U.S. Treasury cautions Bitcoin businesses on legal duties

Tue Dec 17, 2013 5:30pm EST
 
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By Brett Wolf

ST. LOUIS (Reuters) - 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 spokesman said.

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.   Continued...

 
Some of Bitcoin enthusiast Mike Caldwell's coins in this photo illustration at his office in Sandy, Utah, September 17, 2013. REUTERS/Jim Urquhart