Financial services

Real regs target virtual currency

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The Treasury Department has been trying to regulate virtual currency in a formalized way for almost a year, and progress is being made. But Jennifer Shasky Calvery, director of Treasury's Financial Crimes Enforcement Network, said more institutions need to register with FinCEN if the agency is to succeed in curbing the use of cyber funds as an avenue for money laundering by criminals and terrorists.

"I'm pleased to report that some virtual currency exchangers have registered with FinCEN since the issuance of last year's guidance," Calvery said during a digital currency forum at the New America Foundation on Feb. 11. "I do, however, remain concerned that there appear to be many domestic virtual currency exchangers that have not taken this step."

FinCEN ruled in March 2013 that virtual currency transmitters are subject to protocols established by the Bank Secrecy Act. However, last month, FinCEN ruled that personal users of digital currency and businesses that buy and sell virtual currency for their own benefit are not subject to such regulation.

Such transactions, which could apply to currencies such as Bitcoin, are not considered a money services business (MSB) and, therefore, are not subject to FinCEN's registration, reporting and recordkeeping regulations. But administrators and exchangers are considered MSBs, "unless a limitation to or exemption from the definition applies to the person," according to FinCEN guidelines.

Calvery said there is an ongoing effort to help transmitters and administrators register with FinCEN, and she encouraged any entity that uses digital currency to contact FinCEN so a ruling could be made on whether MSB regulations are applicable.

"Because any financial institution payment system or medium of exchange has the potential to be exploited for money laundering, fighting such illicit use requires consistent regulation across the financial system," she said. "Virtual currency is no different from other financial products and services in this regard."

Calvery said it is essential for FinCEN to stay up-to-date on digital currency patterns to block illicit use. One example she cited was FinCEN's designation of the now-defunct Liberty Reserve as a "financial institution of primary money-laundering concern" around the time of its seizure by the U.S. government.

"I think law enforcement and financial regulators took a look at this technology, and they said, 'OK, we need to set up checkpoints, and those checkpoints are going to be at the point in which the digital economy and the physical economy intersect,'" said John Collins, a professional staffer for the Senate Homeland Security and Governmental Affairs Committee.

Collins said he wouldn't be surprised if regulators began requiring transaction reports at some point. Calvery said suspicious activity reports are already beginning to be filed regarding digital currency.

About the Author

Reid Davenport is a former FCW editorial fellow. Connect with him on Twitter: @ReidDavenport.


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