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 Treasury's Financial Crimes Enforcement Network (FinCEN) has sent
"industry outreach" letters to about a dozen firms, regarding
potential anti-money laundering compliance obligations related to
Bitcoin businesses, FinCEN spokesman Steve Hudak told Thomson
Reuters' regulatory information service Compliance Complete.
Bitcoin, which unlike conventional money is bought and sold on a
peer-to-peer network independent of any central authority, has grown
popular among users who lack faith in the established banking
system. It has also raised concerns among law-enforcement
authorities that digital currencies could be used for laundering
money.
The letters have had a "chilling effect" on Bitcoin businesses,
which are intimidated by the threat of civil and criminal sanctions
for non-compliance, said Jon Matonis, executive director of the
Bitcoin Foundation, an advocacy group. The firms, he said, may
effectively be "put out of business in an extrajudicial manner."
Brad Jacobsen, a lawyer representing one Bitcoin businessman who
received a letter from FinCEN, said his client has chosen to suspend
his business activity "while state and federal compliance matters
are considered and/or appropriate exemptions are determined."
FinCEN's letters, which ask recipients for more information about
their business models, put the firms on notice that there is a legal
"gray area," so they are "better off to err on the side of caution"
and comply with FinCEN's rules, Matonis said.
Certain Bitcoin businesses came under FinCEN regulation in March
when the Treasury bureau issued guidance defining some players in
the digital currency industry as money transmitters.
For more than a decade the money-transmission industry, which
includes firms such as Western Union and PayPal, has been required
to enact anti-money laundering controls, report suspicious activity,
register with FinCEN and obtain state licenses.
These steps are required to comply with the Bank Secrecy Act, the
main anti-money laundering statute, and avoid running afoul of a
federal law that bans unlicensed money transmitters.
While some Bitcoin businesses reject FinCEN's assertion that they
are money transmitters, a number have still registered with the
agency, a search of the Treasury bureau's website shows.
FinCEN sent letters to Bitcoin-related businesses on the Internet
that appeared to fall under its definition of money transmitters but
had not registered, Hudak said. He said FinCEN will keep sending
letters to unregistered Bitcoin businesses.
"As we come across them, and as people tip us off, we'll make
inquiries. That is part of what we do," Hudak said.
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PUTTING BUSINESSES ON HOLD
Mike Caldwell, who runs a business out of his Utah home that accepts
digital bitcoins from customers and turns them into metal coins that
hold the "private key" needed to redeem the currency, received one
of FinCEN's letters, as first reported by the online publication
Wired.
Jacobsen, Caldwell's lawyer, told Compliance Complete that "out of
an abundance of caution" Caldwell's business, Casascius LLC, reacted
to the letter by registering with FinCEN and suspending business
activity.
"Laws and regulations related to virtual currencies are in a state
of flux and we are working to determine how to appropriately comply
with any that are applicable to our client. Casascius LLC is
committed to furthering the use and acceptance of Bitcoins but is
also committed to complying with applicable law," Jacobsen said.
The identities of the other recipients of FinCEN's letters are not
known.
NEW ENFORCEMENT PRECEDENT
A legal expert with years of experience representing digital
currency firms said FinCEN seemed to be establishing a new
regulatory enforcement precedent by warning individual businesses of
compliance obligations before taking action.
"Is this setting a new standard that in the future if there are any
questionable business models there will be notice given before any
action is taken?" said Carol Van Cleef, a partner with the
Washington law firm Patton Boggs LLP.
In response, Hudak said the letters are an attempt at gathering
information. He likened them to the letters that banks sometimes
send to customers seeking information about the customer's
transactions in an effort to determine whether suspect transactions
are truly linked to illicit activity.
(This article was produced by the Compliance Complete service of
Thomson Reuters Accelus. Compliance
Complete
provides a single source for regulatory news, analysis, rules and
developments, with global coverage of more than 230 regulators and
exchanges. Follow Accelus compliance news on Twitter:
@GRC_Accelus)
(Editing by Randall Mikkelsen and David
Gregorio)
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