14th Annual FIBA AML Compliance Conference heald at the Intercontinetal Hotel. (J. Albert Diaz)
In spite of a keynote speech that highlighted the viability of Bitcoin and the need for the broader financial system to get with the program, the virtual currency got little love from the bankers, law enforcement officials and lawyers gathered in Miami to discuss some of its opportunities and challenges.
A bank representative suggested Bitcoin was a tool designed for money laundering, a comment that seemed charitable in comparison to that of a high-level FBI agent who said the “mentality” of Bitcoin enthusiasts reminded him of the fanaticism displayed by domestic terrorists.
The discussions Thursday came at the annual anti-money laundering and compliance conference held by the Florida International Banking Association, one of the largest such conferences in the world.
“I view these virtual currencies very much as a money laundering tool or a result of money laundering,” Dan Panepinto, who directs the electronic crimes investigation unit at JPMorgan Chase, said during a panel on virtual currencies.
Panepinto explained more than 90 percent of the transactions JPMorgan handles related to Bitcoin are due to retail banking consumers buying or selling small amounts, and explained the bank is unwilling to do business with those with a deeper involvement in the Bitcoin ecosystem.
“If they’re acting as an exchange, we won’t touch them,” he said.
The characterization of Bitcoin as problematic were especially stark when expressed by law enforcement officials at the FIBA conference.
Stephenie Lord, chief of the illicit finance and proceeds of crime unit at the Department of Homeland Security, talked at length about the illicit activities Bitcoin had been used for in the electronic currency’s brief history.
Bitcoin, pieces of encrypted computer code that can be bought and sold online, are hailed by advocates as a revolutionary payment transfer system that’s akin to nationless, fee-free electronic cash. The virtual coin has gained notoriety over the past two years, first with media reports of its widespread use for illegal online activity, then by a volatile run-up in its market value starting about 11 months ago.
Lord blames it for facilitating drug smuggling, illegal arms dealing and transnational sexual exploitation.
In a January investigation by her department, a Florida teen was charged with using a Bitcoin-only market to anonymously sell a deadly toxin to federal agents.
An earlier investigation that shut down a large Bitcoin-only marketplace came only after Homeland Security intercepted about 3,000 illicit packages bought using the virtual currency.
Lord described the cases as “rampant abuse” of the presumed anonymity provided by Bitcoin transactions.
“As a law enforcement officer, I’ll tell you that these systems don’t facilitate” efforts to pursue illicit traffic, he said.
At a different panel in the conference, a high-level FBI agent who’s an expert in financial crime, said the “mentality” of Bitcoin enthusiasts reminded him of that displayed by terrorist groups.
Jeffrey Danik, a supervisory special agent with the FBI’s Miami division, said he saw “the same devotion we see with these Bitcoin theories as with the eco-terrorists.” He said, “Proponents of Bitcoin, especially if they have anti-government agendas, they’re not going to go away.”
He later told the Daily Business Review, “I don’t mean to say that they’re violent, but they have an interest beyond financial benefit.”
Danik also said that while there was no reason to assume “criminality” by run-of-the-mill Bitcoin users, his view is that only someone trying to launder money or engage in some other illegal activity would accept the burden of the extreme volatility involved in handling large amounts of Bitcoin.
“Only someone that’s involved in the criminal element would take that kind of risk,” he said.
Not every speaker at the conference, whose influential audience included many bank compliance officers, lawyers and international counter-terrorism experts, blasted Bitcoin.
Keynote speaker Jennifer Shasky Calvery, head of the federal Financial Crimes Enforcement Network, flatly told the audience at one of the conference’s most popular sessions that “virtual currency is not different from other financial products and services” in terms of its potential for illicit use.
“What is important is that financial institutions that deal in virtual currency put effective anti-money laundering and counterterrorist financing controls in place,” said Shasky, director of the Treasury Department office that deals with monitoring financial crimes.
She noted her office issued two guidances on the topic in 2013, which she hoped helped clarify the legal responsibilities of Bitcoin-focused companies. In an aside from prepared comments, she revealed just how friendly her office had been to advocates and enthusiasts of Bitcoin, to the point where she mentioned being personally chided for using the phrase “virtual currency” rather than the “digital currency” wording preferred by Bitcoin activists.
Ronald Schwartzman, chief operating officer at international money transfer firm UniTeller Banorte, was one of the few speakers who highlighted the potential benefits of wide Bitcoin adoption and lauded efforts by Shasky’s agency, calling them “extremely forward-looking.” Shasky’s agency’s guidance has been interpreted to mean large operators in the Bitcoin universe need to submit to the same type of oversight seen by UniTeller.