I mentioned a little while ago that I will soon be publishing my first novel, set in 1824. I chose that period of history because of the huge developments in finance at the time: paper money (as opposed to coin of the realm and chunks of gold) was still fairly new, and share certificates were in their infancy. People were fascinated, confused and scared in equal measure, and the opportunities for fraudsters to take advantage of that uncertainty were huge – hence my interest. But financial innovation is not all in the past: just this week the newswires have been full of stories about virtual currencies – in particular, Bitcoin – and how we should cope with the new vulnerabilities and risks they expose.
As is often the case, many eyes have turned to the AML community to suggest ways to corral and curtail the threats of a product/service (I’m not sure how to categorise it) that we have yet fully to understand. Bearing in mind that my online expertise starts and ends with buying things from Amazon, please forgive me for this definition that I have simply copied from their website: “Bitcoin is a digital currency, a protocol, and a software that enables instant peer-to-peer transaction, wordlwide payments, low or zero processing fees and much more! Bitcoin uses peer-to-peer technology to operate with no central authority; managing transactions and the issuing of bitcoins is carried out collectively by the network.” (I’ve also read their “how it works” page, but am none the wiser – my fault, not theirs.) However, I do grasp that any system of moving value around the world – and most especially one that trumpets “no central authority” – will soon have the money launderers sniffing around.
And it seems that others agree with me, as FinCEN (the American FIU) issued guidance last month on the application of their AML regulations to “persons administering, exchanging or using virtual currencies”. This was clearly a shot across the bows of Bitcoin, and last week the US Department of Homeland Security (not the one that employs Damien Lewis – the real one) followed up on that warning by freezing a US account linked to a Tokyo-based exchange called Mt Gox because its parent company had failed to register as a money services business with FinCEN and was therefore operating as an unlicensed MSB. Mt Gox handles 80% of all Bitcoin trading, and you can read more about it here. So just as Regency folk, in between inhaling snuff and dancing cotillions, had to learn how to guard their assets as they morphed into newfangled paper instruments, so we have to update our thinking as our assets dematerialise altogether – and AML, once again, leads the way. Hurrah!
I hate money laundering 