The Wild Bitcoin Frontier Getting More Crowded with Clueless Lawmen
Forbes sums up some of the latest crummy news as government looks askance on ways people might be able to conduct economic transactions without them having an easy way to know all about it or get their cut:
Things are getting serious for Bitcoin this month: a federal judge declared it real money, Bloomberg gave it an experimental ticker(XBT), and New York's financial regulator announced an interest in regulating it. Declaring Bitcoin "a virtual Wild West for narcotraffickers and other criminals," the New York State Department of Financial Services is stepping into the sheriff's boots…..
The department is starting out by subpoenaing 22 digital-currency companies and investors to get a lay of the Bitcoin land. They sent letters to the major Bitcoin players asking them to hand over information regarding their money laundering controls, consumer protection practices, source of funding, pitch books (for Bitcoin start-ups) and investment strategies (for Bitcoin investors). The recipients of the subpoenas are nationwide and include everyone on the "people making real money on Bitcoin" list, such as Bitcoin exchanges and processors, " mining equipment" maker Butterfly Labs, and major investors, such as the Winklevosses, Marc Andreessen & Ben Horowitz, and Google's venture fund. (Full list below.)
A subpoena doesn't mean criminal activity has taken place. A person familiar with the matter says the two-year-old department wants to make sure Bitcoin isn't a conduit for illicit activities and is gathering information in order to decide whether to issue regulation for virtual currencies.
The precedent on this sort of thing is grim:
The department has the authority to create regulation if there is no other primary regulator. Liberty Reserve — a virtual currency recently taken down by the fedsfor its use in money laundering and child porn rings — is on the mind of the department as it investigates Bitcoin.
Even if the regulators decide what lots of companies involved in Bitcoin isn't inherently illegal, that doesn't mean they don't want their hands in:
The NYSDFS notes in its statement that "virtual currency exchangers may be engaging in money transmission as defined in New York law, which is an activity that is licensed and regulated by DFS." That means ponying up bond money, as pointed out in the Wall Street Journal:
Although a growing number of bitcoin exchanges have registered their businesses with the U.S. Treasury Department's Financial Crimes Enforcement Network, they have moved more slowly at the state level. In part, that is because the process of getting a license in each of the 48 states that require them is complicated and lengthy. In addition, states also typically require companies to put up a bond that could run as much as several million dollars.
And here is one of the most bloodcurdling things any honest businessman could ever hear:
"We look forward to working with the virtual currency industry and other stakeholders as our inquiry proceeds, and we move to put in place appropriate regulatory guardrails to protect consumers and our national security," said NYSDFS superintendent Benjamin Lawsky in a statement.
I wrote back in May on how government authorities could muck up what's great about Bitcoin.