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Government officials targeted Liberty Reserve in part because it allowed users to anonymously exchange funds, a key aspect of many digital currency systems, including Bitcoin, the most popular virtual currency. That has led to widespread concerns that other systems, and the banks that assist them, might soon be in government's sights.
Government officials insist they are not trying to curtail the growth of digital currency. Jennifer Shasky Calvery, the head of the Financial Crimes Enforcement Network, says that Liberty Reserve was actively trying to assist money launderers and other criminals.
Legitimate actors, she says, have no reason to fear the government. I would be hesitant ever to paint a broad brush because of one criminal action against an entire industry. I don't think that's fair to an industry in any situation, let alone this one. They note that a decade ago, the government labeled money services businesses as high risk, a move that caused banks to begin dropping relationships with MSBs.
That eventually sparked a backlash from government officials, who feared it was driving transactions underground, where they couldn't be monitored. Many saw parallels between the situation facing MSBs, which still have trouble obtaining and maintaining banking relationships due to bankers' fear of added regulatory oversight, and digital currency outfits. Under anti-money laundering regulations, banks must know their individual customers and the customers with whom client businesses interact.
The result is often a headache for the banking industry, which feels like it has been forcibly deputized to act as law enforcement agents. Banks caught providing correspondent banking services without proper oversight can be fined and potentially face criminal prosecution.
Byrne, who was formerly an anti-laundering official for Bank of America, says the Liberty Reserve prosecution should serve as a wake-up call for banks that they need to be paying attention to relationships with digital currency providers. I think it's safe to say that all banks should be looking at these" relationships. Byrne and others agree, however, that this does not mean banks must abandon digital currency providers. Several argue that the digital currency providers that will survive will be the ones that find a way to comply with the existing anti-money laundering framework.
They won't be as inclined to overreact. They will try to differentiate those that are building the right infrastructure from those that aren't.
Calvery, the Fincen director, agrees, arguing that digital currency businesses can comply with existing regulations. Those that do, she says, will thrive. Treasury Department, but could be the kind of clients that others are going to want to associate themselves with, whether it's customers who want to use those services, whether it's banks that might want to help bank those services.
Others aren't so sure. Murck at the Bitcoin Foundation says Fincen's March guidance on virtual currencies was too broad and confusing to follow. Though the guidance was targeted at businesses that buy and sell virtual currency, he says, it's not clear what constitutes a "business.
But Calvery disagrees, saying the guidelines were fair and clear, building off the agency's MSB rule issued a decade earlier. I'm not worried about clarity with regard to that definition. There are also clear differences between Liberty Reserve and other currency providers, something which may ease bankers' concerns.
Liberty Reserve was a highly centralized system based in Costa Rica that charged high fees to make a transaction anonymous. Bitcoin, in contrast, is a decentralized system in which anonymity is possible, but not guaranteed. Bitcoin also carries very low fees, which makes it appealing to legitimate retailers and businesses looking to save money from high interchange and other transaction fees.
Liberty Reserve "ran a sham compliance operation," Murck says. They really are trying to know their customers. Unlike Liberty Reserve, they are trying to be as white hat as possible to keep bad actors away. Calvery says the government had to take action against Liberty Reserve, which is accused of running the largest money laundering operation in U. That doesn't mean banks should overreact when looking at other businesses, she says.
Secondly, that's something that would be addressed in the national conversation on the developing financial services industry in the weeks, months and years to come. Article Underwriting self-employed borrowers Freddie Mac helps lenders to better serve this expanding market segment.
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