This document discusses virtual currencies like Bitcoin and the associated anti-money laundering (AML) risks and regulatory challenges. It provides guidance for digital currency and new payment product service providers on conducting risk assessments, implementing customer due diligence and transaction monitoring, and ensuring compliance. The case of Bitcoin entrepreneur Charlie Shrem, who pled guilty to charges related to enabling illegal transactions on Silk Road, is also mentioned.

2. NPPS –NEW PRODUCTS AND PAYMENT SERVICES
Virtual currencies : Bitcoins and others

3. THE SIGN OF THE TIMES
They are flexible, efficient and have low transaction costs
However, virtual currencies also present potential AML/CTF risks, such as
Thelimitedidentificationandverificationofparticipants
Theabilitytoeasilyconductonlinecross-bordertransactions
Theanonymityprovidedbythetradeortransfer
Thefundingofvirtualcurrencyunitsthroughillegalcash
Virtual currencies have recently developed into a widely accepted method of online payment

4. HOWDOREGULATORSVIEWTHEISSUE?
Currently, virtual currencies are not regulated and are therefore prone to be used for illegal activities. Some governments have prohibited their use, others view them less rigidly.
RegulatorsaroundtheworldarefacinganumberofchallengeswithregardstovirtualcurrenciesandarestillseekingtodevelopandimplementAML/CTFregulationforthesenewpaymentproductsandservices.
Virtualcurrencyaddresseshavenonamesorothercustomeridentificationinformation
Theanonymityprovidedbytransfersmakestheusersdifficulttotrace
Protocolsdonotprovideforhistoricalrecordsoftransactions
Asadecentralisedsystem,thereisnocentralserver,serviceprovideroroversightbody

5. YOUAREADIGITALCURRENCYORNPPSPROVIDER!
WHATCANYOUDO?
Although the legal framework is not set, you can already now conduct sufficient efforts to ensure you and your company are not used for illegal purposes, by
Identifying the risks of your business on a risk based approach (RBA) prior to its launch: i.e. risks pertaining to the new technology, the new product, the business practices, your counterparties
Allocatingan AML risk classification on a RBA to each of your customers (ongoing activity): risk criteria to include Customer Due Diligence, record keeping, account and transaction limits, geographical and cross-border, potential outsourced services and interaction of service providers

6. YOUAREADIGITALCURRENCYORNPPSPROVIDER!
WHATCANYOUDO?
Maintaininga continuous follow-up of your customers and their transactions relative to the risk they present
Ensuring regular training to company staff
Ensuring appropriate interaction with the respective authorities
Additional information may be obtained from following sources:
http://www.fatf-gafi.org/topics/methodsandtrends/documents/virtual-currency-definitions-aml-cft-risk.html
http://www.fatf-gafi.org/topics/fatfrecommendations/documents/rba-npps-2013.html
http://www.cssf.lu/fileadmin/files/Publications/Communiques/Communiques_2014/Communique__monnaie_virtuelle_140214.pdf
http://www.cssf.lu/fileadmin/files/Protection_consommateurs/Avertissements/A_EBA_Monnaies_virtuelles_181213.pdf

7. CHARLIESHREM:BITCOINENTREPRENEURINTHENEWS
Charlie Shrem, CEO of the Bitcoin payment processor BitInstantwas arrested in January 2014 and charged with money laundering and operating an unlicensed money transmitting business.
Shremis being accused of knowingly selling more than $1 million worth of Bitcoins to a Florida man who in turn sold them to anonymous users of Silk Road, a black market cyber broker, to enable its users to buy and sell illegal drugs, weapons, stolen identity information and other unlawful goods and services.
Shremis also accused of failing to report these illegal transactions.
The US Justice Department seized the website and approx. 174,000 bitcoins worth $33.6mio.
Recently, Charlie Shrempleaded guilty to one count of aiding and abetting an unlicensed money transmitting business (Silk Road) and admitted he knew he was doing wrong.
The investigation is ongoing… Keep watching this space!

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