Regulating them out of business - just the state license requirements such as hefty surety bonding fees would massively crimp the business. Once you add in the reporting requirements of a FINCEN , what is the upside for the user , compared with the very real risks/ downside of using Bitcoin versus fiat ?
http://online.wsj.com/article/SB10001424127887324682204578517604191541808.html?mod=WSJ_hpp_LEFTTopStories
http://arstechnica.com/business/2013/05/in-wake-of-liberty-reserve-bust-mt-gox-will-require-user-verification/
http://www.techweekeurope.co.uk/news/federal-agents-seize-a-portion-of-mtgox-bitcoin-exchange-funds-116572
( Regulating Bitcoin into the next world.... )
Dwolla has provided one of the easiest ways for US residents to buy bitcoins on MtGox, routing the money through Mutum Sigillum, even though the company doesn’t endorse the virtual currency.
'Virtual' Currencies Draw State Scrutiny
http://online.wsj.com/article/SB10001424127887324682204578517604191541808.html?mod=WSJ_hpp_LEFTTopStories
By ROBIN SIDEL and ANDREW R. JOHNSON
State banking regulators are scrutinizing companies that let people buy and sell virtual currencies such as bitcoin, and some are looking at requiring costly licenses, according to people familiar with the efforts.
It is the latest sign that the freewheeling world of virtual currencies is about to get less free. Just this week, prosecutors claimed to have exposed a $6 billion money-laundering ring that allegedly relied on them.
George Frey/Getty Images
Bitcoin enthusiasts say the currency derives its value from its limited supply and the support of the people using it.
"Virtual" currencies can be used just like dollars among people who agree to accept them. One big difference is that they aren't backed by a government. Instead, bitcoin enthusiasts say, the currency derives its value from its limited supply and the support of the people using it.
In the past three months, the Treasury Department, prosecutors and now state regulators have taken aim at virtual-currency exchanges, telling them they must follow traditional rules aimed at thwarting money-laundering. The lightly regulated currencies have caught the attention of people who allegedly use some of them to mask profits from illegal activities.
Companies using virtual currencies said they welcome the regulatory push because it helps legitimize the practice and build trust with users and investors. But new rules could also make the systems more cumbersome, taking away some advantages, currency experts say. Bitcoin can sometimes be cheaper to use than regular currencies, for instance, because there are fewer "transaction fees" that can take a bite out of regular credit-card transactions.
MoneyBeat
"There is definitely a lot of scrambling that is going on in the industry," says Carol Van Cleef, a lawyer at Patton Boggs LLP in Washington who represents clients in bitcoin ventures.
The four-year-old bitcoin payment system is among the most popular of the new methods. The price of a bitcoin on the Tokyo-based Mt. Gox, a primary exchange, was about $130 Friday. That compares with roughly $50 in mid-March and a high of $230 in April.
The new scrutiny comes at the same time federal regulators are attempting to rein in illegal activities made easier by virtual currencies. The Financial Crimes Enforcement Network, or FinCEN, a unit of the Treasury Department, in March issued guidelines that said virtual currency exchanges are subject to the same comprehensive anti-money-laundering requirements as traditional money-transmission businesses such as Western Union Co. WU -0.49% and encouraged them to register with the agency.
"This is definitely on our radar. We are becoming aware of more and more businesses that may need to be licensed," said Daniel Wood, assistant general counsel in the Texas Department of Banking.
Texas is one of 48 states that require companies to obtain money-transmission licenses to operate. South Carolina and Montana don't have such rules.
New York bank regulators said they are also discussing the issues with virtual currency exchanges operating in the state. "We are not only looking at whether virtual currency companies should be licensed as money transmitters," says Benjamin Lawsky, superintendent of the New York Department of Financial Services, but also looking at money-transmission rules "to see whether they need to be modernized" to address the "potential dangers raised by virtual currencies."
The federal crackdown intensified Tuesday when prosecutors accused Costa Rica-based Liberty Reserve of operating a $6 billion money-laundering ring that was tied to an Internet-based currency. It marked the first time authorities have invoked the 2001 Patriot Act against a virtual currency.
Liberty Reserve couldn't be reached late Friday for comment. Its website, libertyreserve.com, says the site has been seized by the "United States Global Illicit Financial Team."
The criminal indictment was filed in U.S. District Court in the Southern District of New York. The company and seven of its principals and employees were charged with money-laundering and operating an unlicensed money-transmitting business.
The Liberty Reserve charges came two weeks after authorities froze an account tied to the largest bitcoin exchange. The Department of Homeland Security accused Mt. Gox and one of its subsidiaries of conducting transactions "as part of an unlicensed money service business."
Mt. Gox said Thursday it is beefing up its identification process for users. Among other things, the exchange, which says it handles 80% of all bitcoin trading, said accounts must be verified with a valid photo ID and proof of residence.
