from the positive while restricting the negative—is perhaps best illustrated by the ongoing debate concerning social media where efforts to limit access to platforms have been criticized by some as attacks on free speech. And addressing this issue is further complicated by the fact that when public or government pressure has led established platforms to self-regulate, new platforms surface to service those users whose activities have been restricted.
But social media and crowdfunding sites are not the only platforms that have left regulators scrambling to catch up as risks associated with their misuse, such as the funding of extremist groups, have become apparent. Cryptocurrency and related businesses have enjoyed rapid growth as the value of bitcoin has rocketed, but many still wonder what role these companies will ultimately play in our financial markets. Of more immediate concern to critics, however, is the risk of money laundering as anonymous cryptocurrency is continuously being refined to keep the details of transactions untraceable. Most importantly, all platforms (including social media, crowdfunding, crypto-related, and online gaming sites) operate in competitive markets, where doing the right thing—such as instituting thorough “know your customer” policies—can drive customers to competitors. The net result is that an inchoate regulatory regime places self-regulating companies taking active measures at a competitive disadvantage to companies that ignore regulatory concerns or provide “window dressing” compliance.
This landscape will change only when new regulations are adopted and aggressively enforced, a process that can take years. In the meantime, compliant companies are left with the choice of hoping the regulatory environment changes quickly or taking action themselves to level the playing field. It may seem daunting to act, but there are steps companies can take. Specifically, reputable investigative firms can assist compliant companies by documenting the misdeeds of non-compliant competitors—information that can ultimately be shared with regulators. Misdeeds we have seen include:
There is no question that is it difficult to compete in an industry with non-existent or developing regulation. Not all companies survive such an environment. However, as abuses continue, there is little question that some level of regulation will result and, hopefully, bad actors will be weeded out when they lose their competitive advantages. Until then, with no timeframe for significant regulatory changes, compliant companies will need to fend for themselves.