US Regulators: the World's Bitcoin Police?

FinCEN's desire to regulate cryptocurrencies like bitcoin may see China "eat the USA's lunch".

Nov 30, 2013 at 10:40 a.m. UTC
Updated Sep 10, 2021 at 12:01 p.m. UTC

It's clear that some of the top cops in the United States aspire to regulate virtual currencies on a global scale.

A series of meetings took place last week in response to the criminal activities lawmakers have witnessed using distributed money such as bitcoin.

What does this mean for those starting bitcoin-based businesses in the US? And what impact will this have on virtual currencies in the global economy?

Three simple steps?

Jennifer Shasky Calvery is the US director of the Financial Crimes Enforcement Network (commonly known as FinCEN). During the Senate Committee Meeting 'Beyond Silk Road: Potential Risks, Threats, and Promises of Virtual Currencies' on 18th November, Calvery implored virtual currency exchanges and administrators to do three things:

  1. Register with FinCEN.
  2. Put in place Anti-Money Laundering (AML) protections.
  3. Maintain their records.
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It was implicit in Calvery's remarks that companies who failed to comply with these steps could be considered malicious actors.

From FinCEN's perspective, that's pretty black and white - indicating that any foreign company might have something to hide, because registering with FinCEN is as simple as that.

But it's not as simple as that, as there is another money transmitter component at state level: a byzantine system that Bitcoin Foundation's General Counsel Patrick Murck referred to as a "regime".

Any startup operating a bitcoin business must set up a money transmitter business in each jurisdiction, a unique process for each of the USA's 50 state governments.

China is eating the USA's lunch

A good portion of bitcoin's growth can be attributed to China's lax, or rather, non-existant policies regarding it. While the country's Communist Party limits the use of foreign sites like Facebook, it welcomes a homegrown bitcoin economy.

It's entirely possible that China's lack of enforcement, despite the risks, will allow bitcoin to prosper further.

“Today, bitcoin is in its infancy. It’s much like the internet of the early 1990s,” says Tony Gallipi, CEO of BitPay, at the Senate Banking Committee dubbed 'The Present and Future Impact of Virtual Currency'.

“If America is the leader in bitcoin technology, America will create more jobs, and more exports,” he added.

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“China is getting very aggressive in the open market [...] if we want America to remain a leader in technology and in bitcoin, you have to look at the exchanges, because that is where all the liquidity is.” And he's right. There isn't an American bitcoin exchange in the top five market rankings. In fact, there isn't even one in the top ten, according to Bitcoincharts market data.

The USA's Grasp

Edward Lowery is the head of the Criminal Investigative Division for the US Secret Service and the US Department of Homeland Security. He spoke at the hearing on 18th November which focused on criminal organisations like Silk Road.

He noted that US authorities are “very collaborative with [...] foreign partners”.

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Although libertarians and cyberpunks revel in the idea of internet anonymity, so does the federal government - especially as a means of catching cyber-criminals. It seems law enforcement agencies may play the anonymous card to fight organised crime.

According to Lowery's statements, authorities are using two primary tactics to fight virtual currency crime. "Infiltration is the best investigative tactic," he remarked at the committee meeting.

What next?

“I’m reluctant to call it a currency” said Steven T. Walther, a member of the Federal Election Commission (FEC). The FEC is considering whether to define bitcoin as money or a "methodology".

Calling it a methodology is interesting. A methodology is, by definition, simply a method. Bitcoin is a method by which to do a number of things: make payments, invest and move money - often with low fees and alacrity.

However, bitcoin can also be used to launder money, buy illegal goods and steal from unsuspecting people.

The US will likely have a role in policing bitcoin globally, but hopefully not to the point where it would stifle any potentially innovative properties that could revolutionise our global baking system.

Police Image via Shutterstock

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