FINCEN & AML

Money Laundering

Many governments are concerned with Bitcoins being used for money laundering. Bitcoin transactions are publicly available, but people are not required to use their real information when creating an account. All Bitcoin transactions can be followed, and regardless of how much they are split, their origin can still be traced. This only helps someone find the account that originally held the Bitcoins, but not the person attached to that account. Given enough transactions, it becomes prohibitively difficult to prove two accounts are owned by the same person. It is also very easy to sell Bitcoins on an exchange at any time. These factors combine to make a very effective money laundering method.

Some services have started offering Bitcoin Mixing. These services take Bitcoins from people, shuffle them among several accounts, and then give Bitcoins back to the buyer that may or may not have originally belonged to them. This makes it harder to track the source of Bitcoins.1These mixing services are pretty blatant money laundering schemes, but they claim their purpose is to maintain privacy.

Governmental Response

In an effort to fight money laundering, the Department of Homeland Security seized the Dwolla account of the major bitcoin exchange, Mt Gox, for not registering as a money transmitting company.2 The US government has yet to take an official stance on Bitcoin but have been watching closely. This is not unexpected as official policy usually takes a great deal of time, but individual agencies have put out guidelines for dealing with Bitcoins.

One of the primary goals of the Treasury's Financial Crimes Enforcement Network (FinCEN) is to combat money laundering. This goal has caused FinCEN to state that exchanges for Bitcoins are subject to the same rules as other money service businesses while the individuals using them are not.3 These rules require the exchanges to keep records, file reports, and take other precautions against financial crime, money laundering, and terrorism.4FinCEN have also shutdown at least 3 Bitcoin exchanges for failing to follow anti-money laundering regulations.

The DEA has also seized Bitcoins in the course of their duties. The person whose Bitcoins were seized had used Bitcoins in an attempt to purchase illegal drugs. The DEA may not have an official policy regarding Bitcoins because the seized Bitcoins could have been simple evidence collection.

The government’s movements to regulate Bitcoins are a fairly recent occurrence. New regulations will likely be made to better deal with the unique circumstances of Bitcoins. It is hard to predict what the new regulations may be, or what the results of those potential regulations will be.

Click Here for Works Cited