Juan Llanos

2013-06-01 Crypto-Timeline

Here is a log with relevant legal, regulatory, law enforcement and business risk milestones in the crypto-currency race to maturity with links to trusted sources.

Here are the May 2013 Key Crypto-Events:

• 5/2/2013 – CoinLab sues Mt.Gox for $75 million
• 5/7/2013 – CFTC’s Commissioner Bart Chilton vows to consider Bitcoin regulation
• 5/15/2013 – Dwolla account frozen by DHS
• 5/16/2013 – SatoshiDice (Bitcoin Game) restricts US players and US-based IPs
• 5/20/2013 – Canada’s FINTRAC confirms in letters that Bitcoin Exchangers are NOT MSBs
• 5/23/2013 – Liberty Reserve is shut down for money laundering
• 5/28/2013 – Liberty Reserve is indicted by US Department of Justice
• 5/28/2013 – FinCEN designates Liberty Reserve as institution of “primary money laundering concern”
• 5/28/2013 – OKPay suspends payment processing to all Bitcoin exchanges Continue reading →

Dwolla Account Seizure Reveals Mt Gox on Brink of US Indictment

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The US District of Maryland seizure warrant that stopped Dwolla in its tracks this week reveals in good detail that the Department of Homeland Security, the US federal agency charged with not only protecting the US borders but also deterring cybercrime, has been investigating Mt Gox for a while now, and has found a criminal violation to the US federal prohibition to operate an unlicensed money transmission business.

This warrant, which was published yesterday by multiple blogs, officially confirms that the FinCEN guidance of March 18, in which this federal government agency equates virtual currency exchanges and administrators to money transmitters, is already being enforced.  To my knowledge, no charges have been made at this point, but the fact that two bank accounts were seized (see below) seems to indicate that an indictment may be imminent.

What exactly is the “Dwolla Account” seizure warrant that stopped its operations this week?  Why was it issued?  What’s going on here!? Continue reading →

The Criminal Precedent that Could Curb Bitcoin’s Enthusiasm

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In July of 2008, after months of wrangling with the Department of Justice (DOJ), E-Gold, Ltd.’s senior management and directors pleaded guilty to the following charges:

• Conspiracy to Launder Monetary Instruments (federal)
• Conspiracy to Commit an Offense Against the United States (federal)
• Operating of Unlicensed Money Transmitting Business (federal)
• Transmitting Money Without a License (District of Columbia)

What does E-Gold have to do with Bitcoin?

Well, as soon as I describe what E-Gold was and did, you’ll see that the parallels with Bitcoin and its crypto-brethren are remarkably similar.  I will be quoting from the indictment itself, underlining Bitcoin-relevant language, and adding comments in brackets:

1. E-Gold was an issuer of “digital currency,” defined as a medium of exchange offered over the Internet Continue reading →

It’s Official: Foreign Bitcoin Operators Servicing Texas Residents Must Obtain a Texas Money Transmitter License

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As of May 1, the state of Texas became the second US state to explicitly require foreign-located money transmitters (including Bitcoin exchangers and administrators) to obtain a state money transmitter license if their customers are residents of Texas.  The state of New York had taken a similar stance back in March of 2011.

In no ambiguous terms, the Texas Banking Department ruling, states that:

” […] it is the Department’s position that any money transmitter who allows Texas consumers to initiate transactions through its website is subject to the licensing requirements of the Money Services Act, regardless of where the transmitter is physically located.”

Equally clear had been the state of New York Banking Department in 2011 when ruling that:

” […] there is no doubt that businesses located out-of-state are subject to the jurisdiction of the state in which they do business.  […] Likewise, it is clear that businesses located out-of-state that do business Continue reading →

Performance+Compliance: The Business Challenge of the Day

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As the twenty‐first century unfolds, new and higher stakeholder expectations challenge organizations to achieve performance goals and increase shareholder value while at the same time meeting increased regulatory and compliance standards.

In the eighties, companies realized the strategic significance of human resources and a revolution in management development broke out. In the late nineties, technology and connectivity triggered the phenomenon known as globalization.  Each wave brought about enormous opportunities for economic growth and development.  However, September Eleven and the unprecedented corporate ethics meltdown of the early years of the new millennium revealed that fast change is leaving many gaps behind.

It is a fact that technological innovation has helped streamline business processes and lower costs.  On the other hand, however, issues in areas such as data security remain only partially addressed.  As for us humans, we seem to have learned how to organize ourselves a little better.  However, in general, we are still struggling to work collaboratively across international boundaries, remain creativity‐challenged, and keep Continue reading →

Is US Regulation the Single Biggest Threat to Bitcoin?

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On March 4, 2013 I gave a talk titled just like this post at the New York City Bitcoin Meetup.  The talk blurb read:

If you are a Bitcoin ecosystem participant (user, entrepreneur), you may be aware that there is a myriad of rules and regulations, at the federal, state and even international level, that may apply to you.  Why?  Because Bitcoin is technically a “value transfer” system, and such systems are heavily regulated to protect consumer rights and deter financial crime, including the financing of terrorism.  Join us for a lively discussion of potential obstacles to the growth of the Bitcoin ecosystem.

The rather hyperbolic title attracted a few dozen very smart (and gracious) entrepreneurs and geeks, most of whom, unsurprisingly, were not aware that the United States has a very convoluted and onerous regulatory regime that can potentially stifle innovation or, at a minimum, slow down the spread of virtual peer-to-peer value transfer systems like Bitcoin. Continue reading →

FinCEN Issues Guidance on Virtual Currencies

It didn’t take me a crystal ball to make this prediction!

FinCEN’s Virtual-Money Guidelines Add Roadblocks for New Companies

“If you launder money, you pay a fine and sleep in your own bed at night”

“If you’re caught with an ounce of cocaine, the chances are good you’re going to go to jail.  If it happens repeatedly you may go to jail for the rest of your life.  But evidently, if you launder nearly a billion dollars for drug cartels and violate our international sanctions, your company pays a fine and you go home and sleep in your own bed at night.”  (Senator Elizabeth Warren)

Further good points by Senator Warren here.

How Not To Run an AML Department

If you really want to learn how not to run an AML Department (or a financial institution, for that matter) just read this US Senate Report on HSBC.  Great learning tool.

Say No to Nonsense

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It has been over ten years since the enactment of the USA PATRIOT Act shone the spotlight over all financial institutions and their AML, BSA, CFT and regulatory compliance programs.

Throughout this time much has been written about the rules and regulations that apply and do not apply to each type of financial institution, the perceived and real threats of non-complying with them, and the dozens of cases in which institutions have failed to meet the expected standards and suffered the consequences.  In the case of MSBs, a lot has also been written about the difficulties they have faced in obtaining and retaining banking relationships, which continue to this day.  Very little, however, has been written by compliance officers about what the world looks like from within their organizations.  Understandably so, one might say, given that it may be inappropriate or, if one believes that there might be adverse personal consequences in doing so, simply foolish.

I do not subscribe to the latter.  I believe the best way to fully understand and resolve the issues is to bring Continue reading →