#ACICurrency

Virtual & Digital Currency and Payment Systems

John Beccia

General Counsel and CCO

Circle Internet Financial, Inc.

“BSA/AML Considerations for Digital and Virtual Currencies”

Constance Choi

Samuel Rosenthal

Partner

Squire Patton Boggs

June 24-25, 2014

Tweeting about this conference?

Azba Habib

Deputy General Counsel

Payward, Inc. (Kraken)

#ACICurrency

Evolution of Virtual Currency

#ACICurrency

High Level Analysis for Virtual Currency Companies

• Key Questions • Am I an MSB under the BSA?

• 7 categories including money transmitter

• Do I fall under any exemptions?

• 6 exemptions under the BSA

• If so, what do I need to do to comply with my AML obligations?

“Digital currencies are just a financial service and those who deal in them are a financial institution. Any financial institution and any financial service could potentially pose an AML threat. It depends on whether folks have the controls in place to deal with those money laundering threats and that they are meeting their AML reporting obligations.”

– Jennifer Shasky Calvary, FinCEN Director

#ACICurrency

Regulatory Landscape

• Regulators’ focus is the on and off ramps for Bitcoin to fiat exchange

• Concern is use of digital currency for money laundering and terrorist financing due to anonymous nature and inability to understand counterparties

• Law enforcement is blind to Bitcoin benefits (their mission is to follow the money and catch criminals no matter what tool is used)

#ACICurrency

Regulatory Landscape • FinCEN guidance on March 18, 2013

• Interpretive guidance – not a new “rule-making”

• Focused on transfers to/from fiat into digital currency

• Defined administrators and exchangers (“users” are exempt)

• More guidance was issued in January 2014 relating to miners and investors

• Open issues and additional guidance:

• Travel Rule

• Guidance/regulations from OFAC, SEC, CFPB, CFTC, &FFIEC

• State money transmitter statutes/regulations

• International regulations

#ACICurrency

A Whole New Vernacular

• “Real currency” - the coin and paper money of the United States or of any other country that [i] is designated as legal tender and that [ii] circulates and [iii] is customarily used and accepted as a medium of exchange in the country of issuance.

• “Virtual currency” - a medium of exchange that operates like currency in some environments, but does not have all the attributes of real currency. In particular, virtual currency does not have legal tender status in any jurisdiction.

• “Convertible virtual currency” - a type of virtual currency that either has an equivalent value in real currency, or acts as a substitute for real currency.

• “User” - A user is a person that obtains virtual currency to purchase goods or services.

• “Exchanger” - An exchanger is a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency.

• “Administrator” - A person engaged as a business in issuing a virtual currency and who has authority to redeem such virtual currency, i.e. release and withdraw from circulation.

• “Centralized virtual currency” - A convertible virtual currency having a centralized repository.

• “Decentralized virtual currency” - A convertible virtual currency (1) that has no central repository and no single administrator, and (2) that persons may obtain by their own computing or manufacturing effort.

#ACICurrency

Compliance Issues

Speaker:

John A. Beccia

General Counsel and Chief Compliance Officer

Circle Internet Financial, Inc.

#ACICurrency

AML Compliance

• First determine if you are a regulated entity or whether you are exempt

• Understand where your customer is located and that you are in compliance with laws of those jurisdictions

• Firms that are treated as money transmitters must comply with FinCEN guidance and relevant state money transmitter laws

• Companies must have an AML program that includes:

• Know Your Customer (KYC) procedures

• Transaction monitoring

• Regulatory reporting (SARS)

• Uncertain guidelines make it difficult to operate in certain jurisdictions, evaluate new products and services and form strategic partnerships

#ACICurrency

Compliance Program Checklist

Establish a strong tone at the top and commitment to compliance

Appoint a compliance officer to ensure that you have adequate resources

Prepare risk assessments for customers, products and services

Develop policies and procedures that outline roles and responsibilities

Conduct training and communicate frequently about risks

Establish regulatory change management program to track new regulations

(coordinate with industry groups such as DATA and Bitcoin Foundation)

Audit programs at least annually (further testing may be needed)

Create procedures for exceptions and escalating risk incidents

Develop relationships with regulators, prepare for examinations.

Provide ongoing reports to management, boards, and investors.

#ACICurrency

Four Pillars of an AML Program

AML Officer

Policies, Procedures and Controls

Independent Audit

Training

#ACICurrency

AML COMPLIANCE PROGRAM

#ACICurrency

Red Flags

• Customers provide insufficient, incomplete or suspicious information that can not be verified

• Customers or transactions in high risks geographic regions

• Certain patterns of transaction activity (volumes, velocity, structure, etc.)

