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January 14, 2014 6:30 pm
Wells Fargo has convened a group of finance executives, virtual currency experts and representatives from the US government to discuss “rules of engagement” with Bitcoin, amid concern about the money laundering risks of the new currency.
The bank, the largest in the US by market value, has emerged as one major financial institution interested in dealing with a potential new Bitcoin economy. But regulatory uncertainty has deterred banks from offering services to virtual currency start-ups.
Wells’ anti-money laundering chief, Jim Richards, has launched a group to examine how it might safely offer Bitcoin-related services or banking arrangements to virtual currency entrepreneurs, according to people familiar with the initiative.
Wells chief executive John Stumpf said it was the bank’s practice to examine financial innovations.
“We have made enormous investments as a company and as an industry in a payments system that is secure, and we need to be sure we are up to speed with what other things are going on and their risks and rewards,” he said.
“We want to make sure we understand what it is, what it does and what it does not . . . . The world is changing and will continue to change. Whether Bitcoin will be a big part of that, who knows?”
The difficulty in persuading financial institutions to offer bank accounts has become one of the biggest difficulties facing Bitcoin entrepreneurs in the US.
Wells’ public-private group, comprising more than a dozen members, was scheduled to meet in San Francisco on Tuesday to debate the security issues surrounding banking and Bitcoin.
One possible aim would be to produce a set of anti-money laundering principles for established financial institutions to follow when dealing with virtual currency start-ups, according to a person familiar with the event.
Last year, US authorities seized a Wells Fargo bank account belonging to Mark Karpeles, founder of Bitcoin exchange Mt.Gox, and alleged that he failed to declare he was operating a money transmitting business when he opened the account in May 2011.
Earlier in 2013, the US Treasury declared that Bitcoin businesses must register as money services businesses and impose anti-money laundering checks on customers, just like traditional banks. Most of the 50 US states also impose their own regulations on money services businesses.
Increased trading in the decentralised virtual currency has begun to attract the attention of regulators
Banks worried that they would be held responsible for any money laundering breaches at Bitcoin companies that failed to meet these stringent standards and before each of the states had clarified their own approaches to Bitcoin.
Last month the Congressional Research Service circulated a report on virtual currencies for policy makers, setting out a list of areas where the legal and regulatory approach to Bitcoin remains unclear. These range from national tax issues, because Bitcoin profits are not recorded within the traditional financial system, to concerns among individual states.
“Bitcoin raises a number of legal and regulatory concerns including its potential for facilitating money laundering, its treatment under federal securities law, and its status in the regulation of foreign exchange trading,” the report said.
And it added: “State authorities moving in the direction of regulating virtual currencies are sometimes discovering problems in applying existing laws to the technological currencies.”
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