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.  http://bitcoinblogger.com/western-union-finally-comments-bitcoins-status/  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.

Several questions come to mind as the Chinese government responds to the reality of Bitcoin. http://www.cnbc.com/id/101281272. 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.

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, http://www.chicagotribune.com/business/sns-rt-us-bitcoin-letters-20131217,0,4901569.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!