The Department of Justice is focused on deterring and prosecuting criminals who use virtual currency to hide money connected to criminal or terrorist acts, said acting assistant attorney general, Mythili Raman on Monday.
She testified before the Senate Committee on Homeland Security and Governmental Affairs, discussing recent efforts to prevent the use of virtual currencies for illicit purposes as these currencies expand in use.
The DOJ is also investigating the virtual currency services themselves to make sure they are not violating laws aimed at illegal money transmission and money laundering.
The first hearing on this topic was the result of a three-month investigation into virtual currencies that focused on their potential to be used in a variety of crimes. The hearing also signaled that government representatives feel they have the tools to monitor and contain such crimes.
Virtual currency is a medium of exchange circulated over a network that is not backed by a government. It can be controlled by a private entity or operate as a peer-to-peer transaction network.
“Criminals have exploited these systems because they conduct transfers quickly, securely and often with a high level of anonymity,” Raman said. Users often use an online market called Tor, an anonymizing network that masks their Internet traffic across the globe. Additionally, these transactions are irreversible and often involve encrypted digital wallets, making efforts to seize them difficult.
“Although some of them operate with the anti-money laundering and know-your-customer controls mandated by U.S. law, others were intentionally designed to facilitate illegal activity,” Raman said.
Money transmitters, including virtual currency systems, are required to register with the Financial Crimes Enforcement Network (FinCEN) and obtain licenses to operate in individual U.S. states. When they don’t, DOJ has the incentive to investigate.
Additionally, the anti-money laundering provisions of the USA PATRIOT ACT, know-your-customer rules under the Bank Secrecy Act, and the spending statutes, 18 U.S.C. § 1956 and 1957, can be applied to the illegal use of virtual currency, as well as criminal statutes covering bribery, narcotics, cybercrime, child exploitation, etc.
The government has a coordinated approach to dealing with the global movement of illegal funds, Raman said. The Virtual Currency Emerging Threats Working Group (VCET) was founded by the FBI in early 2012 to share information and track illicit actors’ use of virtual currency with other countries. And FinCEN released guidance in March 2013 to explain how virtual currency services should be approached under U.S. law.
Julie DiMauro is the executive editor of FCPA Blog. She can be reached here.