As digital currency becomes more ubiquitous, state and federal regulators across the United States, as well as regulators in many other countries, are examining how existing regulatory structures need to be adapted to account for unique aspects of digital currency. News from both India and Australia reflect different approaches to the ever-evolving world of digital currency and potential money laundering risks associated with that currency.  As we previously have blogged, U.S. enforcement personnel aggressively have asserted jurisdiction over international digital currency operations.  As we will discuss, it appears that digital currency businesses will find themselves having to comply with a kaleidoscope of various Anti-Money Laundering (“AML”) regulatory regimes across the globe.

India Debates Digital Currency Regulation

In India, there appears to be an ongoing debate about how to treat digital currency, with some even having suggested that there should be a complete ban on digital currencies.  As the debate continues, it is doubtful that there will be any final regulatory guidance for the next few months, as the regulators continue to evaluate the best way to approach the burgeoning industry.  It also is unlikely that India will take the step of a complete ban, in light of steps taken by other nations which have accepted the existence of digital currency. Rather than banning it, these other nations are taking steps to regulate it for the protection of the public and the markets.

One can expect that the various regulators in India will continue to examine the issue, including whether digital currency is a currency, a commodity or a security, each of which implicates the role and oversight of different regulators. And how it is characterized in India will impact which AML rules apply.  In this regard, in order to ensure that the platforms are secure, many bitcoin exchanges in India reportedly already are following forms of traditional Know Your Customer (“KYC”) rules, and are requiring confirmable identification documentation from users, such as a Permanent Account number or an Indian biometric card, which is called the Aadhaar. By virtue of requiring this level of identification, AML compliance is enhanced.   One might see regulators in other countries also requiring this level of identification.

Securities regulators in India also may follow the United States and Singapore with respect to treating Initial Coin Offerings (“ICOs”) as securities; the SEC recently has warned that ICOs often may represent securities subject to regulation. This seems to be the wave of the future, as more and more effort is being made to ensure regulatory oversight of digital currency transactions worldwide, in an effort to best protect the investing public.

Australia Seeks to Impose Registration and AML Requirements

In Australia, legislation was proposed on August 17 which would mandate that digital currency exchanges register with the Australian Transaction Reports and Analysis Center, and establish effective AML/Counter-Terrorist Financing (“CTF”) programs, including the reporting of suspicious activities.  There are criminal and civil teeth to the legislation, including possible jail and monetary penalties.  The proposed legislation is here.

This legislation represents the first step in what is expected to be a multi-step effort to create a structure to address the ever-evolving implications created by digital currency. This legislation echoes similar AML regulatory requirements in the United States that require digital currency exchangers and administrators to register with FinCEN as money services businesses, and with the various States as money transmitter businesses.  It also echoes legislation passed earlier this year in Japan, which similarly will require digital currency exchangers to undergo annual audits and be subject to KYC AML regulations. Of course, Japan was the home of the notorious bitcoin exchange Mt. Gox, which collapsed after it had been subject to several significant hacking thefts.

One can expect regular additions and changes to the AML/BSA requirements in developed nations across the world as digital currency becomes more and more of an accepted form of payment for goods and services. Regulators find themselves playing catch-up because the currency changes so rapidly.  Unlike traditional legal tender, in which the AML rules have been established for decades, digital currency is literally changing on a day-to-day basis.  Regulators do not have the luxury of time in this space, because time gives those who are unscrupulous a window to engage in wrongdoing, harming the investing public and using the currency for illegal means.  As for digital currency administrators and exchangers, the inherently global nature of their businesses will mean that they will be subject to an expanding patchwork quilt of regulatory demands.  Watch this blog for continued updates as various jurisdictions continue to refine their rules to try to keep up.

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