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Virtual Currencies: Emerging Regulatory, Law Enforcement, and Consumer Protection Challenges

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Citation Edit

Government Accountability Office, Virtual Currencies: Emerging Regulatory, Law Enforcement, and Consumer Protection Challenges (GAO-14-496) (May 29, 2014) (full-text).

Overview Edit

Virtual currencies are financial innovations that pose emerging challenges to federal financial regulatory and law enforcement agencies in carrying out their responsibilities.

Federal financial regulatory and law enforcement agencies have taken a number of actions regarding virtual currencies. In March 2013, the Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) issued guidance that clarified which participants in virtual currency systems are subject to anti-money-laundering requirements and required virtual currency exchanges to register with FinCEN. Additionally, financial regulators have taken some actions regarding anti-money-laundering compliance and investor protection. For example, in July 2013, the Securities and Exchange Commission (SEC) charged an individual and his company with defrauding investors through a bitcoin-based investment scheme. Further, law enforcement agencies have taken actions against parties alleged to have used virtual currencies to facilitate money laundering or other crimes. For example, in October 2013, multiple agencies worked together to shut down Silk Road, an online marketplace where users paid for illegal goods and services with bitcoins.

Federal agencies also have begun to collaborate on virtual currency issues through informal discussions and interagency working groups primarily concerned with money laundering and other law enforcement matters. However, these working groups have not focused on emerging consumer protection issues, and the Consumer Financial Protection Bureau (CFPB) — whose responsibilities include providing consumers with information to make responsible decisions about financial transactions — has generally not participated in these groups. Therefore, interagency efforts related to virtual currencies may not be consistent with key practices that can benefit interagency collaboration, such as including all relevant participants to ensure they contribute to the outcomes of the effort. As a result, future interagency efforts may not be in a position to address consumer risks associated with virtual currencies in the most timely and effective manner.

The GAO was asked to examine federal policy and interagency collaboration issues concerning virtual currencies.

This report discusses (1) federal financial regulatory and law enforcement agency responsibilities related to the use of virtual currencies and associated challenges and (2) actions and collaborative efforts the agencies have undertaken regarding virtual currencies.

The GAO recommends that the CFPB take steps to identify and participate in pertinent interagency working groups addressing virtual currencies, in coordination with other participating agencies.

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