Bitcoin and Traditional Banks

According to the Wall Street Journal article “Bitcoin Firms Get the Banking Blues,” dated December 23, 2013, “[c]ompanies trying to cash in on the newfangled bitcoin craze are having trouble getting old-fashioned bank accounts.”  It’s true.  Companies dealing in bitcoin and other virtual currencies are having tremendous difficulty getting “banked.”  The difficulty sometimes extends even to those companies whose business is not bitcoin, but who may accept bitcoin in payment for goods and/or services.  Why are banks, in the U.S. at least, exceedingly reluctant to open bank accounts for players in this burgeoning online space?

Several factors might be at play here. First, bankers are a relatively conservative bunch to begin with.  Second, some bankers may lack a clear understanding about how the bitcoin protocol actually works.  A fuzzy understanding of the bitcoin protocol certainly is not going to open many doors in traditional banks and certainly not their compliance departments.  Third, some bitcoin operators themselves may not have a clear understanding of the compliance regulations they are expected to be operating under.  Therefore, if a company wishing to establish say, a bitcoin exchange, approaches a bank and displays ignorance about FinCEN registration requirements, money services business licensing requirements, or AML/BSA compliance mandates, the bank is going to shut the door faster than Barry Bonds’ (in his prime) swing.

The current problem with getting banked, ultimately does not lie with the banks.  Currently, bitcoin operators operate at a distinct disadvantage.  They are disadvantaged by the fact that clear AML/BSA regulations have not been promulgated by the government.  The FinCEN guidance that came out earlier this year, does not give bitcoin operators or banks clear guidance or even “flash light in the fog” guidance on what is really expected of them to comply with AML/BSA requirements as they apply to the virtual currency environment.  AML regulations cannot be applied with a “one-size fits all” mentality even in the “brick and mortar” world.  Thus, existing regulations are not clear enough for banks and bitcoin operators to really get a handle on what they are expected to be doing with regard to bitcoin operators’ accounts.

Until the government promulgates clear AML/BSA regulations that make sense in the virtual currency environment and that provide virtual currency operators with some sort of regulatory “blueprint,” banks will continue to politely show them the door.

Western Union and Bitcoin

According to the BitcoinBlogger, Western Union is monitoring developments in the Bitcoin space and is, so far, noncommittal about any plans to venture into the virtual currency environment.  However, if one reads between the lines and observes the overall financial industry response to Bitcoin, money services businesses (MSBs) such as Western Union are carefully weighing the risks and benefits of entering the virtual currency environment.

It’s likely that such MSBs will stay out of the fray until the federal government sets forth a clearer regulatory framework for virtual currencies.  After all, as it stands now, MSBs are at best, on shaky ground in maintaining their banking relationships.  Banks are leery of the AML/BSA compliance programs of many “brick and mortar” MSBs and would hardly welcome forays by the likes of Western Union into the virtual currency environment absent clear AML/BSA regulations being put into place. So far, though the government has been studying the environment and holding hearings, such regulations have not yet been forthcoming.

China and Bitcoin-The Latest

Several questions come to mind as the Chinese government responds to the reality of Bitcoin. One question is what exactly is China trying to accomplish by ordering third-party payment providers to cease using virtual currency?  The answer to that question remains unclear; however, if the goal is to put Bitcoin exchanges out of business in China, the newly announced policies could very well do so.  If that is not the goal of the Chinese government, then the policy that forbids “custody, trading and other services,” related to virtual currency is certainly an overly broad brush that seeks, perhaps, to remedy a more discrete and narrow concern.

Of course, it will be virtually impossible to ban the underlying technology that supports Bitcoin and other virtual currencies.  So then, what might this arguably aggressive Chinese stance accomplish?  Well, overly aggressive regulation can only serve to drive legitimate Bitcoin players out of the market and leave what’s left of the market to operate in the underground netherworld inhabited by money launderers and other criminals.

Perhaps, China is intimidated by the fear or perception that some Chinese may be utilizing Bitcoin as a mechanism to move yuan out of China.  However, broad-brush policies might only serve to accelerate such a process and ultimately have little effect on those intent on moving yuan out of the country, driving the process of moving yuan out of the country to the Deep Web.

Is it possible that China has put the brakes on Bitcoin only temporarily as the government studies the appropriate regulatory mechanisms to put into place?  It’s possible.  However, such an approach is likely to prove ill-considered, as the current policy endangers the current investments already made by current Bitcoin operators.  Furthermore, such a policy does not encourage new investment into Chinese Bitcoin operators.

FinCEN Sends Letters to Bitcoin Companies

According to the Chicago Tribune, FinCEN recently sent out letters to a number of companies operating in the Bitcoin space, warning them of their AML/BSA compliance duties under federal law.  The article dated, December 17, 2013,,0,4901569.story says that FinCEN refers to its contact with such businesses as “industry outreach.”  Does such “outreach” mean anything additional to the already existing “guidance” that FinCEN released this past March?

Though it’s difficult to be sure what this outreach means, what is clear is that the Treasury Department is intending to establish a regulatory foothold in the virtual currency space.  Requesting information about a particular recipient’s business model, may indicate that FinCEN does not wish to make rash moves, potentially damaging its credibility, in an industry where few regulations currently are in place.


There is an incredible amount being written about virtual currencies these days, Bitcoin in particular.  To go along with all this spilled ink, is a fairly large amount of speculation about the future regulation of these currencies.  In this space, we will focus specifically on anti-money laundering and Bank Secrecy Act-related (AML/BSA) regulatory issues as they impact the virtual currency space.

We welcome your thoughts and expressions!