AML Enforcement And Virtual Currencies

by Michael Volkov

bitcoin1It is difficult for regulators and law enforcement to keep up with creative new ways in which criminals choose to store and trade money.  This is especially true in the Internet-age where anonymity and ease of communications and transactions are available.

Regulators are now wrestling with the intractable issue of virtual currencies.  Everyone has been reading about Bitcoin as the new viper of virtual currency.  But the Bitcoin phenomena is nothing really new; Amazon, Facebook, and Ebay have created their own virtual currencies, and more are likely to follow.

At the heart of the virtual currency issue is the fact that companies using technology can create their own virtual currency without falling under the statutory and regulatory definitions of a “financial institution.”  As a result, regulators are developing a severe headache in trying to bring these operations into some legal and regulatory classification which will allow them to oversee and protect these operations from being used by criminals to launder criminal proceeds.

Bitcoin is a different animal all together than the other virtual currency models.  Bitcoin was started by an undisclosed group of Japanese programmers who created a digital currency which is not backed by any central government but depends on the virtual Internet marketplace to value the currency.  Bitcoin is the product of computer programmers – nothing more and nothing less.  Bitcoin’s most valuable commodity is anonymity at every stage of the trading of the currency.bitcoin3

There are a fixed number of Bitcoins which are available and the price of each is bid up anonymously by Bitcoin consumers who remain anonymous.  The Bitcoins themselves are stored around the globe on a set of unknown or undisclosed computers.

Bitcoin’s only vulnerability is its choke point – exchanges which convert Bitcoins into traditional currencies and value.  The US government recognizes this chokepoint and is starting to scrutinize their activities but there still is a long way to go in terms of regulation and understanding Bitcoin.  FINCEN issued regulations this year requiring virtual currency exchanges like Bitcoin exchanges to register with the federal government.  Even at the exchange level, Bitcoin currency holders are anonymous and there are no disclosure requirements – every transaction takes place anonymously.

Money launderers are attracted to BItcoin like a bee to honey for obvious reasons.  Anonymity is a criminal’s currency.   Bitcoin provides the ability of criminals to acquire goods and services while protecting their anonymity.

Bitcoin faces a very difficult political and practical issue – if Bitcoin does not develop some mechanism to help the government prevent money laundering, the government will have no choice but to bring Bitcoin operations under federal regulatory and legal strictures.  Statutes and regulations are easy to use if necessary to define Bitcoin in a way that brings it under federal control.

bitcoin4Recognizing the significance of the problem, Congress is focusing on the issue as well.  The Senate Homeland Security Committee reached out to the Department of Homeland Security to ask for details on how DHS planned to address the risk of virtual currencies.  State regulators across the country are pursuing Bitcoin with a vengeance, especially in California.

The federal government eventually will respond to the Bitcoin and virtual currency industry.  The question will be how and when – the virtual currency industry will be shaped by these important actions.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Michael Volkov, The Volkov Law Group | Attorney Advertising

Written by:

Michael Volkov

The Volkov Law Group on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.