Canada and US to increase supervision of digital currencies
Ottowa and New York will step-up supervision of digital currencies in their fight against money laundering and terrorism financing despite law-enforcement fears of Bitcoin-style loopholes.
Ottowa said it will toughen rules against illegal financial activities to keep a closer eye on the use of virtual currencies. New York will adapt existing rules for digital currencies in spite of regulators calls for tougher measures.
“We do not have to throw out all of our existing rules for money transmitters or banks, which have generally served consumers well when vigorously enforced,” Benjamin Lawsky, superintendent of New York Department of Financial Services, said on Wednesday at a Washington Bitcoin conference. “Certain aspects of virtual currency could dovetail with existing regulations.”
Bitcoin entrepreneurs urged Lawsky in January to avoid writing new rules that could stifle the nascent technology’s promise to be low-cost and cleaner than cash.
New York will “likely have to proceed with issuing some form of specially tailored BitLicence that adapts those rules to the world of virtual currency,” Lawsky said.
At hearings Lawsky held on January 28, law-enforcement officials called for the state to impose tough anti-money laundering rules on digital currency businesses. Manhattan District Attorney Cyrus Vance Jr urged the use of “enhanced due diligence” for Bitcoin exchanges beyond what is required for banks.
New York is considering a system that adapts to existing federal regulations on money laundering, Lawsky added.
The key, he said, will be “know-your-customer” rules that demand digital-currency businesses be cognisant of clients’ suspicious activity, combined with the public record of transactions that is part of Bitcoin’s underlying technology.
That approach “is not overbearing but gives law enforcement what it needs,” Lawsky said.
The Treasury Department’s Financial Crimes Enforcement Network (Fincen) said in March last year that virtual-currency businesses may be regulated as money transmitters, and that they should register with Fincen. Since states license such companies, the decision set off a rush by states to decide how to treat the embryonic industry.
Bitcoin, introduced in 2008 under the name Satoshi Nakamoto, has no central bank and uses a public ledger to verify transactions that are authenticated by encrypted signatures. It is accepted by merchants selling legitimate products while also being used in illegal transactions including drug and gun purchases.
Jennifer Shasky Calvery, director of Fincen, said at the Washington conference that “many virtual currency exchanges” haven’t registered with the network. Companies that have are “doing a great job” in reporting suspicious transactions, a central requirement of US anti-money laundering rules.
Calvery also said that even individuals who exchange dollars for Bitcoin privately for customers they meet online may need to register with Fincen. “Essentially you’re taking money from the public and giving them value in return,” she said.
Two Florida men were arrested on February 6 on money laundering charges after allegedly selling Bitcoin to undercover police officers who told them the digital currency would be used to buy stolen credit-card numbers.
Lawsky said the department will probably include better consumer advice.
New York is also considering whether licences should be limited to digital currencies that have public ledgers, and whether there should be limits on technology that makes transactions anonymous, Lawsky said.
Additional reporting by Bloomberg and Reuters