• Attempts for single user to purchase/sell digital currency from numerous different bank accounts

• Anything that doesn’t pass the smell test

#ACICurrency

Directors and Officers: When Are They at Risk for AML/BSA Sanctions? Speaker: Samuel Rosenthal Squire Patton Boggs, LLP 2550 M. St., N.W. Washington, D.C. 20037 202-457-6321

#ACICurrency

What is the climate?

• Decreasingly less Tolerance for AML/BSA Infractions

• Go After Individuals Who Either Engage in Criminal Activity, or Who Could Have, But Failed to, Prevent that Activity.

#ACICurrency

Congressional Oversight Intensifies

• Senate Banking Committee hearing March 7th

Comptroller of the Currency, Hon. Thomas J. Curry

Treasury Undersecretary for Terrorism and Financial

Intelligence, Hon. David Cohen

Governor, Board of the Federal Reserve, Hon. Jerome

H. Powell

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#ACICurrency

Chairman Tim Johnson (D –

SD)

• Chairman’s opening remarks:

“The government depends on bank compliance programs to detect

and prevent money laundering... And [as] the recent major penalty

cases [show], U.S. banks failed to deal effectively with funds from

non-U.S. banks or affiliates... How can we ensure uniform

compliance and enforcement of U.S. and international rules?”

“We should consider today the full range of remedies in cases like

these including BSA injunctions from the industry [for] those

individuals who violate the rules...”

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#ACICurrency

ARE REGULATORS FOCUSED ONLY ON

LARGE BANKS?

Testimony of the Comptroller, Tom Curry:

“Although many of our recent enforcement actions have

involved large banks, BSA is an issue for institutions of all sizes.

In fact, as large banks improve their BSA/AML programs and

jettison higher risk lines of business, we are concerned that

money-launderers will migrate to smaller institutions.”

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#ACICurrency

SEC - Mary Jo White

“Another core principle of any strong enforcement program is to pursue responsible individuals wherever possible. That is something our enforcement division has always done and will continue to do. Companies, after all, act through their people. And when we can identify those people, settling only with the company may not be sufficient. Redress for wrongdoing must never be seen as ‘a cost of doing business’ made good by cutting a corporate check.”

#ACICurrency

OCC -- Chairman Curry

“We believe at the OCC that you need to hold CEOs and the boards of directors accountable for BSA/AML policies and procedures and their compliance program.” “we are looking at our authority under Section 8 of the FDIC Act to actually remove from office or prohibit from banking those individuals that violate BSA programs. So we are looking to try to tighten up the legal duties and authorities of individuals at banks and then to enable us to take an appropriate level at the civil, administrative level, and potentially to assist the criminal authorities.”

#ACICurrency

Enforcement Actions outside

the virtual currency context

Highly Publicized Consent Orders:

• JP Morgan Chase (January 2013)

• Citibank (April 2012)

• HSBC (October 2010)

• Bank of Montreal (April 2013)

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#ACICurrency

Liability and Consequences

Directors, Officers, Employees = Institution

Affiliated Parties (IAPs)

Formal Agreements

Cease & Desist Orders

Civil Money Penalties

Removal/Prohibition Orders

Restitution Orders for losses caused or

unjust enrichment

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#ACICurrency

Recent OCC Enforcement

Actions • JPMC Bank, N.A., Columbus, Ohio (January 2013):

Insufficient internal controls, independent testing, customer

due diligence, risk assessment, and SAR processes

(monitoring, investigating, and decision-making)

Lack of enterprise-wide policies and procedures to ensure

foreign branch suspicious activity involving customers of

other bank branches was effectively communicated to other

affected branch locations and AML operations staff

Lack of enterprise-wide policies and procedures to ensure

that, on a risk basis, customer transactions at foreign

branches were assessed, aggregated, and monitored.

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#ACICurrency

JPMC Bank

• Failure to maintain adequate BSA compliance

program, file SARs, and conduct appropriate due

diligence on foreign correspondent accounts

ensure independence of AML compliance staff;

ensure clear lines of authority and responsibility for

BSA/AML and OFAC compliance with respect to lines of

business and corporate functions;

require new products and services be subject to high level

compliance review;

ensure all customer due diligence processes are automated

and accessible; and

conduct look back of certain account/transaction activity and

SAR filings.

