Bitcoin will become a bigger concern to regulators at the Treasury Department only after it becomes a truly useful currency. That was the message delivered by David Cohen, under secretary for terrorism and financial intelligence, at a speech on Tuesday morning at Bloomberg headquarters in New York.
Cohen expressed concern that terrorists and people looking to avoid sanctions could make nefarious use of Bitcoin or additional virtual currencies. Considering that this comes a day after the Obama administration announced sanctions on several Russian officials, his worries seemed particularly timely. For now, however, Cohen sees this as primarily a hypothetical threat—and he seemed hesitant even to describe Bitcoin as a currency:
The volatility associated with virtual currency, combined with its low capitalization and liquidity, has limited its appeal to these illicit actors. Terrorists generally need “real” currency, not virtual currency, to pay their expenses—such as salaries, bribes, weapons, travel, and safe houses. The same is true for those seeking to evade sanctions.
Bitcoin has a long way to go before it becomes a dominant player in the world of illicit finance. Hundreds of billions of dollars of illicit funds flow through through the international finance system yearly, Cohen said, while the total value of all Bitcoins in circulation is about $7.5 billion. There are plenty of effective ways to move dirty money around, including hawaladars, guys with briefcases of cash handcuffed to their wrists, and, you know, real banks.
As of now, the federal government regulates only the transfer between virtual currencies and conventional money. Treasury issued its initial guidance on these activities exactly a year ago and doesn’t feel it needs to go further. As Cohen sees it, Bitcoin transactions are like cash transactions and don’t require intervention.
In fact, Bitcoin transactions are less regulated than cash transactions. Vendors processing more than $10,000 in bills have to report such transactions; there is no such requirement for virtual currencies. The only way this will change is if virtual currencies become so widespread that people can carry on their lives totally in Bitcoin. While that idea makes a fine premise for an article by a San Francisco-based journalist, it doesn’t make much sense for a criminal.
This doesn’t mean it will never make sense. Cohen holds open the prospect of regulating Bitcoin transactions, if only to implement the kind of reporting requirements mandated for large cash transactions.
Treasury follows technological innovation in the financial system, Cohen said in his remarks, and it will always choose transparency over novelty. He even sought to smooth feathers among Bitcoin enthusiasts with a gesture of inclusion: Treasury’s advisory group for the Bank Secrecy Act will appoint “a member of the virtual currency community,” he said, to join its ranks.