Lately, when many Canadians think of the Senate — our unelected upper house of Parliament — they think of the Senate expense scandal (or possibly other scandals) which may be an issue in the general election this fall. That’s unfortunate, as today the Senate Standing Committee on Banking, Trade and Commerce released its report on Digital Currency.

The Committee offers a number of welcome, measured, and moderate proposals.

The very first recommendation exhorts the Canadian government to “create an environment that fosters innovation for digital currencies and their associated technologies” and “exercise a regulatory ‘light touch.'” That’s certainly welcome given the innovation that’s taking place in the space in Canada and the cryptocurrency businesses that are being started and acquired here.

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This past week, two sources of information became available indicating how the Canadian government will increase its regulation and oversight of virtual currencies, including bitcoin. Through a combination of legislative and regulatory changes, Parliament and the Financial Reports Analysis Centre of Canada—Canada’s financial intelligence unit—will wrap “dealers” in virtual currencies into the current money services business regime. Conceptually, this is somewhat similar to the approach taken to exchange functions by the Financial Crimes Enforcement Network in the United States. The federal government has clarified things somewhat but, at the same time, left us with many unanswered questions. We will have to wait for further regulatory guidance to see how the whole regime in Canada plays out, but I think things are looking very positive for FIU regulation of cryptocurrencies in Canada.

The Current Structure & Canada’s Economic Action Plan

FinTRAC is an independent agency that acts as Canada’s FIU to enforce the Financial Action Task Force’s 40 Recommendations. It does this primarily through the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the PCMLTFA) and Regulations (the Regulations). I have previously written about FinTRAC, its FATF-mandated role, and the PCMLTFA and the Regulations. As explained in the earlier post, FinTRAC has thus far taken the view that bitcoins are not “funds” within the meaning of the PCMLTFA and the Regulations. That means that FinTRAC will not regulate many bitcoin exchange functions under the MSB rules in Canada.

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On February 11th, David George-Cosh broke the story of the release of an undated internal document produced by FinTRAC addressing the challenges of cryptocurrencies, primarily bitcoin. FinTRAC is Canada’s anti-money laundering and counter-terrorist financing watchdog. The document is a slide deck that was produced further to an Access to Information Act request. The WSJ blog post on the release is here.

A copy of the deck that was released to the public under Access to Information is here.

It’s important to remember that most of what is in this deck does not represent a normative policy position being taken by FinTRAC on cryptocurrencies. (Though note that pages 24-25 of the .pdf document fairly characterizes how FinTRAC views bitcoin vis-a-vis money services businesses under the current Proceeds of Crime (Money Laundering) and Terrorist Financing Act and Regulations.) I think the bulk of it represents an earnest and honest attempt to canvass available resources and learn about bitcoin. Many bitcoin aficionados might take issue with how some points are set out and the substance of others. However, I think it’s a decent overview and a good start at fairly covering a lot of ground. Over the coming months, we may see how FinTRAC uses this knowledge as they work with the Department of Finance to introduce anti-money laundering and anti-terrorist financing regulations for cryptocurrencies, as promised in the recent federal budget.

Preet Bharara, the US attorney for the Southern District of New York, today announced the unsealing of a federal criminal complaint against Robert Faiella and Charlie Shrem. It’s alleged that Faiella ran an underground bitcoin exchange on Silk Road. Shrem is well-known in the bitcoin community as the CEO of BitInstant and the Vice Chairman of the Bitcoin Foundation.

A copy of the criminal complaint against both men is here.

The complaint alleges that both Shrem and Faiella operated an unlicensed money transmitting and that Shrem specifically facilitated that business through BitInstant. Further to those allegations, Shrem is also charged with violations of the Bank Secrecy Act because of his purported wilfull failure to file reports with the Treasury Department. Finally, both men are charged with money laundering conspiracy under 18 U.S.C. 1956.

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The Canada Revenue Agency (the Canadian equivalent of the IRS) just issued its first release on how it will treat virtual currencies for taxation purposes. There is not much new here — the CRA sent an e-mail to the CBC back in April about bitcoin taxation — and the government leaves several questions unanswered. Still, it’s an actual release from the CRA and not just a communication to a news outlet, which is helpful to those advising taxpayers. And even though the interpretation bulletins and the release do not have force of law, this communication does at least put up some signposts about the CRA’s thinking about bitcoin.

The release — styled one of the CRA’s fact sheets on “digital currency” — is available here.

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Journalist Brian Krebs broke the news on Oct. 2 that US federal authorities shut down Silk Road, the most famous, or infamous, Tor network online contraband bazaar. Pursuant to a criminal complaint and related civil complaint and protective order, Ross William Ulbricht (a.k.a. Dread Pirate Roberts) was arrested in San Francisco as the FBI seized the Silk Road web domain and millions in bitcoin.

But given the role of BTC in Silk Road, one question I have is what this case means for bitcoin, if anything. This case may put virtual currency more front and centre for some, but I don’t think it should have much of a long-term effect on how policy-makers and regulators look at it. That’s because this is fundamentally a drug case, not a bitcoin case. Paragraph one of the criminal complaint emphasizes that the defendant and others agreed to violate the narcotics laws of the United States. Bitcoin was just one of the instrumentalities in the alleged criminal scheme: good technology used for criminal ends.