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#ACICurrency

Security Bank

• Five Directors & Executive Officers of Security Bank,

N.A., North Lauderdale, Florida (January 2013)

2010 C&D Order - safety and soundness and BSA

deficiencies, including inadequate AML program and SAR violations

Former officers and directors failed to ensure bank complied with BSA/AML requirements and failed to comply with May 2010 C&D Order

Directors approved appointment of Secretary of Board who previously had been convicted of tax evasion, a violation of 12 U.S.C.§1829

Former CEO brought high risk business to Bank knowing it was ill-equipped to monitor and control the accounts.

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#ACICurrency

Security Bank • Directors & Officers of Security Bank

Civil Money Penalties assessed against each director & officer

between $8,500 and $20,000.

Personal C&D Orders requiring each director and officer to:

(i) notify any depository institution of the C&D Order prior

to accepting any position

(ii) notify OCC each time application is made for employment

with a depository institution

(iii) obtain “appropriate” BSA / AML training; and

(iv) provide “appropriate” BSA / AML training for bank

officers and directors within the individual’s

supervision and control.

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#ACICurrency

FIRST BANK OF DEL., WILMINGTON (NOV. 2012).

Bank failed to adequately oversee MSB and third party payment processor relationships and related programs (e-payments) and services.

Concurrent Civil Money Penalties of $15 million

Bank assets sold and its charter revoked by Delaware Bank Commissioner

“To make money, First Bank of Delaware entered into risky lines of business and chose to disregard its [BSA] responsibilities. As a result of its failure to implement systems and controls to identify and report suspicious activities, as required by the BSA, financial predators were able to victimize consumers.”

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#ACICurrency

FBD: AMLCO

• AML Compliance Officer

− Failed to effectively provide day to day

management of BSA/AML compliance program

in light of risk profile and volume of activity

− No notification of Board and personnel of

suspicious activity

− Failure to escalate – shortcomings of monitoring

system

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#ACICurrency

FINRA Enforcement Actions

• FINRA Rule 3310 (2002) - minimum standards for

AML compliance programs for broker-dealers

consistent with BSA: follows four pillars.

• FINRA stepping up enforcement of AML violations:

in 2012, 49 enforcement actions against broker-

dealers for AML violations

reflects a 36% increase from the 36 AML-related cases

concluded in 2011

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#ACICurrency

Increased Attention on Management

“We believe at the OCC that you need to hold CEOs and the boards of

directors accountable for BSA/AML policies and procedures and their

compliance program.”

“Most of the problems we find in BSA/AML programs are attributable to

the following root causes:

- the strength of an institution's compliance culture;

- its willingness to commit sufficient resources;

- the strength of its information technology and monitoring processes;

and

- its risk management.

The health of a bank's culture starts at the top. And so it's important that senior

management demonstrate a commitment to BSA/AML compliance. Employees

need to know BSA compliance is a management priority and that the

compliance function will receive the resources it needs to succeed, including

training and first-rate information technology.”

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#ACICurrency

New Enforcement Mechanism at

OCC • Major Matters Supervision Review Committee

established by the Comptroller in late 2012 to review all large bank

enforcement actions including BSA violations, BSA CMPs involving large

banks, and all prohibitions/removals against individuals for BSA

violations.

five members chaired by OCC’s Senior Deputy Comptroller for Bank

Supervision Policy and Chief National Bank Examiner (currently, John C.

Lyons).

other members include: the Chief of Staff; the Senior Deputy

Comptrollers for Bank Supervision Policy and Community Bank and

Large Bank Supervision; and the Chief Counsel.

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#ACICurrency

New Guidelines Forthcoming on Corporate

Governance Impacting BSA/AML Compliance

“The OCC is in the process of drafting detailed guidance to

banks on sound corporate governance processes...

including business line accountability for BSA/AML

compliance and the independence of the compliance

function.”

Written Testimony of the Comptroller.

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#ACICurrency

Possible new legislation introduced Sept. 16, 2013 by Rep. Waters

• A clear shot across the bow of directors and officers:

• (7) Without serious consequences for institutions and individuals who fail to protect financial institutions from illicit financial activity – including significant fines, banning individuals from the industry, and prison sentences for those who seek to actively evade anti-money laundering controls, financial institutions and individuals will continue to avoid compliance with U.S. anti-money laundering rules and regulations.

• (8) Effective anti-money laundering programs must emphasize sound corporate governance including business line accountability and clear lines of legal responsibility for individuals, including board members and chief executive officers.

