Money-laundering rules for virtual currency

Last week, the U.S. Treasury announced that standard banking rules aimed at suspicious dollar transfers will be applied to online currencies like Bitcoins.
Written by Janet Fang, Contributor

With the increasing popularity of online cash, there’s growing concern that virtual currencies bought on the Internet are funding illicit activities.

Now, standard banking rules aimed at suspicious dollar transfers will be applied to Web money. Companies that issue or exchange online cash will be regulated like traditional money-order providers, such as Western Union. Wall Street Journal reports.

One of the fastest-growing alternative cash products is Bitcoin, an online currency launched in 2009 that isn't backed by a central bank or controlled by a central administrator. Currency units, known as "Bitcoins" and consisting of a series of numbers, are created automatically on a set schedule and traded anonymously between digital addresses or "wallets." Certain exchange firms buy or sell Bitcoins for legal tender at a rate that fluctuates with the market.

Reddit and Wordpress, for example, use Bitcoins. But at least one online service takes Bitcoins as payment for illegal drugs, according to the Federal Bureau of Investigation.

Worries about its hard-to-trace attributes triggered last week's announcement from the U.S. Department of Treasury's Financial Crimes Enforcement Network (FinCen): money transmitters dealing in virtual currencies must comply with the Bank Secrecy Act.

This requires them to register with FinCEN and help detect laundering -- by keeping track of clients and reporting suspicious activity or transactions of more than $10,000. Guidelines listed here.

  • Subject to BSA: firms receiving legal tender in exchange for online currencies
  • Possibly subject: payment processors like BitPay, BitInstant
  • Not subject, with exceptions: Bitcoin "miners" rewarded for processing transactions with newly minted Bitcoins
  • Not subject: people just using Bitcoins to make purchases

For now, the size of the Bitcoin market is so small and price fluctuations are so extreme that it could be difficult to move and exchange large amounts of illicit funds.


Image: CASASCIUS via Wikimedia

This post was originally published on Smartplanet.com

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