Bitcoin made headlines several weeks ago for its association with the closure of infamous drug-trafficking site Silk Road. The digital currency is now taking center stage in ecommerce as U.S. government agencies and legislators seek to expand required regulations for legitimate use, and develop best practices for the different entities involved in processing Bitcoin transactions and consumer funds.
The discussion is divided largely between two major groups – those in opposition of Bitcoin regulation, and those in favor of it. Those in opposition of regulation consider any – and specifically government regulation – to be in direct conflict with the main principles behind the development of this virtual currency. However, those in favor of regulation, including venture capital investors behind some of the most important Bitcoin companies, support the development of a formal legal framework as a necessary step to promote the wider adoption of the virtual currency, and limit its use in criminal activities; necessary aspects to encourage a variety of ecommerce applications, and incorporate traditional brick and mortar retail businesses.
Strict regulations could, however, limit the innovative and disruptive opportunities Bitcoin could bring to the financial landscape for both consumers and merchants.
How To Comply with Existing BitCoin Regulation
On March 18, 2013, the Financial Crimes Enforcement Network (FinCEN) – a bureau of the U.S. Department of the Treasury, issued guidance on virtual currencies to clarify the applicability of the Bank Secrecy Act (BSA) to persons (individual, corporation, partnership, etc.), “creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies.”
This is nothing new – U.S. Congress has passed many laws to combat money laundering over the years, otherwise known as anti-money laundering (AML), beginning perhaps most significantly with the BSA of 1970.
The BSA required financial institutions to create “paper trails” by keeping records, and submitting reports on certain transactions to FinCEN in order to collect and analyze the information and prevent financial crimes. Following the BSA came the Money Laundering Control Act of 1986, Anti-Drug Abuse Act of 1988, Annunzio–Wylie Act of 1992, Money Laundering Suppression Act of 1994, Money Laundering, Financial Crimes Strategy Act of 1998, and finally, the USA PATRIOT Act of 2001.
Each of these acts contained reporting and record-keeping provisions that apply to all Money Services Businesses (MSBs), including banks, credit unions and other financial institutions.
For digital currencies, administrators are defined as persons engaged as a business in issuing (putting into circulation) a virtual currency, and who have the authority to redeem (to withdraw from circulation) such virtual currency. Exchangers are those engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency.
As of March 18th, FinCEN included both administrators and exchangers of virtual currency as MSBs under federal regulations. The resulting BSA regulations imposed by FinCEN to virtual currency companies (including Bitcoin), categorized as MSBs, are summarized below:
- Each business that meets the definition of an MSB must register with FinCEN (www.msb.gov).
- MSBs are required to file Suspicious Activity Report (SAR), if knows, suspects, or has reason to suspect that any transaction or activity is suspicious and it involves or aggregates funds or other assets of $2,000 or more ($5,000 or more if identified by issuers from a review of clearance records).
- All MSBs are required to develop and implement a BSA Compliance Program that includes the 4 Pillars of AML: (1) Internal Controls, (2) Training, (3) Compliance Officer, and (4) Independent Testing. Strict customer identification verification and transaction monitoring policies and procedures can be the most effective weapon against money laundering.
- If an MSB provides either cash-in or cash-out transactions of more than $10,000 with the same customer in a day, it must file a Currency Transaction Report (CTR).
Additional, and more detailed information can be found through the following links:
- Bank Secrecy Act Requirements. A Quick Reference Guide for Money Services Businesses.
- Money Laundering Prevention. A Money Services Business Guide.
IdentityMind and CoinComply Compliance Program for Digital Currency Companies
Due to the challenging and time consuming task of independently implementing a compliance program, and the high price of legal and consulting services offered by most companies with the necessary expertise, instituting a compliance program can be both difficult and expensive.
To solve this issue, IdentityMind and CoinComply have established a partnership to provide a cost effective compliance program exclusively for digital currency companies – customized to meet the requirements of Bitcoin regulation. The key to building and maintaining an effective BSA compliance program goes beyond the MSB registration and legal policies, rather it lies in how effective a digital currency company operationally executes its BSA program.
Through this program, Bitcoin exchanges and administrators have the opportunity to adopt a turn-key solution. It includes BSA program development, integrated customer identity verification, transaction monitoring to identify unusual or suspicious activity, sanctions screening, and an enterprise case management solution, along with the required policies and procedures, and BSA training for staff and the designated Compliance Officer.
Now that’s called #SuperiorAML.
Contact us for more information or a quote about our specialized BSA compliance program for Bitcoin companies.