A working paper examining the Bank Secrecy Act
(BSA)/Anti-Money Laundering (AML) risks for Bitcoin-related businesses has been
published by the Federal Reserve Bank of Atlanta. The paper states that by
making a commitment to BSA/AML compliance, Bitcoin-related businesses can both
better position Bitcoin as a mainstream payment system and enhance the ability
of financial institutions to successfully bank them.
Growing Bitcoin use and risk. In a Retail
Payments Risk Forum Working Paper titled “Banking Bitcoin-Related Businesses: A Primer for ManagingBSA/AML Risks,” Douglas King states that Bitcoin is a fast, low-cost, and
secure payment solution that can be used for many legitimate purposes. As
investment and interest in the Bitcoin ecosystem have grown since its 2009
start, new businesses have emerged seeking to advance Bitcoin as a mainstream
payment solution. However, he notes that the pseudonymous nature of Bitcoin
transactions heightens BSA/AML compliance risks, making it especially
challenging for these new businesses to establish banking relationships.
Mitigate risks. King examines the current
regulatory environment for Bitcoin-related businesses as well as measures these
businesses can adopt to mitigate the BSA/AML risks inherent in the use of
Bitcoin. He also presents a framework for financial institutions to consider
for managing the risks associated with banking these companies.
Because of BSA/AML-related risks and others associated with
Bitcoin transactions and its “highly publicized history of facilitating
payments for illegal transactions,” getting involved with bitcoins is considered
high risk by many regulatory agencies and financial institutions. King states
that, with some financial institutions in a risk-reduction mode, many are
opting to avoid this industry as a whole.
Legitimate uses. However, within this high-risk
category, he finds many legitimate uses for bitcoin and businesses that
facilitate these legitimate transactions. King points to reports in early 2015
that approximately 100,000 merchants worldwide accept bitcoins. Also, Bitcoin
investors obtain bitcoins for speculative purposes. These users do not intend
to spend their bitcoins. Rather, they intend to buy and sell them much like a
traditional investor trades in company stocks or commodities.
Banking due diligence. Financial institutions
interested in banking Bitcoin-related businesses should have a full
understanding of the Bitcoin ecosystem, the role of the different participants,
and the unique BSA/AML circumstances involving this ecosystem, King advises. “A
robust BSA/AML enhanced due diligence process is necessary when evaluating
Bitcoin-based businesses,” he says.
Business practices. Beyond regulatory
requirements, King writes, Bitcoin-related businesses can adopt certain
processes and practices that have the ability to further legitimize the Bitcoin
transactions that they are enabling. By focusing on a commitment to BSA/AML
compliance through a robust compliance program, Bitcoin-related businesses can
better position themselves for banking relationships with financial
institutions. In return, he concludes, this dedication to compliance ultimately
places financial institutions in a better position to successfully bank them.
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