Financial Action Task Force Issues Bitcoin Guidelines, Warns about Money Laundering

Bitcoin Magazine
Financial Action Task Force Issues Bitcoin Guidelines, Warns about Money Laundering

The independent intergovernmental organization FATF or The Financial Action Task Force (on Money Laundering), headquartered in Paris, has published a report as a guide for using digital currencies titled “Guidance for a Risk-Based Approach to Virtual Currencies.” It includes benefits of digital currencies as well as potential risks of money laundering and terror financing.

The report is essentially the conclusion to the recent meeting held at Brisbane that was participated by 34 member nations and two regional organizations – the European Union and the Gulf Co-operation Council — to discuss policies, regulations and compliance for digital currencies.

The 48-page extended report issued by the FATF described bitcoin payment services and products as potential tools for money laundering, and announced that digital currency service providers and companies must identify and notice potential risks of using the currency.

FATF heavily emphasized the importance of its member nations to understand the technicalities and the technology behind digital currencies such as bitcoin, and encouraged its nations to introduce regulations and restrictions for digital currency exchanges that are similar to that of traditional financial establishments, thus requesting all digital exchanges to register and subject to the same regulations of other financial institutions and money transfer businesses.

The FATF’s “guidelines” of bitcoin are predicted to have the same effect as BitLicense had on New York-based bitcoin startups – this time on a global scale.

Despite the report’s persistent connection of bitcoin to money laundering and terrorist financing cases, the report does point out positive usages and applications of the technology behind digital currencies. The FATF respects the attention of venture capital firms and billionaire angel investors who have invested hundreds of millions of dollars in digital currency startups.

“Virtual currency has the potential to improve payment efficiency and reduce transaction costs for payments and fund transfers,” the report said. “For example, Bitcoin functions as a global currency that can avoid exchange fees, is currently processed with lower fees/charges than traditional credit and debit cards, and may potentially provide benefit to existing online payment systems, like PayPal.”

FATF also explained that digital currencies are one of the only financial instruments that enables the transfer of microtransactions, which optimizes financial processes of small online businesses and individuals with low-cost goods and services.

Moreover, the advantages of digital currencies for both the unbanked and banked contributed to a significant part of the report, as digital currencies offer extremely low transaction fees, which is very benefitable for those without bank accounts or those using expensive remittance services and bank transfers.

However, FATF finalized the report with a concern that decentralized systems like digital currencies are vulnerable to anonymity risks.

“For example, by design, Bitcoin addresses, which function as accounts, have no names or other customer identification attached, and the system has no central server or service provider,” the report said. “The Bitcoin protocol does not require or provide identification and verification of participants or generate historical records of transactions that are necessarily associated with real world identity. There is no central oversight body, and no AML software currently available to monitor and identify suspicious transaction patterns. Law enforcement cannot target one central location or entity (administrator) for investigative or asset seizure purposes (although authorities can target individual exchangers for client information that the exchanger may collect). It thus offers a level of potential anonymity impossible with traditional credit and debit cards or older online payment systems, such as PayPal.”


Photo / Photopin

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Citi Is Working on ‘Citicoin’ for Cross-border Payments

International Business Times revealed that the global bank Citi is developing blockchains within the bank and test-coins to run across them. Ken Moore, head of Citi Innovation Labs, confirmed that the bank has been looking at distributed ledger technology for the last few years and has amassed a skilled team. They have built three blockchains and a test currency to run across them.

Headquartered in Manhattan, Citi is an American multinational banking and financial services corporation. As of January 2015, it is the third-largest bank holding company in the United States by assets and has one of the world’s largest financial services networks.

“We have up and running three separate systems within Citi now that actually deploy blockchain distributed ledger technologies,” said Moore. “They are all within the labs just now so there is no real money passing through these systems yet, they are at a pre-production level to be clear. We also have an equivalent to bitcoin up and running, again within the labs, so we can mine what we call a ‘Citicoin,’ for want of a better term. It’s in the labs, but it’s to make sure we are at the leading edge of this technology and that we can exploit the opportunities within it.”

Moore confirmed that Citi is discussing the opportunity to create a state-backed digital currency in a number of different countries with governments and regulators.

In May Bitcoin Magazine reported that Citi, persuaded that digital money adoption is inevitable, replied to a U.K. government call for information on digital currencies with a strongly positive position, and advised that the U.K. government should consider issuing its own digital money.

