Bitcoin Foundation Comments on Liberty Reserve Special Measures NPRM
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Bitcoin Foundation Comments on Liberty Reserve Special Measures
Bitcoin Foundation Comments on Liberty Reserve Special Measures
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PO Box 31671, Seattle, WA 98103
⬫
206.486.4488
⬫
www.bitcoinfoundation.org
July 19, 2013
FILED ELECTRONICALLY
Director Jennifer Shasky CalveryFinancial Crimes Enforcement Network P.O. Box 39Vienna, VA 22183
Re: RIN 1506-AB23; Imposition of Special Measures Against Liberty Reserve S.A. as aFinancial Institution of Primary Money Laundering Concern
Dear Director Shasky Calvery:The Bitcoin Foundation appreciates the opportunity to comment on the proposed rule publishedin FinCEN's Notice of Proposed Rulemaking on the Imposition of Special Measure AgainstLiberty Reserve S.A. as a Financial Institution of Primary Money Laundering Concern("Proposed Rule").
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In the Proposed Rule, FinCEN proposes to require financial institutions toimpose “special measures” against Liberty Reserve, S.A. (“Liberty Reserve”) under Section 311of the Bank Secrecy Act. As discussed below, the Bitcoin Foundation does not take issue withthe imposition of special measures against Liberty Reserve. Rather, the Bitcoin Foundation isfiling these comments to urge FinCEN to clarify statements made in the Proposed Rule and theunderlying Notice of Findings that could be misinterpreted to suggest that virtual currencytransactions in general are inherently suspect.
Statement of Interest
The Bitcoin Foundation is an association dedicated to serving the business, technology,government relations and public affairs needs of the bitcoin community. The BitcoinFoundation's members include nearly all of the major companies and other entrepreneurs in the bitcoin industry. The Bitcoin Foundation, a not-for-profit institution, seeks to standardize the useof bitcoin, protect the integrity of the bitcoin protocol, and promote bitcoin through technologicalinvestment in bitcoin infrastructure, public education, and initiatives in law and policy.
Introduction and Summary
The Bitcoin Foundation’s comments are not directed at whether the imposition of specialmeasures against Liberty Reserve is appropriate. Rather, the Bitcoin Foundation is commenting
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Notice of Proposed Rulemaking: Imposition of Special measure Against Liberty Reserve S.A. as a FinancialInstitution of Primary Money Laundering Concern, 78 Fed. Reg. 34008 (June 6, 2013).
Director Jennifer Shasky CalveryJuly 19, 2013Page 2
PO Box 31671, Seattle, WA 98103
⬫
206.486.4488
⬫
www.bitcoinfoundation.org
because we are concerned about some of the statements made in the Proposed Rule and in the Notice of Finding that Liberty Reserve S.A. is a Financial Institution of Primary MoneyLaundering Concern ("Finding")
2
which underlies the Proposed Rule. Although the specialmeasures contemplated by the Proposed Rule are explicitly targeted at Liberty Reserve,
3
many of the statements in the Proposed Rule and Finding could be misread to apply more broadly totransactions involving virtual currencies generally.We understand that this was not FinCEN’s intent, and appreciate the public comments made byFinCEN that underscored that the Liberty Reserve action "was against one financial institutionand one type of financial service," and that the intent was not to "paint a broad brush because of one criminal action against an entire industry."
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We also appreciate that FinCEN has opened adialogue with the bitcoin community and has made clear in other contexts that bitcoin and other virtual currencies have significant benefits.
5
However, the Bitcoin Foundation is concerned that the statements in question may bemisinterpreted to suggest that all virtual currency operators are inherently suspect. In particular,the Bitcoin Foundation is concerned that the statements will be misread by the financialinstitutions implementing the final rule adopted in this proceeding (the “Final Rule”) to suggestthat virtual currencies in general should be subject to a higher degree of scrutiny
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, and thechilling effect this could have on the still nascent bitcoin industry. The Bitcoin Foundation isalso concerned that certain statements could lead to confusion concerning the money launderingregulatory framework as applied to virtual currencies in general and bitcoin in particular.Accordingly, the Bitcoin Foundation urges that FinCEN clarify those statements in the FinalRule so as to avoid any possible suggestion that virtual currency is inherently suspect from amoney laundering perspective and to eliminate any potential for further confusion about theregulatory status of virtual currencies. The specific statements the Bitcoin Foundation believesrequire clarification are discussed below.
2
Notice of Finding that Liberty Reserve S.A. is a Financial Institution of Primary Money Laundering Concern, 78Fed. Reg. 34169 (June 6, 2013).
