FATF Issues Report on Virtual Currencies and Potential AML Risks
On June 27, 2014, the Financial Action Task Force ("FATF") issued a report providing a general framework for understanding and addressing the anti-money laundering / countering the financing of terrorism ("AML/CFT") risks associated with virtual currencies such as Bitcoin. Building on its 2013 New Payment Products and Services ("NPPS") Guidance, the FATF report proposes a common set of definitions that can be adopted by government officials, law enforcement and private sector entities to reflect accurately the different forms that virtual currencies may take. The report also lays out the potential AML/CFT vulnerabilities posed by virtual currencies, and profiles three recent law enforcement actions involving the abuse of virtual currency for money-laundering purposes: Liberty Reserve, Silk Road and Western Express International.
Commentary
The report represents FATF's latest effort to lay the groundwork for the future regulation of virtual currency systems. It attempts to standardize the definitions used to refer to the different types of virtual currencies (e.g., convertible versus nonconvertible, centralized versus decentralized) and participants (e.g., exchangers, users and miners) while also warning that these terms are subject to constant change as technology and the law evolve. The report comes just days after Canada amended its own AML/CFT laws to regulate virtual currencies, making them subject to the same reporting requirements as other money-services businesses. Other jurisdictions will follow, and FATF's framework will no doubt play a role as its members look to coordinate efforts. This report is most likely another step toward a universal AML/CFT regulatory scheme for virtual currencies and will work in tandem with further scrutiny by regulators and law enforcement agencies both in the United States and globally.