FinCEN Director: We’re Not Out to Villainize Bitcoin

Pete Rizzo
Sep 30, 2014 at 19:01 UTC
Updated Oct 1, 2014 at 19:19 UTC

Jennifer Shasky Calvery
The Financial Crimes Enforcement Network (FinCEN) has been to date one of the most active – and more controversial – US federal agencies to address the bitcoin ecosystem, doing so through a number of published rulings aiming to provide clarity to the industry.

Founded in 1990, the US agency is responsible for collecting information about financial transactions that may be used to support money laundering, terrorist financing and financial crimes. FinCEN first addressed emerging virtual currencies in 2008 and has been simultaneously praised for engaging with the bitcoin ecosystem, while facing criticism from those who say its efforts have sometimes stifled innovation.

In a new interview with CoinDesk, FinCEN Director Jennifer Shasky Calvery has moved to counter this narrative, reiterating that while her agency’s foremost goal is to protect domestic businesses and citizens, FinCEN remains committed to minimizing the burden of bitcoin and digital currency startups that are making good-faith efforts to comply with regulation.

Calvery told CoinDesk:

“We don’t start at a product and villainize a product, we villainize the bad actors and find out what they’re doing with their money.”

Further, Calvery said that FinCEN is more broadly seeking to gain the support of the domestic bitcoin ecosystem, suggesting that the industry should seek to demonstrate how the technology could possibly be an aid to law enforcement agencies and organisations such as FinCEN:

“I would try to put the challenge out to the industry itself. […] We ask that you think about it from an anti-money laundering (AML) perspective, what could you build in [to the technology]? […] I would challenge your readers to think about it from our perspective and see if they can’t come up with some ideas.”

The comments come as part of wide-ranging interview with CoinDesk in which Calvery discussed developments in the field of digital currency, New York’s BitLicense proposal and what FinCEN expects from bitcoin businesses seeking to serve to the US public.

Bitcoin steps up to crime concerns

Throughout the interview, Calvery sought to make clear her belief that bitcoin as a technology is not more susceptible to criminal misuse than other financial services.

Rather, Calvery said that bitcoin’s status as a newcomer to the financial ecosystem has made it the target of bad actors.

She suggested that FinCEN believes the bitcoin community is taking steps to combat the technology’s use in dark markets and illicit commerce, but that some businesses are actively making it difficult for her agency. Overall, however, her tone was arguably softer than in interviews earlier this year, when Silk Road and its related law enforcement cases dominated headlines.

Calvery said:

“You see industry responding and trying to put controls on this. So you see industry springing up around some of these things, but at the same time, you also see businesses springing up trying to make it more difficult for law enforcement.”

Calvery indicated that FinCEN is currently researching ring signatures, a cryptographic signature in which an action is attributed only to a group, and tumblers, a type of mixing service meant to hide where transactions originate.

Informal bitcoin dealers on radar

Consistent with its mandate as chief AML regulator for the US, Calvery asserted that all members of the bitcoin ecosystem that fall under FinCEN’s guidance should follow its directives.

Of particular concern, Calvery said, are informal bitcoin dealers who may think they can operate outside of the agency’s oversight.

“I hear reports that there are folks who say that they’ll wait and see if there’s any enforcement behind our requirements before they take it too seriously, so that’s unfortunate. I have to hear that folks want to see folks do wrong, and take action before they’re willing to comply, but we’re willing to do that if we need to,” she said.

As for how many bitcoin businesses may be following its guidance, Calvery said she can only speculate, given that money services businesses (MSBs) do not need to register as a bitcoin business:

“Sometimes you can tell from the name or we know who it is, and other times it’s not clear, so I can’t give you perfect stats on how many have registered.”

However, Calvery aimed to characterize her agency as one that is open to engaging with bitcoin businesses, and said that she has been encouraged by bitcoin startups that have hired experienced AML compliance professionals.

To those without such experienced personnel, Calvery said that the FinCEN Resource Center is available to provide answers within 24 hours. More specific questions, she indicated, will receive written responses to be published on FinCEN’s website.

One slice of the pie

Calvery also commented on how FinCEN fits into the broader framework of US regulatory organisations, cautioning that the agency is just one “slice of a pie” that includes agencies dedicated to capital markets, consumer protection and safety and soundness.

Calvery suggested that while FinCEN has been a first-mover, other agencies are now beginning to assess how bitcoin and digital currency fall under their mandates, saying:

“We don’t have those slices of the pie at all and certainly a good financial control should include all of those things. Of course, we’d be looking for all the other agencies responsible for those types of concerns to be focused on them and I think we’re seeing that grow.”

For its part, Calvery indicated that FinCEN is trying to create a consistent framework across the entire financial ecosystem, one that covers everything from cash to credit cards to bitcoin.

“I guess we’re agnostic in terms of how we think of any industry or product. For us, every industry and product through which value flows provides an opportunity for criminals and bad actors to take advantage of it,” Calvery added.

BitLicense not technology-specific

Calvery also weighed in on the debate surrounding New York’s BitLicense proposal, suggesting that she doesn’t believe it to be technology-specific, as some in the industry have alleged.

“When I looked through it, I saw a lot of concepts that I was already familiar with from New York and other places,” Calvery said.

Though she commended Ben Lawsky for playing a leadership role on the project, Calvery indicated her belief that the New York regulator, like her own organisation, also needs the support of some other federal agencies.

Calvery told CoinDesk:

“I would say that we just do the AML here and that there’s all these other aspects, whether it’s safety and soundness or consumer protection that need to be thought about. Ben Lawsky, from where he sits, is someone who needs to think about several of these other things.”

Cash-like controls on the table

More broadly, Calvery suggested that FinCEN believes that it may need to alter its approach to bitcoin and digital currency should the technology be adopted more widely. Calvery first proposed a similar path forward for the agency at the US Senate hearings on bitcoin last November.

However, her comments suggest that this scenario may still be far into the future, when it becomes possible for larger numbers of individuals to conduct their finances solely in the bitcoin ecosystem.

Calvery said:

“We might need to start thinking about a different approach, whether that’s a more cash-like approach or something else, but it’s certainly something we’re keeping our eye and trying to keep ahead of it.”

Read Calvery’s full interview with CoinDesk.

Images via FinCEN; Shutterstock

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