ACFCS Conference / Bitcoin

A Bit on Bitcoins by Chris Puder

The ACFCS International Financial Crimes Conference and Exhibition this past week focused on an array of issues related to Bitcoins and other digital currencies that are presenting serious challenges for financial crime enforcers.  As ACFCS notes on its website, digital currencies have plenty of legitimate uses. However, there are a number of features that make them attractive to a wide range of criminals.  To be sure, the popularity of Bitcoin as a financial platform has gone off the charts in recent months; both for good and bad.

MFC’s Devon Blount explains Bitcoins here.

So why exactly are members of the international financial crime-fighting regime so concerned about people taking their hard currency, converting it to Bitcoins (or another digital currency) and circumventing the world of formal banking?

There are plenty of users around the world who simply want the ease of purchasing or selling items without entrusting their hard earned cash to a bank.  In some ways this is understandable given the questionable behavior of many banks in recent years.  Panelist Marco Santori, from the Bitcoin Foundation in New York, went on record saying that this idea sits at the core of the Foundation’s mission of representing Bitcoin and advocating its use.  He also said that Bitcoin is not anonymous, but you can, however, set your profile to be nearly anonymous.  Panelist Allison Walton, Founder and President of Fortis Quay, pointed out that if Target dealt in Bitcoins, the breach of customers’ personal data would not have been possible because of the anonymity it can offer.

courtesy of Wikimedia Commons

courtesy of Wikimedia Commons

Despite the benefits, there are serious regulatory and policy concerns about the future of digital currencies that were laid out by the other two panelists. Serrin Turner, an Assistant US District Attorney, who has been behind some of the most high-profile cases connecting digital currency to crime, along with Alan Cox of FinCEN, explained that exchangers are now regulated under the same laws as Money Services Businesses (MSBs), which requires them to conform to current compliance and suspicious activity reporting measures (read more on FinCEN’s policies here).

While good in theory, it is doubtful that many of the exchangers are being diligent about submitting SARs, or making it easy for regulators and law enforcement officials to monitor their transactions.  Money laundering and the purchase of illegal goods with digital currencies are made extremely simple for anyone with a minimal understanding of how the process works.  Aside from exchangers, there are service providers that for a small fee will intercept and re-route funds for someone trying to hide their tracks when pursuing illegal activities.  The availability of several open source software applications, which are designed to hide the user’s identity, such as Tor, make it even easier to muddy the money trail.

Aside from the potential for criminal activity, the fact that Bitcoin and other digital currencies operate on the same economic principles as the stock market, the value of a single Bitcoin can fluctuate wildly.  The control measures that create some comfort for those using formal banks and financial institutions, such as FDIC insurance, do not exist for users of digital currency.

The reality, however, is that digital currencies are here to stay and, according to Walton, will only become more widely used by the general public.  In fact, Bitcoin ATMs are starting to pop up around the globe.  For financial crime investigators and financial regulators, the best approach will be to continue refining methods, to create counter-tactics to monitor activities and to simply adapt.




Chris Puder is currently in his last semester of an MA in International Policy Studies at the Monterey Institute of International Studies with a concentration in Human Security and Development Policies.  Much of Chris’ initial interest in Financial Crimes began with research relating international arms control and illicit arms trafficking, which has evolved into a wider range of financial crime activities.