In a speech yesterday, Sigal Mandelker, the under secretary for terrorism and financial intelligence for the US Department of the Treasury, pushed for stronger regulation of cryptocurrency. She stated that Treasury regulates virtual currency exchangers as money transmitters and requires them to abide by Bank Secrecy Act obligations. Of specific concern is that these exchanges be mindful of the anti-money laundering (AML) and combating the financing of terrorism (CFT) obligations. She said:
Virtual currency businesses are subject to comprehensive, routine AML/CFT examinations, just like financial institutions in the securities and futures markets. We work in partnership with the IRS to examine virtual currency exchangers under our regulations for money transmitters. We also work in partnership with the SEC and CFTC to ensure that these businesses and those in your sector dealing in virtual currency appropriately address their AML/CFT BSA responsibilities.
We are also encouraging our international partners to strengthen their virtual currency frameworks. The lack of AML/CFT regulation of virtual currency providers worldwide greatly exacerbates virtual currency’s illicit financing risks. Currently, we are one of the only major countries in the world, along with Japan and Australia, that regulate these activities for AML/CFT purposes. But we need many more countries to follow suit, and have made this a priority in our international outreach, including through the Financial Action Task Force.
Ms. Mandelker also reminded her audience about enforcement actions taken by the Department:
FinCEN recently assessed a $110 million fine against BTC-e, an Internet-based virtual currency exchanger located outside the United States which did substantial business in our country. BTC-e exchanges fiat currency, as well as convertible currencies like Bitcoin and Ethereum, at one point serving approximately 700,000 customers across the world and associated with bitcoin wallets that have received over 9.4 million bitcoins.
Customers located within the United States used BTC-e to conduct tens of thousands of transactions worth hundreds of millions of dollars in virtual currencies, including between customers located in the U.S. Yet BTC-e never registered as a money transmitter, even after FinCEN made clear through published advisories and other guidance that such exchangers were legally required to do so.
The company lacked basic controls to prevent the use of its services for illicit purposes. As a result, they emerged as one of the principal means by which cyber criminals around the world laundered the proceeds of their illicit activity, facilitating crimes such as computer hacking and ransomware, fraud, identity theft, tax refund schemes, public corruption and drug trafficking.