Anti-Money Laundering in the Digital Currency Environment What Is

Anti-Money Laundering in the Digital Currency Environment What Is

Anti-Money Laundering in the Digital Currency Environment July 31, 2014 David M. Long J.D., CFE, CAMS Principal Northern California Fraud Prevention S...

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Anti-Money Laundering in the Digital Currency Environment July 31, 2014 David M. Long J.D., CFE, CAMS Principal Northern California Fraud Prevention Solutions © 2014 Association of Certified Fraud Examiners, Inc.

What Is Bitcoin? • • • •

Cryptographic Decentralized Peer-to-peer Open source

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Polling Question #1 Are you a CFE?  Yes  No

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Other Digital Currencies • • • • •

Ripple Litecoin Peercoin Mastercoin Feathercoin

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How Does It Work?

Block Chain

Verification

Miners

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Polling Question #2 Do you understand how Bitcoin works?  Yes  No  I don’t know  I don’t care to answer

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Why All the Attention on Bitcoin? • • • • •

Mt. Gox meltdown Charlie Shrem arrest Silk Road investigation Chinese ambivalence Warren Buffett

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Why All the Attention on Bitcoin? • Sacramento Kings (NBA) • Chicago Sun-Times • Overstock.com

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Polling Question #3 Do you think the Mt. Gox meltdown is a sign that Bitcoin will fail?  Yes  No  I don’t know  I don’t care to answer

© 2014 Association of Certified Fraud Examiners, Inc.

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Bitcoin and The Regulators

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The Regulators

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• Internal Revenue Service

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• Financial Crimes Enforcement Network

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• State Regulators

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Current Regulatory Environment • AML policies, procedures, controls • AML training • AML/BSA compliance officer • Independent examination/audit

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Polling Question #4 Do you think regulations will make Bitcoin more stable?  Yes  No  I don’t know  I don’t care to answer

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KYC/CIP/CDD/EDD APPLY TO DIGITAL CURRENCY EXCHANGES

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Why Were Many Exchanges Hesitant About Compliance? • Libertarianism • Vacuum in the regulatory realm

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Polling Question #5 Is the vacuum in the regulatory realm good for Bitcoin?  Yes  No  I don’t know  I don’t care to answer

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Bitcoin and Anonymity Anonymous or Pseudonymous?

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States and Bitcoin • • • •

“Money-Transmitter” licensing New York State’s “BitLicenses” California AB 129 Texas

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Challenges in Implementing an AML Program for a Bitcoin Exchange • The “Four Pillars” • Fully operational policies, procedures, controls designed for non-financial personnel • Effective transaction monitoring • Use of human capital • Banking relationships

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Establishing Banking Relationships • Challenges – Traditional reluctance by banks to open accounts for Money Services Businesses – State money transmission licensing laws apply to digital currency exchanges – Uncertain regulatory and compliance landscape

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Establishing Banking Relationships • Opportunities – Clear and demonstrable industry self-regulation could mitigate bank reluctance to establish banking relationships. – Bitcoin Foundation and DATA

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Polling Question #6 Will establishing banking relationships hurt the future of Bitcoin?  Yes  No  I don’t know  I don’t care to answer

© 2014 Association of Certified Fraud Examiners, Inc.

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Final Thoughts • Potential to revolutionize global payment system • Danger of overregulation>>>drive use of Bitcoin underground • Balanced regulation>>>development of Bitcoin

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Final Thoughts • Tension between “traditionalists” and the “business-minded” • “Traditionalists” could potentially hinder acceptance of Bitcoin

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Polling Question #7 Will “traditionalists” successfully hinder the acceptance of Bitcoin?  Yes  No  I don’t know  I don’t care to answer

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QUESTIONS?

David M. Long, J.D., CFE, CAMS [email protected] 510-759-8381

© 2014 Association of Certified Fraud Examiners, Inc.

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Polling Question #8 The reason I attended today’s webinar was (select one):  Employer wanted me to gain additional knowledge/training  I wanted to hear a specific speaker  Convenience  Subjects covered are applicable to my current work  To gain CPE credits  I am working toward becoming a CFE

© 2014 Association of Certified Fraud Examiners, Inc.

Anti-Money Laundering in the Digital Currency Environment July 31, 2014

Thank you David M. Long, J.D., CFE, CAMS Principal Northern California Fraud Prevention Solutions [email protected] 510-759-8381 © 2014 Association of Certified Fraud Examiners, Inc.

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ACFE Webinar The contents of this presentation may not be transmitted, re-published, modified, reproduced, distributed, copied or sold without the prior consent of the author. “Association of Certified Fraud Examiners,” “Certified Fraud Examiner,” “CFE,” “ACFE,” and the ACFE Logo are trademarks owned by the Association of Certified Fraud Examiners, Inc.

© 2014 Association of Certified Fraud Examiners, Inc.

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