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Proposed Rule, 78 Fed. Reg. at 34009 ("The requirements proposed in this NPRM would target Liberty Reservespecifically; they would not target a class of financial transactions…or a particular jurisdiction.").
4
Rob Blackwell, FinCEN Chief Q&A: What We Expect from Digital Currency Firms,http://www.americanbanker.com/issues/178_104/fincen-chief-q-and-a-what-we-expect-from-digital-currency-firms-1059485-1.html?zkPrintable=true.
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See, e.g.
Remarks of Jennifer Shasky Calvery, Director, Financial Crimes Enforcement Network, “The VirtualEconomy: Potential, Perplexities, and Promises” (June 13, 2013), at 4 (noting the “innovations. . . virtual currencies provide, and the financial inclusion that they might offer society”).
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Section 311 of the USA PATRIOT Act gives the Department of the Treasury the authority to make findings and propose special measures against a foreign jurisdiction, foreign financial institution, class of transaction, or type of account. 31 U.S.C. § 5318A.
Director Jennifer Shasky CalveryJuly 19, 2013Page 3
PO Box 31671, Seattle, WA 98103
⬫
206.486.4488
⬫
www.bitcoinfoundation.org
Discussion1.
Any Final Rule Should Rely on Established Terms and Definitions
The Finding and Proposed Rule variously use established terms while attaching new definitionsto them. The Bitcoin Foundation recommends that any final rulemaking refrain from providingdefinitions of terms that are additional to or different from definitions already issued by FinCENin other regulation and/or guidance. For example, the Finding describes Liberty Reserve as a"web-based money transfer system, or 'virtual currency.'"
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In doing so, FinCEN infuses virtualcurrency with a new definition - namely, a web-based money transfer system. This definition of virtual currency is inconsistent with the definition FinCEN issued in its March 18, 2013Guidance on the Application of FinCEN's Regulation to Persons Administering, Exchanging, or Using Virtual Currencies ("Guidance").
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In the Guidance, FinCEN defined virtual currency as "amedium of exchange that operates like a currency in some environments, but does not have allthe attributes of real currency."
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Further, the Guidance attempted to outline a framework for determining whether a particular virtual currency system would be categorized as a moneytransfer system, and whether certain participants in that system would be considered moneytransmitters under the law. By equating virtual currency with "web-based money transfer system" in the Finding and the Proposed Rule, FinCEN risks muddying the analysis required byits own Guidance. Accordingly, the Bitcoin Foundation urges FinCEN to rely on the definedterms it has already crafted when generally referencing virtual currencies and the industry in theFinding and Proposed Rule. For example, FinCEN might describe Liberty Reserve as theadministrator
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of an e-commodity and/or centralized convertible virtual currency (its proprietaryLR currency) that also operated a web-based money transfer system that supported other virtualcurrencies.
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Using the language of the Guidance in reference to Liberty Reserve's activitieswould (a) maintain clarity of terminology when discussing the complicated regulatory and legalissues in the virtual currency industry, and (b) offer the industry a clear example of how FinCEN
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Finding, 78 Fed. Reg. at 34169.
8
FinCEN,
Guidance on the Application of FinCEN's Regulations to Persons Administering, Exchanging, or Using Virtual Currencies
, FIN-2013-G001 (Mar. 18, 2013).
9
Id
. at 1.
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The Guidance defines "administrator" as "a person engaged as a business in issuing (putting into circulation) avirtual currency, and who has the authority to redeem (to withdraw from circulation) such virtual currency."
Id
. at 2.Liberty Reserve S.A. issued its own proprietary virtual currency, Liberty Reserve Dollars or Liberty Reserve Euros(often referenced simply as "LR"), and had the authority to redeem it or exchange it for other virtual currency.
11
LR Dollars and LR Euros were tied either to the value of the U.S. Dollar, to the Euro, or to ounces of gold. LR had a single issuer and was tracked via single ledger, and could not be created via a person's own manufacturing or computing effort.
See
Nikhil Kumar, 'Founders of 'PayPal for criminals' Liberty Reserve are charged with moneylaundering,'
The Independent
(May 28, 2013
), available at
http://www.independent.co.uk/news/world/americas/founders-of-paypal-for-criminals--liberty-reserve-are-charged-with-money-laundering-8635248.html; 'Underweb Payments, Post Liberty Reserve',
KerbsonSecurity
(May 30,2013),
available at
http://krebsonsecurity.com/tag/liberty-reserve/.