Mark Karpeles, Mt. Gox's CEO, declined to comment on the recent regulatory guidance.
Mr. Ehrsam declined to discuss Coinbase's efforts to seek money-transmitter licenses.
Companies that register with FinCEN as money transmitters must hire a chief compliance officer, implement an anti-money-laundering program and alert authorities if they believe a transaction might be tied to suspicious activity.
"If you are operating in this industry, you have to recognize it is regulated," says Chris Daniel, a lawyer specializing in payments at Paul Hastings LLP, an Atlanta firm.
Compliance isn't always easy at the state level, executives said. Each state has different requirements, according to people familiar with the process.
State money-transmission licenses can be costly. In Texas, companies seeking a license must provide a surety bond of between $300,000 and $2 million, depending on transaction volume, said Mr. Wood of the state's banking department.
In wake of Liberty Reserve bust, Mt. Gox will require user verification
World's largest Bitcoin exchange wants more info from its users.
On Thursday, the world’s largest Bitcoin exchange, Mt. Gox, announced that it would require all users to “be verified in order to perform any currency deposits and withdrawals. Bitcoin deposits do not need verification, and at this time we are not requiring verification for Bitcoin withdrawals.”
The company did not provide any explanation about why it was imposing this new requirement, but it did say that it would be able to process most verifications within 48 hours.
The move comes two days after federal prosecutors went after Liberty Reserve, another online currency that had notoriously poor verification. (In court documents, a federal investigator in that case included an address of “123 Fake Main Street, Completely Made Up City, New York” to create an account that was accepted.) It also comes two weeks after the Department of Homeland Security started investigating Mt. Gox over the possible crime of money transmitting without a license.
Mt. Gox did not immediately respond to requests for comment concerning why this new requirement has been put into place or what exactly it will entail. We will update this story if more information becomes available.
( Regulating Bitcoin into the next world.... )
Federal Agents Seize A Portion Of MtGox Bitcoin Exchange Funds
US department of Homeland Security says Tokyo-based MtGox broke US laws
MtGox, the largest Bitcoin exchange in the world, has had some of its funds confiscated by the US Department of Homeland Security (DHS) which claims the Tokyo-based business has violated US laws governing currency exchange and transfer.
On Tuesday, e-commerce company Dwolla, which handles some Bitcoin transactions in the US, told customers it would no longer transfer funds to MtGox accounts, after receiving a seizure warrant from a federal court. According to the warrant, the exchange was transmitting money without a licence, a crime which could result in a fine or even a prison term.
The loss of these funds is not the only problem for MtGox – earlier this month, it was sued by CoinLab, US-based exchange which claimed MtGox failed to transfer ownership of its US assets as per November agreement, anddemanded $75 million (£48m) in damages.
Interestingly enough, the news had little impact on the Bitcoin price, with virtual currency continuing to trade around $115 mark.
The bigger they are
MtGox was established in 2010 as Magic: The Gathering Online Exchange – a platform for trading collectible game cards, but its focus soon shifted to transactions in alternative online currency. It turns out that both the company and its subsidiary Mutum Sigillum, created specifically for business purposes, have been under investigation by the DHS for a while.
Dwolla has provided one of the easiest ways for US residents to buy bitcoins on MtGox, routing the money through Mutum Sigillum, even though the company doesn’t endorse the virtual currency.
The DHS agents established that the accounts used by the US business have been opened by Mark Karpeles, the president and CEO of MtGox. The problem is, in 2011 Karpeles signed a document which stated he and Mutum Sigillum were “not engaged in money services”.
According to the warrant published by Ars Technica, in his initial Money Services Business application Karpeles answered “no” when asked whether he and his company would exchange currency for its customers. He also said he would not transfer money according to customer instructions.
As a cherry on top, the company failed to register with FinCEN (Financial Crimes Enforcement Network), part of the Department of the US Treasury that collects and analyses information about financial transactions in order to combat money laundering and other financial crimes.
Another interesting fact: CoinLab, the company which was supposed to take over the Mt. Gox business in the US and is now suing it, had previously stated that it is fully compliant with US law and registered with FinCEN.
After receiving the warrant, Dwolla transferred the funds belonging to Mutum Sigillum to the authorities and stopped all interaction with the currency exchange. The exact amount wasn’t specified; however MtGox doesn’t seem all that worried.
“MtGox has read on the Internet that the United States Department of Homeland Security had a court order and/or warrant issued from the United States District Court in Maryland which it served upon the Dwolla mobile payment service with respect to accounts used for trading with MtGox.
“However, as of this time MtGox has not been provided with a copy of the court order and/or warrant and does not know its scope and/or the reasons for its issuance. MtGox is investigating and will provide further reports when additional information becomes known,” said the company in a statement on its website.
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