Are Bitcoins Always Suspicious?

July 23, 2014 at 8:26 am 1 comment

As I explained in my blog the other day, for banking compliance geeks FinCEN’s annual compilation of SAR filings is a big deal that gets noticed. So when it uses this publication to highlight issues related to the filing of Suspicious Activity Reports in relation to virtual currency in general and the Bitcoin specifically, it can be assumed that this is an issue of particular importance to individuals who work at the intersection of law enforcement and banking regulation. According to its SAR Narrative Spotlight Column, “FinCEN is observing a rise in the number of SARs flagging virtual currencies as a component of suspicious activity. Like all emerging payment methods, understanding virtual currencies is key to insightful SAR preparation and filing.”
According to FinCEN useful narrative information accompanying a SAR bitcoin filing may include:
• Information on users of crypto-currency (even when their participation in the transaction is not considered suspicious). If possible, such information should be supplemented with the ACH or wire data related to transactions conducted to or from known virtual currency exchanger. An exchanger is one of a handful of platforms, one of which filed for bankruptcy, which will exchange the Bitcoin into currency.
• Information related to Bitcoin speculation. Specifically, FinCEN reminds depository institutions that the value of a Bitcoin is highly volatile and “following a rapid rise in the relative value of crypto-currency to the dollar an institution may see high value deposits originating from foreign or domestic virtual currency exchangers.” FinCEN goes on to note that speculation is not criminal activity, however, “speculation can share a transaction footprint with other activities that might be suspicious.”

Depository institutions should be mindful that virtual currencies can be used to hide the source of funds stolen by hackers and identity thieves.

I’ve used more quotes than I like to in writing this blog today because I am not sure I completely understand where FinCEN is heading when it comes to the regulation of virtual currencies. It seems to be suggesting that virtually any time a member uses funds derived from a Bitcoin or other virtual currency, a SAR filing is appropriate. The concern I have is that very little of the account activity highlighted by FinCEN is necessarily suspicious. If and when virtual currencies become more commonly used, FinCEN is going to have to issue more formal guidance clarifying when member use of virtual currency is truly worthy of a SAR.

Entry filed under: Compliance, Regulatory. Tags: , , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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