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November 18, 2013

US Officials: Virtual Currencies Vulnerable to Money Laundering

by Reuters

Virtual currencies may give consumers a cheap, efficient and convenient way to move money, but those same attributes make them appealing to criminals, the head of the Justice Department's Criminal Division told Congress on Monday.
 
“We have seen increasing use of such currencies by drug dealers, traffickers of child pornography, and perpetrators of large-scale fraud schemes,” Mythili Raman, the acting assistant attorney general for the division, told a Senate panel.
 
The currencies offer criminals both anonymity and the ability to process transactions that cannot be reversed, which can “significantly complicate” the government's ability to follow money trails in related criminal investigations, she told the Senate Homeland Security Committee.
 
Further complicating efforts, many digital currency services do not have controls to protect against abuse, Raman said.
 
“Many are still struggling with implementing appropriate anti-money laundering, know-your-customer and customer due diligence programs,” she said in prepared remarks.
 
Raman appeared alongside top officials from the Secret Service and Financial Crimes Enforcement Network before the Senate Homeland Security Committee to answer questions about the growing use of digital currencies such as Bitcoin, and whether the government is doing enough to police the market.
 
It was the first such hearing before Congress. Bitcoin surged over 27 percent to a new high of US$675 ahead of the hearing.
 
“Virtual currencies, perhaps most notably Bitcoin, have captured the imagination of some, struck fear among others, and confused the heck out of the rest of us,” Senator Thomas Carper, who chairs the committee, said in his opening remarks at the standing-room only hearing.
 
New Methods
 
Virtual currencies, or digital cash, have increasingly become a popular new way to purchase goods or services.
 
They are not regulated or issued by a central bank. They have been touted by some as an alternative currency in countries facing financial instability.
 
The most popular virtual currency by a wide margin is Bitcoin, which exists through an open-source software program and whose supply is controlled by a computer algorithm.
 
However, critics have raised concerns about a lack of regulatory oversight over virtual currencies and the fact that some of them can be transferred anonymously, raising fears that they could be used by scam artists.
 
The general counsel of the Bitcoin Foundation, Patrick Murck, told lawmakers that digital currencies offer many benefits and are not only a cloak for illegal business. However, he also added that law enforcement would have to develop new methods to investigate some criminal activity.
 
Over the past year, U.S. authorities have taken action against several players in the digital currency space.
 
In May, U.S. authorities seized two accounts linked to the Tokyo-based exchange Mt. Gox, the major operator for the Bitcoin digital marketplace, after it failed to register with FinCEN.
 
Around the same time, U.S. criminal authorities also indicted the operators of the digital currency exchange Liberty Reserve and accused the company of helping criminals launder more than $6 billion in funds, linked to everything from child pornography to software used for bank hacking.
 
In October, federal authorities shut down an online marketplace called Silk Road; users had been able to use Bitcoins to purchase drugs and hire hit men.
 
Earlier this month, a new version of the website opened for business again, raising concerns over whether authorities were fighting a losing battle.
 
Raman rejected such concerns and said the government was sending a message to criminals by taking down these organizations. “We have kept pace,” she said.