By Aruna Viswanatha
WASHINGTON Nov 18 Virtual currencies may give
consumers a cheap, efficient and convenient way to move money,
but those same attributes make them appealing to criminals, the
head of the Justice Department's Criminal Division told Congress
"We have seen increasing use of such currencies by drug
dealers, traffickers of child pornography, and perpetrators of
large-scale fraud schemes," Mythili Raman, the acting assistant
attorney general for the division, told a Senate panel.
The currencies offer criminals both anonymity and the
ability to process transactions that cannot be reversed, which
can "significantly complicate" the government's ability to
follow money trails in related criminal investigations, she told
the Senate Homeland Security Committee.
Further complicating efforts, many digital currency
services do not have controls to protect against abuse, Raman
"Many are still struggling with implementing appropriate
anti-money laundering, know-your-customer and customer due
diligence programs," she said in prepared remarks.
Raman appeared alongside top officials from the Secret
Service and Financial Crimes Enforcement Network before the
Senate Homeland Security Committee to answer questions about the
growing use of digital currencies such as Bitcoin, and whether
the government is doing enough to police the market.
It was the first such hearing before Congress, and Bitcoin
surged over 27 percent to a new high of US$675 ahead of the
"Virtual currencies, perhaps most notably Bitcoin, have
captured the imagination of some, struck fear among others, and
confused the heck out of the rest of us," Senator Thomas Carper,
who chairs the committee, said in his opening remarks at the
standing-room only hearing.
Virtual currencies or digital cash have increasingly become
a popular new way to purchase goods or services.
They are not regulated or issued by a central bank. They
have been touted by some as an alternative currency in countries
facing financial instability.
The most popular virtual currency is Bitcoin, which exists
through an open-source software program and whose supply is
controlled by a computer algorithm.
But critics have raised concerns about a lack of regulatory
oversight over virtual currencies and the fact that some of them
can be transferred anonymously, raising fears that they could be
used by scam artists.
The general counsel of the Bitcoin Foundation, Patrick
Murck, told lawmakers that digital currencies offer many
benefits and are not only a cloak for illegal business. But he
added that law enforcement would have to develop new methods to
investigate some criminal activity.
Over the past year, U.S. authorities have taken action
against several players in the digital currency space.
In May, U.S. authorities seized two accounts linked to the
Tokyo-based exchange Mt. Gox, the major operator for the Bitcoin
digital marketplace, after it failed to register with FinCEN.
Around the same time, U.S. criminal authorities also
indicted the operators of the digital currency exchange Liberty
Reserve and accused the company of helping criminals launder
more than $6 billion in funds linked to everything from child
pornography to software used for bank hacking.
In October, federal authorities shut down an online
marketplace called Silk Road that was used for purchasing drugs
and hiring hit men.
Earlier this month a new version of the website opened for
business again, raising concerns over whether authorities were
fighting a loosing battle.
Raman rejected such concerns and said the government was
sending a message to criminals by taking down these
organizations. "We have kept pace," she said.