Building on the incredible success of the June 2014 conference, and in response to demand from the market, American Conference Institute has developed its second forum on Virtual & Digital Currency and Payment Systems. This program will bring together an unparalleled faculty of in-house counsel and compliance professionals, senior executives from industry-leading companies, high-level regulatory and enforcement officials, and top outside counsel specializing in virtual and digital currencies who will provide you with the insights and tools necessary to navigate the legal, compliance, technical, and business hurdles arising from these new technologies.
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The International Digital and Virtual Currency Landscape
1. #VDCurrency
ACI’s 2nd National Forum on Virtual & Digital Currency and Payment Systems
The International Digital and Virtual Currency Landscape
Andy Roth
Partner
Dentons LLP
November 20-21, 2014
Tweeting about this conference?
Jacqueline D. Shinfield
Partner
Blake, Cassels & Graydon LLP
Heidi Wicker
Partner
Schwartz & Ballen LLP
2. #VDCurrency
Comparative Volumes of Bitcoin Vs. Traditional Payments
As stated by FinCEN Director Jennifer Shasky Calvery : “This relative volume of transactions becomes important when you consider that, according to the United Nations Office on Drugs and Crime, the best estimate for the amount of all global criminal proceeds available for laundering through the financial system in 2009 was $1.6 trillion.”
0
50
100
150
200
250
300
ACH Network
2013 ($38.7
trillion)
Bank of America
Wires 2012
($244.4 trillion)
Trillions
0
50
100
150
200
Bitcoin, 12 months
ended Oct. '13 (8
billion)
Western Union
Remittances in 2013
(82 billion)
PayPal Online
Payments in 2013
(180 billion)
Billions
Source: Public financial reports, and Remarks of Director Jennifer Shasky Calvery at the ACAMS Conference (March 18, 2014), http://www.fincen.gov/news_room/testimony/
3. #VDCurrency
International Jurisdictions: Treatment of Virtual/Digital Currency* (“V/C”)
Developed Countries Are Cautious:
•Central authorities in many developed counties have issued warnings relating to the use of V/C
•These warnings often include:
•Informing the public of the risks of trading in V/C
•Warning companies about the need of AML compliance
•Concerns that V/C will be used to fund terrorism
*Collectively referred to as “V/C” for convenience in this presentation.
4. #VDCurrency
International Jurisdictions— Treatment of Virtual Currency, Cont’d
•Warnings by Central Authorities:
•Examples of Open Inquiries:
•U.K. HM Treasury—in November 2014, issued a ‘Call for Information’ on risks and benefits, intended to investigate whether to regulate V/Cs.
•U.S. States—New York, North Carolina, others reviewing appropriate licensing/regulatory structure.
• European Banking Authority
• UK
• India
•Israel
• Portugal
• Serbia
• Singapore
5. #VDCurrency
Obtaining Certainty on Legality of V/Cs Abroad is Still Elusive
•Affirmative Statements Re: Legal Status:
•German Federal Financial Supervisory Authority (BaFin) has classified V/C as legally binding financial instruments
•Not legal tender, but binding in private transactions.
•Other countries prohibit financial institutions/financial services countries from dealing in V/Cs.
•China:
•Banks and payment institutions may not deal in V/Cs.
•Banks have defined V/Cs as a virtual “commodity”.
•Japan: Banks and securities companies may not deal in V/C.
•Yet others would prohibit use by individuals and entities.
•Russia: As of November 2014, Ministry of Finance has proposed administrative fines for creating, issuing or promoting V/Cs. Bill proposed which would prohibit use of alternative currencies.
Sliding Scale
6. #VDCurrency
Foreign Jurisdiction Taxation Status
Tax Status Proclamations Issued In:
•Bulgaria: Will be taxed as individual income and corporate income.
•Finland: Capital gains taxes apply when transferred to another country. If used as a form of payment, may be taxed if it increases in value, but not if decreases in value.
•Norway: Taxed as capital property. Sale of Bitcoins subject to 25% VAT.
•Singapore: Taxed under the goods and services tax depending on what good or service is provided.
•U.S.: Convertible V/C is treated as property, and tax principles for property transactions apply. Not treated as currency that could generate a foreign currency gain/loss.
•U.K.: No VAT due for mining income or exchanges for sterling/other currencies. VAT due for sales of goods/services; value is sterling value at time of transaction.
•But. . . Just because a country has not affirmatively issued a proclamation does not necessarily mean there is no tax liability!!
7. #VDCurrency
V/C is not considered to be legal tender in:
Denmark
No trading value. Government will not regulate V/C use.
Ecuador
Banned, but the Government plans on developing its own digital currency.
France
Not currency under French law, and the government has warned against its use.
Japan
No applicable laws.
Kyrgyzstan
Use of V/C is currently illegal.
Malaysia
Not legal tender and the government will not regulate V/C. The government has warned against the risks associated with using V/C.
Russia
Not recognized as currency and is considering issuing administrative fines if V/C is used.
Sweden
Does not recognize as currency and has warned against its use.
8. #VDCurrency
International Cooperation Efforts
•June 2014—The Financial Action Task Force (FATF) released a discussion paper on V/Cs and anti-money laundering/counter terrorist financing risks.
•U.S., Australia, Canada, Russia and U.K. assisted in preparing the paper; comments invited by other countries.
•The paper:
•Proposes a common set of terms and conceptual framework for analyzing V/Cs.
•Applies risk factors to specific types of V/Cs; and
•Summarizes regulatory approaches.
9. #VDCurrency
International Cooperation Efforts
•Risks identified by FATF:
•Greater anonymity of funding, transfers
•Decentralized systems particularly vulnerable
•Global reach increases potential AM/CFT risks
•Segmentation of services means responsibility for AML/CFT compliance and supervision or enforcement may be unclear.
•Customer and transaction records held in different countries, difficult for law enforcement and regulators to access, or in countries without adequate AML/CFT controls.
•Centralized systems could be complicit in money laundering and seek jurisdictions with weak AML/CFT regimes.
•Decentralized systems may lead to jurisdictional issues and inability to come within the reach of any particular country.
10. #VDCurrency
IMF and World Bank Consider Global Inclusion
•October 2014 annual meetings of the International Monetary Fund (IMF) and World Bank Group continued discussions among those bodies of the role of V/Cs on achieving greater global financial inclusion.
11. #VDCurrency
Cross-Border Regulatory Challenges
•Regulation/Supervision: How do we impose a uniform regulatory framework to give businesses certainty?
•Enforcement: How to coordinate law enforcement cross-border? Can traditional channels be used, or are new avenues needed?
•Consumer Protection: How to educate and protect consumers doing business with foreign entities?
