Posts Tagged ‘FinCEN’

How Canada will regulate bitcoin

by , Mar 29, 2014 | 2:00 pm

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.


Canada becomes bitcoin-friendly

by , May 23, 2013 | 11:57 am

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).


Mt Gox, can you spare a Dwolla?

by , May 15, 2013 | 11:29 am

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).

Billing in bitcoins

by , Mar 28, 2013 | 7:28 pm

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.