Ulbricht was charged with one count of narcotics trafficking conspiracy (undercover agents apparently procured ecstasy, cocaine, heroin, and LSD on Silk Road), one count of computer fraud conspiracy, and one count of money laundering conspiracy. A panoply of illicit goods and services were available on Silk Road, including controlled substances and other drugs, computer hacking services, and forged documents. In an allegation that may make for a future bar exam question, Ulbricht is also alleged to have used Silk Road to orchestrate a murder for hire. If the allegations are true, Ulbricht contracted with a drug dealer to murder a Silk Road vendor, paid the drug dealer, received photographic evidence of the killing, and apparently believed that the hit was successful. But apparently the murder did not in fact take place.

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A news report from The Register this past Monday suggested that Canadian anti-money laundering and financial crimes regulations and disclosures will not apply to bitcoin exchanges in Canada. This was based on letters apparently received by some exchanges from the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC). I have not seen the letters, but today I confirmed this position with a spokesperson for the FinTRAC. This posture presents an exciting opportunity for bitcoin exchanges that the Financial Crimes Enforcement Network (FinCEN) recently confirmed are subject to registration, monitoring, and reporting as money services businesses and money transmitters in the United States. On the financial regulatory side, those exchanges may find a more welcoming environment north of the border. However, remember that future changes to the regulatory structure in Canada are possible.

What is FinTRAC?

FinTRAC is an independent agency of the Canadian government that reports into the federal Minister of Finance. It is Canada’s financial intelligence unit for purposes of the Financial Action Task Force’s 40 Recommendations. FinTRAC’s mandate is to facilitate the detection, deterrence, and prevention of money laundering and terrorist financing activities. FinTRAC was set up and is empowered under the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the PCMLTFA) and the attendant regulations, including the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations (the Regulations).

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Yesterday, it emerged that Dwolla, a US payment network, has stopped accepting transfers to and from Mt. Gox, the world’s largest bitcoin exchange, because of a seizure warrant issued by the US Department of Homeland Security. Here’s Chris Coyne‘s tweet with a copy of the message he received from Dwolla. Today, I received a copy of the seizure warrant dated yesterday and signed by US magistrate Susan K. Gauvey in Maryland. A copy of the warrant is here.

The warrant specifically targets the contents of Mutum Sigillum LLC’s (incorporated in Delaware and apparently a Mt. Gox subsidiary or sibling entity) Dwolla account held in the custody of Veridian Credit Union. Mutum Sigillum is alleged by the US to be an unlicensed money transmitting business within the meaning of 18 U.S.C. § 1960(b). For more on this definition, take a look at the warrant itself and at FinCEN’s guidance in respect of money services businesses and money transmitting businesses issued in March (here). The unlicensed nature of the MSB is the basis for the seizure order.

A confidential informant established new accounts with both Mt. Gox and Dwolla, funded his Mt. Gox account with US funds, exchanged currency in his Dwolla account for bitcoins, and then exchanged bitcoins back to dollars, directing Mt. Gox to transfer those dollars to his Dwolla account.

Based on the warrant, it appears that Mutum Sigillum was targeted solely because it is an unlicensed business, not because of any broader claims that (for example) bitcoin itself undermines the greenback. This is consistent with FinCEN’s March guidance. (Patrick Murck, General Counsel to the Bitcoin Foundation, wrote a great piece setting out his view that the guidance is an overreach. Worth reading if you haven’t yet.)

Apparently you can still remit to other exchanges through Dwolla to purchase bitcoins, and you can still remit to Mt. Gox to buy bitcoins (just not through Dwolla).

One of the many things I love about having a specialized, small law practice is my autonomy and flexibility. If I want to implement a business idea for Gaming Counsel, I can research it, think about it, and then do it. Provided that I comport with the law and the strictures of my regulators (e.g., the Law Society of Upper Canada & the State Bar of Nevada), I can go ahead and try new things. That’s a freedom I didn’t have as much of — not to say none of — at a big firm, and I don’t miss being more tied up.

With that in mind, I’ve decided to start accepting certain gaming business in bitcoins, which is intriguing for the firm. I don’t expect it will be a lot of business, but bitcoin is an engrossing concept and currency, and I’d like to at least try to keep up with its development and how my clients might like to do business.

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From OnlinePokerReport.com for the week of March 25th …

3 STORIES TO WATCH THIS WEEK

#1. Full Tilt Poker’s traffic slide just won’t quit. PokerStars has tried bonuses, splashy promotions and even PR stunts to prop up Full Tilt, so it will be interesting to see how PokerStars reacts this week – if they react at all – to FTP’s recent drop into 4th place (by cash game traffic).

#2. PokerStars & NJ: The online poker giant has yet to complete its NJ application. But the PR war between PokerStars and the AGA continues, and looks set to escalate as NJ marches closer to launching real-money online gambling.