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#ACICurrency

New legislation would add the following to existing laws: Heavier civil money penalties. Penalties for mere negligence. Executive Branch must justify light treatment. Clawback of compensation for executives. “Removal and prohibition” of individuals violating AML laws from operating in the industry. Whistleblower protections extended to the financial industry.

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#ACICurrency

‘‘(1) require the head of compliance for each business line of such institution to make regular reports directly to the board of directors and the chief executive officer of such institution on the business line’s compliance activities; ‘‘(2) require the board to certify each report received pursuant to paragraph (1); ‘‘(3) ensure adequate staffing and funding for entities within the institution responsible for compliance with the requirements of this subtitle; and ‘‘(4) periodically test the effectiveness of the institution’s programs for compliance with the requirements of this subtitle.”

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#ACICurrency

Overview of allegations involving digital currency

• Liberty Reserve Indictment

• Mt. Gox seizure warrant

• Silk Road

• Allegations by the Government in miscellaneous

cases involving bitcoin

• Future outlook

#ACICurrency

Liberty reserve

• $6 billion money laundering scheme

• 7 owners and associates indicted

• Liberty Reserve was incorporated in Costa Rica in

2006

• At least 200,000 customers in the U.S

• Processed more than 12 million transactions annually

• Not registered in the U.S. as a money-transmitting

service.

#ACICurrency

Allegations and Legal Procedures Allegations that the system was designed to attract criminals and criminal

activity through the website

Indictment

Money Laundering under 18 USC 1956-1957

Conspiracy to operate an unlicensed money transmitting

business under 18 U.S.C. 371

“Operation of ” an unlicensed money transmitter business

under 18 U.S.C 1960

Restraining order

Bank Accounts

Seizure order

Domain names

Injunction against continued use of the webservice

#ACICurrency

The Filings

The Indictment

The charging document in this case contains allegations relating

to the following offenses:

OFFENSES:

(Ct. 1) conspiracy to commit money laundering: an

illegal agreement, plus an overt act.

(Ct. 2) conspiracy to operate an unlicensed money

transmitter business.

(Ct. 3) operation of an unlicensed money transmitter

business.

FORFEITURE

#ACICurrency

Count 1: 18 U.S.C. 1956(h) One simple element: an agreement to engage in money laundering.

Penalty: the same as the offense which is the object of the conspiracy.

The object of the conspiracy here:

• Engaging in monetary transactions using funds which were derived from unlawful activity which is

prescribed by the statute:

• What is a “monetary transaction?” Any of the following to the extent that it affects interstate or foreign

commerce “by, through or to a financial institution.”

Deposit

Withdrawal

Transfer

Exchange

• What is “criminally derived property?”

Property, constituting or derived from, proceeds obtained from a criminal offense.

“specified unlawful activity” includes crimes ranging from those involving banks or other financial

institutions to drug offenses to terrorist offenses to environmental crimes.

#ACICurrency

Allegations supporting count 1.

“Criminal design of Liberty”

• Didn’t use confirming identification, such as a credit card.

• Once registered, could do transactions with other users of Liberty.

• Rather than allowing direct funding or withdrawals, required users to

go through exchangers.

• Liberty recommended exchangers in countries such as Malaysia,

Vietnam, Russia and Nigeria, which do not require heavy regulation.

#ACICurrency

Count 1: “Criminal Use of Liberty” “The merchants who accepted Liberty were overwhelmingly criminal in

nature.”

At least one defendant admitted: Liberty was “illegal” and everyone in USA

knows “LR is [a] money laundering operation that hackers use.”

• Traffickers of stolen data and credit cards.

• Peddlers of Ponzi schemes.

• Computer hackers

• Unregulated gambling.

• Underground drug dealing.

#ACICurrency

Count 1: “Criminal concealment”

Couldn’t get a license in C.R., and so created a portal that involved

use of “fake data.”

After FinCEN Notice, Defendants falsely stated to C.R. authorities

that it had been sold, when in fact it was operating underground

using shell companies.

Began transferring funds to other accounts in different countries.

#ACICurrency

Count 2: Conspiracy to operate an unlicensed money transmitter business

No allegation that defendants agreed to use unlicensed money

transmitter businesses; but rather:

1. LR was unlicensed.

2. Used money transmitters in other jurisdictions who in

fact were unlicensed.

