INTRODUCTION

Technology forges ahead at a rapid pace, whether we like it or not. Criminals recognize this inevitability and use technological improvements to advance their craft, committing crimes from half a world away in real time. Meticulous criminals also use technological advancements to distance themselves from their illegal activities and profits through use of virtual banking and electronic money transfer systems, which allow criminals to buy, sell and exchange goods without any physical interaction. Although such services use digital logs that serve to identify the sender’s and a receiver’s digital identities, criminals possess the means to obfuscate their digital identity by simply faking their Internet Protocol address or by using another individual’s account, essentially making their activities untraceable.

New virtual currencies, such as Bitcoin, add yet another layer of anonymity by allowing users to transfer value without the collection of any personally identifi able information (PII). Regulations currently do not affect such virtual currencies owing to a lack of foresight by the regulatory authority, creating a legal grey area. Thus, criminals can continue to capitalize on technological innovation to bolster their illegal activities. ML is one particular criminal craft that stands to benefit from technological advancement.

This chapter analyses the effects of Bitcoin and analogous virtual currencies on AML enforcement. We start off with a brief primer on virtual currencies. We continue with a Bitcoin primer, which differentiates Bitcoin technology from traditional currencies and competing virtual currencies. Afterwards, an analysis of whether Bitcoin is legal to use or trade in the United States, using domestic and international adoption of Bitcoin for guidance, follows. Next, we discuss whether current US AML regulatory schemes encompass the entirety of Bitcoin use. Finally, this chapter offers suggestions for a regulatory scheme encompassing Bitcoin and analogous virtual currency technologies.

CURRENCIES

Virtual currencies

A virtual currency acts like a currency in some respects but is not directly akin to a real currency. The Financial Crimes Enforcement Network (FinCEN) defines real currency as coin or paper money that circulates, is designated as legal tender and is customarily used and accepted as a medium of exchange in the issuing country.