ANTI-MONEY LAUNDERING LAWS FOR BITCOIN EXCHANGES

54 Am. Crim. L. Rev. Online 36

Raphael Davidian* 

The prospect of an individual from the other side of the world successfully funneling tainted cash into a bank account is truly any criminal’s dream, especially when there is no trace of the true sender or information on the legal status of the money. Today, the advent of digital currencies allows the transmission of money between computers, phones, and other wirelessly connected devices within a matter of seconds. Encrypted data carrying virtual currency can be unlocked from any remote location where there is a wireless connection. Until recently, the exchange of virtual currency into fiat currency was accomplished through a centralized intermediary that was explicitly covered as a “money transmitter” under the Bank Secrecy Act (“BSA”). Money transmitters are legally required to comply with numerous reporting requirements in place to prevent money laundering and other illegal activities. Bitsquare—an application that allows its users to buy and/or sell bitcoins in exchange for foreign currency—operates as if currency is exchanged in person and subsequently deposited into a bank account without ever being held onto by any middleman. Bitsquare’s decentralized, peer-to-peer network is thus unlikely to fall under the current definition of a “money transmitter.” This piece will introduce the reader to the general framework of the most popular virtual currency, Bitcoin, and discuss its various components. I will discuss the existing regulatory requirements for conventional currency exchanges under the BSA and the Anti-Money Laundering statute (“AML”) and examine how Bitsquare’s exchange platform may potentially facilitate the circumvention of current requirements and curtail their preventive effect.

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