3. From Nov. 29, 2011 to Dec. 6, 2011, caused $13.5

million in accounts in C.R. to be transferred to a shell

company in Cyprus.

#ACICurrency

Count 3: operation of an unlicensed money transmitter business

LR was the unlicensed money transmitter

business.

Unclear what money transfers form the basis

for count, although clear that substantial wire

transfers took place:

• $13.5 mill. From C.R. to Cyprus in

November-December, 2011.

#ACICurrency

Forfeiture allegations

Criminal Forfeiture:

• Subject to proof beyond a reasonable doubt

standard.

• Requires evidence of intent.

• Need not await separate proceeding (as in civil

forfeiture), but can be resolved at same trial as

criminal case.

#ACICurrency

Liberty reserve - proliferation

• Liberty Reserve required only email address to open an

account

• Laundered company and customer money through shell

companies in Costa Rica, Cyprus, Australia, China, Hong

Kong, Morocco, Russia amongst others

• 7 exchangers owned/administrators by the principals,

also indicted

• 35 other exchanger website, domains now seized (civil

forfeiture)

• Exchangers providing money transmission services to LR

by taking from US persons, since LR did not have any

funding option connected to a financial instrument of any

kind

#ACICurrency

Liberty reserve – actions taken

• Patriot Act, Section 311 - Special Measures

Special Measures for Jurisdictions, Financial

Institutions, or International Transactions of Primary

Money Laundering Concern

• US issued 30 requests pursuant to Mutual Legal

Assistance Treaties (MLAT)

Costa Rica, Netherlands, Cyprus, Australia, Canada,

China, Hong Kong, Morocco, Spain, Switzerland,

Sweden, Norway, Luxembourg and Russia.

#ACICurrency

Mt. Gox seizure

• Department of Homeland Security seizure

warrant – Unlicensed Money Transmitter,

Not registered with FINCEN

• @ Dwolla , Mutum Sigillum LLC, c/o

Mt.Gox(USA) , with Veridian Credit Union

• 3 days before Bitcoin 2013 conference*

#ACICurrency

MT. Gox – seizure warrant (D. Md. 2013) “A company called ‘Mt. Gox,’ is the world's largest bitcoin exchange, and it

operates out of Tokyo, Japan. Mt. Gox has a subsidiary company known

as “’Mutum Sigillum LLC.’"

“An online payment processor, known as Dwolla, is located in Iowa. Bank

records show a number of deposits to the Mutum Sigillum account at Wells

Fargo originating from international wires sent from Sumitomo Mitsui

Bank in Japan. The wires indicate that the transfer is in the name of Mt.

Gox Company Ltd. for the benefit of the Mutum Sigillum LLC

account7657841313.”

“The funds being sent to Dwolla are those of Mt. Gox customers that

withdraw said funds from Mt. Gox and direct their transfer to Dwolla.”

#ACICurrency

MT. Gox (cont’d)

A Confidential Informant (CI-1), who resides and banks in Maryland

“establish[ed] a new account, while in Maryland, with both Mt. Gox and

Dwolla. After funding his Mt. Gox account with U.S. funds, he exchanged

the currency in his Dwolla account for bitcoins. During the past six months,

CI-1 exchanged the bitcoins back into U.S. dollars, which he directed Mt.

Gox to transfer to Dwolla on his behalf. The funds were then credited to his

Dwolla account.”

“According to bank records, this transfer was completed through the

subsidiary, Mutum Sigillum LLC. This demonstrates that Mutum Sigillum

LLC is engaged in a money transmitting business but is not registered as

required with FinCEN.”

#ACICurrency

US v. Ulbricht (SDNY 2013)

• Four counts:

• Ct. 1: conspiracy to engage in narcotics trafficking.

• Ct. 2: CCE

• Ct. 3: Computer Hacking conspiracy

• Ct. 4: Money laundering conspiracy

• Forfeiture of any profits or proceeds of illegal activity.

#ACICurrency

Count 1 (narcotics conspiracy)

• “Dread Pirate Roberts”:

• Operated website in which thousands of drug dealers operated.

• Contracted for a Silk Road user to hire a hit man to kill another user who was threatening to expose users on Silk Road.

• Conspired to possess drugs;

• Used a “communication facility” to further drug trafficking;

#ACICurrency

Count 2 (CCE)

• Count 1, but with 5 other persons with whom the defendant occupied a position as an “organizer” and supervisor” and

• Obtained substantial income from the operations.