“Due to the potential benefits, we believe the adoption of Digital Money is inevitable,” noted the Citi document. “While we believe that the use of Digital Money is certain, the future of specific cryptocurrencies such as Bitcoin is less clear.”

The idea of a government-sponsored digital currency has been around for quite some time, with proposals for some kind of “Fedcoin” and “Eurocoin” being floated. Reportedly, IBM is also discussing adaptations of the blockchain technology to create a digital cash and payment system for major currencies with a number of central banks, including the U.S. Federal Reserve.

Moore indicated that Citi doesn’t intend to file a patent for its Citicoin technology, which is mostly based on open source components, and stated that Citi is mainly interested in the applications of blockchain technology to cross-border payments and remittances.

“Most of our efforts have been focused on payments; trade probably being a second runner,” he said. “Because we are a global network, a global bank, we can look for opportunities to use this technology to move money from country to country – country A to country B, across our network.”

Citi is also interested in “banking the unbanked” – providing financial services to people currently without access to bank accounts. The bank partnered with Safaricom, the largest mobile network operator in Kenya to process payments using just mobile phones.

Kenya reflects an African demographic of about 40 percent of the population holding a bank account, contrasted with 70 percent to 80 percent mobile penetration, said Citi manager Ireti Samuel-Ogbu. “You don’t need a bank account,” she said. “It goes straight into the mobile phone, it goes into a wallet.”

Photo Danesman1 / CC BY-SA 3.0 Unported 

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Bank Lines in Athens Trigger a Rush to Gold and Bitcoin

The crisis in Greece is unfolding so fast that new breaking updates are being published every hour. Yesterday, Greece became the first developed nation ever to default on the International Monetary Fund (IMF). Hours after Greece missed the deadline for its repayment to the IMF, European ministers will meet to discuss the Greek request for a new bailout, BBC News reports.

The Financial Times reports that Greek PM Alexis Tsipras seems ready to concede on most outstanding differences between his government and its international bailout creditors. According to a leaked letter sent late Tuesday night to the heads of the country’s trio of bailout monitors, Tsipras is prepared to accept most of the economic reform proposals issued by the European Commission on Sunday.

Later on Tuesday, Greece’s Finance Minister Yanis Varoufakis indicated that the government might cancel the controversial July 5th referendum if a deal was reached, Reuters reports.

On Monday, Greece closed its banks and imposed capital controls to prevent financial chaos after the breakdown of bailout talks. Cash withdrawals at ATMs will be limited to 60 euros ($66) until further notice, and transfers abroad will be forbidden. Greece is the second Eurozone country, after Cyprus in 2013, to impose capital controls.

Though currently it appears that a mutually acceptable, negotiated solution to the Greek crisis might be found, the events of the last few weeks might leave indelible shadows in Europe and elsewhere. In particular, citizens might lose their confidence in the ability of their governments to manage the economy. There are also indications that the fear of capital controls may be spreading from Greece to Italy and other neighboring countries.

The introduction of capital controls in Greece is likely to push people in Europe and elsewhere, not only wealthy investors but also ordinary people, to the conclusion that governments and banks shouldn’t be trusted with their hard-earned savings because they can cut access to their bank accounts anytime. They may then start looking for alternative ways to store their savings, out of reach of predatory central banks.

The Wall Street Journal reports that Europeans are seeking shelter in gold and bitcoin, and the price of both is rising as a result.

Fred Ehrsam, a co-founder of bitcoin exchange Coinbase, said that in the last 48 hours following the breakdown of bailout talks between the Greek government and its creditors, his company’s exchange service has seen a 300 percent rise in Europe. Coinbase  announced on its blog that it would charge zero fees for bitcoin purchases with euros this week.

Last week Coinbase saw 35 percent more activity from Greeks, which could have been much higher if the banks had been open. According to Ersham, “Europeans, especially those in the periphery countries whose abilities to finance their governments are dependent on help, are starting to take notice of what can happen to the money you thought you had in your bank account.”

The Wall Street Journal notes that in the meantime, many people in the United States are rushing to gold, according to Terry Hanlon, president of Dillon Gage Metals. Hanlon said that retail investors have been influenced by the images of bank lines in Athens far more than by concerns about monetary policy in the U.S.

“It’s a lot easier to relate to the idea that you could be standing in line and then hear your bank say it is closed and, sorry, you’re not going to get your money,” he said.

Photo afilitos / Flickr

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