by Gaming Counsel, Feb 27, 2014 | 7:57 am

The Canadian finance minister, Jim Flaherty, presented the federal government’s 2014 budget plan to Parliament on February 11th. Cryptocurrencies played a small part in the budget, though still an important one for Canadian businesses in the sector.

Bitcoin and other cryptocurrencies are addressed under the heading “Strengthening Canada’s Anti-Money Laundering and Anti-Terrorist Financing Regime.” The relevant budget extracts are here. (The entire budget can be downloaded here.) The federal government has indicated that “virtual currencies, such as Bitcoin,” are “emerging risks” in the anti-money laundering and counter-terrorist financing world. Specifically, the government is proposing to introduce anti-money laundering and anti-terrorist financing regulations for virtual currencies, including bitcoin.

The budget itself is not an authorization to spend money, nor is it a draft bill that becomes law on passage. While the budget vote is a matter of confidence in the government—if the budget were to be defeated, traditionally the government would fall and there would be a General Election—it is really only a roadmap of the government’s spending, legislative, and regulatory priorities over the coming year. Further legislation, regulations, and appropriations bills will implement the budget’s priorities in the coming months.

No-one can say for certain what this means for bitcoin in Canada in the next year as far as its regulation by FinTRAC and the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and Regulations are concerned. Currently, FinTRAC takes the view that bitcoins are not “funds” within the meaning of the applicable regulations. However, the government has signaled that no new laws will be promulgated, as such, and that regulations (not requiring a legislative vote) will be sufficient to address any AML-CTF risks that it perceives, but we do not know how those will be specifically addressed.

One guess—and it is only a guess—at this stage is that further regulations will roll cryptocurrencies into the current money services businesses regulations under the PCMLTFA. If that is the approach taken, then that would generally require registration, a compliance regime, and reporting to FinTRAC, among other things, for designated businesses transacting in the bitcoin space. It’s unclear whether this would include miners, exchanges, both of them, or others. I think the main target here is exchanges, and not miners, but anything is possible within the scope of the regulations.

One potentially negative sign is that the budget does not acknowledge—as has US law enforcement before Congress and in at least two criminal complaints emerging from the Southern District of New York—that bitcoin has known legitimate uses and that the government does not want to stamp out its use. This may be deliberate or it may be a function of the budget document turning itself to other, more pressing matters.

Canada still remains friendly to bitcoin (though it is not the case, as some have opined, that there is “no regulation” of bitcoin in Canada). There is no indication at this stage that any province outside of Quebec is actively regulating MSB’s or plans to actively regulate cryptocurrencies through an MSB or similar regime. To the extent that the federal Department of Finance offers some clarity in a sector that wants it, a more active role for FinTRAC may even turn out to be a good thing.