June 15, 2011 / 10:02 PM / 9 years ago

Bitcoin exchanges offer anti- money-laundering aid

ST. LOUIS, June 15 (Thomson Reuters Accelus) - Exchanges that have facilitated trade in a fledgling digital currency known as Bitcoins are offering to help U.S. law enforcement track suspect transactions, after two senators charged that the operations aided drug traffickers and money launderers.

Japan-based Mt Gox Bitcoin Exchange handles the vast majority of Bitcoin trades. Like the seven other Bitcoin exchanges that operate in London, Poland and elsewhere, it matches buy and sell orders and uses a bank account to receive and send related payments.

These exchanges are unregulated and their obligations to report suspicious activity to authorities, as other financial institutions must, are nebulous.

Mark Karpeles, the chief executive of Tibanne Co of Tokyo, which operates Mt Gox, told Thomson Reuters that the company was not averse to cooperating with authorities. “As a company handling Bitcoins, it is not our intention of doing anything illegal,” Karpeles said via email on Tuesday. “We sent a letter to the Drug Enforcement Administration to address this issue.”

He declined to release a copy of the letter, but said, “Basically we explain what Bitcoin is, and the fact it’s much more traceable than what the media has been saying. We do not want Bitcoin to be misunderstood.”


Karpeles wrote the agency in response to a letter which Democratic senators Charles Schumer of New York and Joe Manchin of West Virginia had written earlier this month to U.S. Attorney General Eric Holder and Michele Leonhart, head of the Drug Enforcement Administration.

That letter expressed concerns about the underground Web site Silk Road and the use of “untraceable” Bitcoins to make purchases there. The senators cited media reports that some tech-savvy individuals were using an “anonymizing network” known as Tor to gain clandestine access to Silk Road and buy illegal drugs with Bitcoins.

Bitcoins, a two-year old digital currency, were initially traded among a small group of tech-savvy enthusiasts, generally in exchange for services such as Web support, but they can now be purchased at exchanges by anyone with real-world funds. A Bitcoin has recently been worth roughly $10 to $20, but the rate is volatile. According to traders, more than 300,000 Bitcoins have been sold each day during the past month.

Schumer has sharply criticized Bitcoins. “It’s an online form of money laundering used to disguise the source of money, and to disguise who’s both selling and buying the drug,” Schumer said.

The Gawker blog reported that Silk Road sellers mailed illegal drugs after receiving payment in Bitcoins. The transactions were believed to leave no traditional money trail for investigators to follow.

The DEA has expressed concerned about Bitcoins and other anonymous digital currencies.

Karpeles said Bitcoin transactions were in fact traceable. He said that while the system had been built to be anonymous, it was “really easy to track Bitcoins across the network.”

He added that since most Bitcoin transactions flowed through Mt Gox, it was “much easier to see how the funds were cashed out, and locate the final target if there was need.”

“We have no opinion for or against Silk Road because we don’t feel we are associated in any way. However, if we are required to track payments coming in or out of Silk Road, we will comply, as we all want to see Bitcoin successful in the future.”


He added that Bitcoins were not intended as a criminal tool. He said they were bought and sold by investors, libertarians who wanted “pure freedom,” geeks who liked “tech stuff” and saw Bitcoin as a new toy, and others who engaged in online commerce and did not want to pay substantial fees.

Amir Taaki, the founder of the Britcoin exchange based in London said he has already approached British regulators in an effort to obtain “legalized, regulated status.”

“We want to make Bitcoin legal, not have it outlawed,” he said. He said Britcoin also would be willing to help root out criminal activity, and was keeping account records.

Donald Norman, the co-founder of a London-based consultancy that serves Bitcoin exchanges, said that a data file existed which reflected the complete history of Bitcoin transactions, so that “the ownership of every single coin is completely known and traceable.”

He added that the exchanges were struggling to establish relationships with regulators, in part because the currency was so novel. “There is nothing on the law books about Bitcoins,” he said.

(Editing by Randall Mikkelsen)

This article was produced by the Compliance Complete service of Thomson Reuters Accelus. Compliance Complete here provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 230 regulators and exchanges.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below