As Bitcoin and other virtual currencies continue to gain more attention, AFP will provide updates on the latest news surrounding these new forms of payment.
Canada gave royal assent to Bill C-31 last week, becoming the first country to regulate Bitcoin and other virtual currencies. Some nations have weighed in on Bitcoin on a case-by-case basis, including a recent ruling by the Internal Revenue Service, while others, including Japan, are taking a wait-and-see attitude.
The legislation passed last week amended existing Canadian anti-money laundering and counterterrorist financing laws to include Bitcoin and other virtual currencies. Under the updated legislation, all virtual currencies are subject to the same reporting requirements as other money-services businesses.
Virtual currency exchanges will be required to register with Financial Transactions and Reports Analysis Center of Canada (FINTRAC), report suspicious transactions, keep certain records, implement compliance plans and determine whether their customers are “politically exposed persons.” The bill applies to businesses that operate in Canada, as well as businesses that operate outside of the country but service its people or entities.
“What they are doing is including virtual currencies in their anti-money laundering and counter-terrorist financing law,” said Magnus Carlsson, AFP’s manager of treasury and payments. “This could make it easier for virtual currencies to get a broader acceptance. An interesting question going forward is if and when other countries will follow?”
Matthew McGuire, national leader of AML Services with Canadian accounting and business consulting firm MNP LLP, said that Canada has been like the “wild west” in terms of virtual currencies. “This legislation is long overdue,” he said in a statement
. “There is a lot of work to be done to bring Bitcoin exchanges into compliance in the next few months.”
Nearly $300 million is expected to be invested in Bitcoin startups worldwide by the end of 2014, with Canada receiving the second largest portion of that funding after the U.S. “Part of the concern with such laws is whether they strike a balance between combating financial crime and supporting innovative technology development,” said Christine Duhaime, a senior financial crime advisor with MNP. “The concern is that venture capital for Bitcoin start-ups may dry up if legislative obligations prove to be too onerous or expensive. But this legislation is an important step forward.”
Duhaime noted on her own firm’s website that that legislation receiving royal asset does not constitute it being put into action. The next steps
are drafting the regulations, a consultation period, drafting guidance for the regulations and a subsequent consultation period for that. She estimates that this process will take between six to 12 months.
Still, some businesses are already pulling the plug. Bitcoin gambling websites Just-Dice and Doge-Dice said Monday that they are temporarily disabling
betting and depositing due to the regulations. The sites, which share the same owner and are believed to be operated in Canada, recommended that all users withdraw their coin balances for the time being.
One point of controversy in the bill is that it applies to those “dealing in virtual currencies,” but does not specify what that means. Bill C-31 states that the definition will be included in the final amended version of the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations. “The passing reference to virtual currencies in the bill is vague,” Reed Holmes, a board member for Bitcoin Alliance Canada, told CoinDesk
. “Many questions still remain unanswered, particularly with respect to what is meant by ‘dealing in virtual currencies.’”