Thursday, January 30, 2014

The Squeeze Begins: Prosecutors Say Bitcoin Needs TIGHTER Regulations Than Banks

Bloomberg reports:
Virtual-currency firms should face regulations that are tougher than those for established financial-services providers because of their ability to hide criminal activity, according to law enforcement officials.

“Without stronger government oversight, we are allowing cybercriminals, identity thieves, traffickers of child pornography, and other malevolent actors to operate in a digital Wild West,” Cyrus Vance Jr., the district attorney for Manhattan, said at a hearing yesterday about possible state regulation of digital currencies[...]

“One aspiration with Bitcoin is for it to be a main artery of the commercial world,” Zabel said. “Its intrinsic qualities mean it needs to be treated differently.”

The prosecutors cited illegal activity linked to digital currencies, the potential for tax evasion and technologies that can be used to obscure transactions as dangers for law enforcement. They dismissed industry arguments that their successful investigation of several criminal networks demonstrates that criminal activity is under control[...]

Vance endorsed the idea of requiring digital currency firms to obtain state money-transmitter licenses, while warning that such “action in and of itself may not be enough.” He said businesses that swap Bitcoin for traditional currency, for example, should have to conduct “enhanced due diligence” on customers.
As a first step, as I predicted, expect tumblers to be outlawed. From Bloomberg:
Vance and Zabel harshly criticized the use of Bitcoin “tumblers,” which accept a Bitcoin payment, and return the same amount with a new digital trail, obscuring its source. The process, which some virtual-currency enthusiasts embrace for privacy reasons, is sometimes called a “Bitcoin laundry.”

“In the cases I have seen they serve no other purpose than automated money laundering and identity concealers,” Zabel said.

Zabel also raised the possibility that Bitcoin could promote tax evasion as people use it to conceal dollars.

“The currency itself could become a form of tax haven, both for businesses and individuals,” he said.

Both Vance and Zabel dismissed objections raised by investors at the previous day of the hearing that recent prosecutions of alleged money-laundering efforts involving digital currency demonstrate law enforcement can handle the industry’s emergence. “It proves the opposite: this is a problem,” Vance said.


  1. I'm not trying to be a smart ass but I thought they were supposed to know everything from the block chain? If so, why are they so worried?

  2. To all the Bitcoin fans who say that government cannot regulate Bitcoin, just remember that government regulates PEOPLE not things. If it comes down hard on Bitcoin, Bitcoin will be relegated to a very small niche market and for users in those few countries that allow it. You won't see auto dealerships or accepting bitcoins any more. When gold possession was illegal (from 1933 to about 1973), sure there was a small percentage of admirable rebels who continued to possess it, but it disappeared from commerce for all intents and purposes.