#ACICurrency

Count 3 (computer hacking)

• Silk Road provided a platform for the purchase and sale of malicious software:

• Password theft; keyloggers; remote access tools.

#ACICurrency

Count 4 (money laundering)

• Used bitcoin-based payment system to disguise (l) transaction participants and (2) their locations.

• Relied on theory that the defendant used bit-coin to engage in transactions involving illegal activity – namely narcotics trafficking.

• Possible defense: virtual currency does not involve a “monetary instrument” within the meaning of the money laundering statutes.

• IRS 2014-21. “Under currently applicable law, virtual currency is not treated as currency that could generate foreign currency gain or loss for U.S. federal tax purposes.”

#ACICurrency

US v. FAIELLA AND SHREM

• 4 COUNTS:

• Ct 1: OPERATING AN UNLICENSED MONEY TRANSMITTING BUSINESS (Faiella)

• Ct. 2: OPERATING AN UNLICENSED MONEY TRANSMITTING BUSINESS (Shrem)

• Ct. 3: Money Laundering Conspiracy

• Ct. 4: Failure to file a Suspicious Activity Report

• Forfeiture

#ACICurrency

Miscellaneous cases involving bitcoin United States v. Michael Mancil Brown (Nashville, Tenn.

6/2013):

Extortion and wire fraud scheme involving former

presidential candidate Mitt Romney’s tax returns.

Brown devised a scheme to defraud Romney, PWC and others

by falsely claiming that he had gained access to the PWC

internal computer network and had stolen tax documents for

Romney and his wife, Ann D. Romney, for tax years prior to

2010. Money to have been paid through a bitcoin account.

#ACICurrency

SEC v. Shavers (E.D. Tex. 2013)

• Shavers, operating under the Internet name “pirateat40,” offered and sold BTCST investments over the Internet, raising more than 700,000 BTC in principal investments from BTCST investors, or more than $4.5 million based on the daily average price of BTC when the BTCST investors purchased their BTCST investments.

11. In the November 3, 2011 solicitation on the Bitcoin Forum, Shavers wrote that he was in the business of “selling BTC to a group of local people” and offered investors up to 1% interest daily “until either you withdraw the funds or my local dealings dry up and I can no longer be profitable.”

14. On or about November 22, 2011, in a post on the Bitcoin Forum, Shavers wrote: “As with any movements in the market up or down I have enough order activity going on that my risk is very limited. In most cases the coins go uncovered less than a few hours, I have yet to come close to taking a loss on any deal. With that said, in the event there was a huge change in the market and I needed to personally cover the difference I am more than willing to do so.”

• “[r]isk is almost zero”

#ACICurrency

Bitcoin – fbi intelligence assessment 4/24/12)

• “Bitcoin Virtual Currency, Unique Features Present Distinct

Challenges for Deterring Illicit Activity” Medium level of confidence

that criminals will use this as forms of payment given that exchange

rate has risen sharply

Low level of confidence malicious actors will exploit Bitcoin

High level of confidence Bitcoin can be target of malware, botnets,

etc.

Bitcoin May be used as a means to move or steal funds and make

“donations” to illicit groups

#ACICurrency

• The Problem:

• Without a centralized authority, law enforcement faces difficulties detecting suspicious activity, identifying users, and obtaining transaction records – problems that might attract malicious actors to Bitcoin. Bitcoin might also logically attract money launderers and other criminals who avoid traditional financial systems by using the Internet to conduct global monetary transfers.

• The Solution:

• “the FBI assesses with medium confidence that law enforcement can identify, or discover more information about malicious actors if the actors convert their bitcoins into a fiat currency. Third-party bitcoin services may require customers to submit valid identification or bank information to complete transactions. Furthermore, any third-party service that qualifies as a money transmitter must register as a money services business with the Financial Crimes Enforcement Network (FinCEN) and implement an anti-money laundering program.”

FBI Assessment (cont’d)

#ACICurrency

Safeguard measures

• Recognize the need for a Compliance/AML program (primarily a

CDD process that makes sense while staying true to frictionless nature

of the payment system)

• Need legal counsel,

• Banks and other financial institutions must be informed as to the

business model.

• Avoid conduct giving rise to claims that the system was marketed or

pandered to criminals.

• The most drastic response will result from conduct giving rise to

claims that the defendant acted “knowingly” or with “reckless

disregard.”

#ACICurrency

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Samuel Rosenthal Squire Patton Boggs, LLP 2550 M. St., N.W. Washington, D.C. 20036 (202) 457-6321