On June 26, 2015 at the ABA National Institute on Bitcoin and Other Digital Currencies, Assistant Attorney General Leslie Caldwell sent a targeted warning to financial institutions that deal with Bitcoin and other virtual currencies. While acknowledging the legitimate uses of virtual currency, she noted that the increasing misuse of virtual currency, especially on the internet, will be aggressively pursued by the Department of Justice.
Caldwell noted that virtual currencies are attractive to criminals because the transactions transfer quickly, securely and with a level of anonymity. Additionally, the lack of oversight by a central financial authority or other governmental agencies attracts cross-border criminals who favor both the immediate lack of personal identifying information and irreversibility of the payments.
Caldwell highlighted the recent life sentence imposed on “Silk Road” mastermind Ross Ulbricht, who ran an underground website that allowed drug dealers to sell their goods online as an example of the illicit misuse of crypto-currencies. Silk Road was a “black-market bazaar completely free from government regulation and oversight”. She also noted the many other nefarious uses of virtual currencies that include use of the “dark web” for marketing stolen credit cards, marketing hit-men for hire as well as providing access to child pornography and child exploitation sites.
In response to this expanding criminal activity, the Department of Justice is stepping up its scrutiny of financial institutions that are using Bitcoin. For example, the prosecutors in the Southern District of New York have taken action against those who operated Bitcoin currency exchanges that supported Silk Road. While many legitimate currency exchanges exist and work with FINCEN and other regulators to remain compliant with the laws and regulations, the government will pursue those currency exchanges that fail to police their use.
Caldwell stressed that there are good and legitimate reasons to use these currencies however, “industry participants are now on notice that criminals too, make regular use of them”. She also made it clear that the financial industry must “raise the level of its game on the compliance front”.
Anti-money laundering and other compliance programs must be well tailored to protect the financial entity from the risks inherent in dealing with virtual currencies. The Department of Justice will look to determine if the business entity has a true commitment to compliance during its investigations and will take into account the size and complexity of the business when making prosecution decision.