#3. NY will almost certainly abandon their brief legislative flirtation with online poker this week when the state’s budget is finally passed.

A week filled with official holidays should ensure that the legislative lull of last week continues through the end of April.

+ THE WEEK THAT WAS

• A Florida bill threatened Internet cafes – and online poker along with them.
• Kentucky announced plans for online lottery sales (around 2015).
• PokerStars introduced a few new Omaha variants.
• bwin-party released 2012 results. And PokerFuse provided some color on the earnings call.
• Bitcoins took a step toward “respectability”.

RECENTLY FROM OPR

Check out my latest article for Casino Enterprise Management – Five Things Full Tilt Poker Got Right.

PICKS

#GoodRead – CalvinAyre.com published what is sure to be one of many pieces prescribing a remedy for what ails Full Tilt.

Neat – LIFE slideshow of unpublished photos taken around Vegas in 1955 (h/t @BrianPempus).

From OnlinePokerReport.com for the week of March 11th …

3 STORIES TO WATCH THIS WEEK

#1. PokerStars and the AGA  threw first punches last week in what could develop into an extended and mutually bruising battle. Are they interested in cooling down, or escalating further? This week should provide some clues. Also: It turns out PokerStars’ NJ application could drag out well into summer.

#2. IL and PA could both take legislative steps toward regulation. PA State Rep Tina Davis “might” introduce her bill mid-week (20% gross tax, no compacts, licenses to existing operators only). As for IL, look for clarification on the next step for online gambling after a planned Senate vote on the combined live/online gambling expansion bill was scuttled late last week. Seems like some IL Dems didn’t like what they saw?

#3. New Jersey was supposed to finish up a first draft of online gambling regulations last week. No word on what shape they’re taking, but with the pace to date I would expect more details – and more launch projections – as we move into the middle of March.

+ THE WEEK THAT WAS

• Iowa online poker died – for this session.
• Reuters reported on a rekindled push for federal regulation. But I didn’t see much new there.
• Speaking of federal, Politico reported the online poker dustup did real harm to relationship between Heller and Reid. Really?
• Minted Poker threw Everleaf right under the bus. But players are still struggling to get funds from the network.
• An iPoker skin added Bitcoin for deposits and withdrawals.

RECENTLY FROM OPR

I offered my quick take on the Illinois gambling bill . And on the timing of the AGA’s petition to bar PokerStars from NJ, which I also discussed on last week’s TwoPlusTwo Pokercast.

PICKS

@Follow – It’s tax time, and U.S. poker players with questions would do well to follow both @QuantPoker and@taxdood.

#GoodRead –  …and to check out their respective blogs: quantitativepoker.com and taxdood.com

Lots went down. SealsWithClubs is in Forbes. Saramar is still on her Mexican cashout adventures, now without the wisdom of her teeth. Srslysirius blew up Zac Hart. Marco left too. Hollywood Dave checks in about a facebook free-chip site. Butterfly labs CEO Josh Zerlan is just making shit up as he goes along. So much to cover in this 2+ hr show:

The holiday season always brings a nice in the tournament circuit giving players a chance to recharge their batteries, rebuild their bankroll at the local cash game, and a few even spend that time with their family. But things are ramping up now that 2013 has rolled around with a bunch of new festivals kicking off.

The latest running on the PokerStars Caribbean Adventure begins it’s schedule on the 5th, a couple WSOP Circuit events in Los Angeles and Choctaw, and the marathon festival of the LAPC is on the horizon. Minor tournament series continued to run in Vegas and Atlantic City even during the holidays but now it’s time to strap it up and get to work.

The turn of the year also brings in a new batch of U.S. lawmakers, so the poker world will continue to look towards Washington for some hint that online poker might return to the States. The odds are still long and not exactly the most pressing matter for the country but there will be debate this year.

# Everything you always wanted to know about online betting but were afraid to ask! #

Link Dump

Tweet of the Day – I really really need to learn this game. Perhaps Deebs can teach me at a rate affordable on an unemployed poker hacks salary.

I’m stuck in an Open Face Chinese Poker time vortex.

— Bryan Devonshire (@devopoker) January 4, 2013

Bitcoin: Making Online Gambling Legal in the U.S.? – This article should send Bryan Micon into spasms. Using the magical, mysterious internet currency to circumvent U.S. online gambling laws.

How I almost went to jail as a terrorist – Fun writeup from Dan Goldman about a crazy situation getting ready for the first and only PokerStars cruise when he had a little visit from Homeland Security. (With a h/t to @BryanMicon)

Texas Poker Gaming Act of 2013 Introduced in State Legislature – Another state, another poker bill. Maybe the federal government will start taking notice that it’s something people are thinking about. Also, shouldn’t you be able to play Texas Hold’em in Texas?

Lottery chief opposes online gambling proposals – Meanwhile in Iowa, the head of the their lottery flew all the way to our national seat to tell the federal big boys to oppose all online gambling.

Happy Holidays From PokerNews – Hello there Sarah Grant, Kristy Arnett, and Melanie Weisner. A little holiday video from our friends over at PokerNews.