| ST. LOUIS
ST. LOUIS Dec 17 The U.S. Treasury Department's
anti money-laundering unit is warning businesses linked to the
digital currency Bitcoin that they may have to comply with
federal law and regulation as money transmitters, a Treasury
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
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
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
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.
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.
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