ST. LOUIS, June 15 (Thomson Reuters Accelus) - Exchanges
that have facilitated trade in a fledgling digital currency
known as Bitcoins are offering to help U.S. law enforcement
track suspect transactions, after two senators charged that the
operations aided drug traffickers and money launderers.
Japan-based Mt Gox Bitcoin Exchange handles the vast
majority of Bitcoin trades. Like the seven other Bitcoin
exchanges that operate in London, Poland and elsewhere, it
matches buy and sell orders and uses a bank account to receive
and send related payments.
These exchanges are unregulated and their obligations to
report suspicious activity to authorities, as other financial
institutions must, are nebulous.
Mark Karpeles, the chief executive of Tibanne Co of Tokyo,
which operates Mt Gox, told Thomson Reuters that the company
was not averse to cooperating with authorities. "As a company
handling Bitcoins, it is not our intention of doing anything
illegal," Karpeles said via email on Tuesday. "We sent a letter
to the Drug Enforcement Administration to address this issue."
He declined to release a copy of the letter, but said,
"Basically we explain what Bitcoin is, and the fact it's much
more traceable than what the media has been saying. We do not
want Bitcoin to be misunderstood."
Karpeles wrote the agency in response to a letter which
Democratic senators Charles Schumer of New York and Joe Manchin
of West Virginia had written earlier this month to U.S.
Attorney General Eric Holder and Michele Leonhart, head of the
Drug Enforcement Administration.
That letter expressed concerns about the underground Web
site Silk Road and the use of "untraceable" Bitcoins to make
purchases there. The senators cited media reports that some
tech-savvy individuals were using an "anonymizing network"
known as Tor to gain clandestine access to Silk Road and buy
illegal drugs with Bitcoins.
Bitcoins, a two-year old digital currency, were initially
traded among a small group of tech-savvy enthusiasts, generally
in exchange for services such as Web support, but they can now
be purchased at exchanges by anyone with real-world funds. A
Bitcoin has recently been worth roughly $10 to $20, but the
rate is volatile. According to traders, more than 300,000
Bitcoins have been sold each day during the past month.
Schumer has sharply criticized Bitcoins. "It's an online
form of money laundering used to disguise the source of money,
and to disguise who's both selling and buying the drug,"
The Gawker blog reported that Silk Road sellers mailed
illegal drugs after receiving payment in Bitcoins. The
transactions were believed to leave no traditional money trail
for investigators to follow.
The DEA has expressed concerned about Bitcoins and other
anonymous digital currencies.
Karpeles said Bitcoin transactions were in fact traceable.
He said that while the system had been built to be anonymous,
it was "really easy to track Bitcoins across the network."
He added that since most Bitcoin transactions flowed
through Mt Gox, it was "much easier to see how the funds were
cashed out, and locate the final target if there was need."
"We have no opinion for or against Silk Road because we
don't feel we are associated in any way. However, if we are
required to track payments coming in or out of Silk Road, we
will comply, as we all want to see Bitcoin successful in the
He added that Bitcoins were not intended as a criminal
tool. He said they were bought and sold by investors,
libertarians who wanted "pure freedom," geeks who liked "tech
stuff" and saw Bitcoin as a new toy, and others who engaged in
online commerce and did not want to pay substantial fees.
Amir Taaki, the founder of the Britcoin exchange based in
London said he has already approached British regulators in an
effort to obtain "legalized, regulated status."
"We want to make Bitcoin legal, not have it outlawed," he
said. He said Britcoin also would be willing to help root out
criminal activity, and was keeping account records.
Donald Norman, the co-founder of a London-based consultancy
that serves Bitcoin exchanges, said that a data file existed
which reflected the complete history of Bitcoin transactions,
so that "the ownership of every single coin is completely known
He added that the exchanges were struggling to establish
relationships with regulators, in part because the currency was
so novel. "There is nothing on the law books about Bitcoins,"
(Editing by Randall Mikkelsen)
(This article was produced by the Compliance Complete
service of Thomson Reuters Accelus. Compliance Complete
(here) provides a single source for
regulatory news, analysis, rules and developments, with global
coverage of more than 230 regulators and exchanges.)