The Dinosaur in the Room

Digital Currencies, Bitcoin ATMs, Online Exchanges and the coming storm of AML regulations.

Before getting into the Digital Currency space I had a basic knowledge of AML (Anti-Money Laundering) and KYC (Know-Your-Customer) regulations. Having had my credit card identity stolen after purchasing goods online, I had decided to start only using a pre-paid credit card from my local money service business for e-commerce purchases. After a few months of running through hundreds of dollars of purchases, I got a call from the pre-paid credit card provider asking me to verify my identity and the reason I was using my card so much. My initial mental response was “why do you care” and “none of your business” but answered their questions anyways. They then asked me to take two pieces of identification to my local money service business to verify my identity once more (although every time I went to fill up my card with new funds I gave them my ID anyways). Being the inquisitive person I am, I sat down and did some research online to find out why these sort of procedures were required by these financial entities and this opened me up to the world of AML compliance and regulatory procedures.

Fast forward a few years and now it is early 2013. I was just starting to wrap my head around bitcoin and its implications when it dawned on me…. What will this technology mean for existing AML and KYC procedures? How will regulators deal with this innovation and will they be able to bring oversight to it? How will they stop money launderers, terrorists, fraudsters and other criminals from using bitcoin technologies to instantly send or receive funds from anywhere, to anywhere, at any time? How would they verify the identities of the sending or receiving parties when bitcoin operates in such a pseudo-anonymous nature? How will they deal with bitcoin when unlike cash, you could send it instantly anywhere in the world and have the receiver cash it to their local fiat currency without the need for a bank or financial entity? These are all questions I played around with in my head as bitcoin became more and more into the mainstream vision of the public as well as local government entities and financial institutions.

At this time, the primary method of buying or selling bitcoin was through online exchanges who facilitated the trade of bitcoin or through online forums and services such as LocalBitcoins. Online exchanges eventually started to adopt strict identification policies requiring all users of their services to identify themselves through multiple avenues. This was in part due to pressure from regulators and banking partners but also because the online exchanges wanted to be proactive in self-regulation before actual laws came into play. Services such as LocalBitcoins had no such qualms. On LocalBitcoins, sellers could post up ads, and buyers would initiate a transaction putting the bitcoins in escrow hold. Buyers would then send funds by traditional remitters such as Western Union, make deposits into the seller’s bank accounts or use other methods. The buyer would then wait for the seller to confirm the payment before releasing the bitcoins from escrow. Buyers and sellers could also arrange to meet in person and exchange cash for bitcoins. Transactions were done by anybody who had bitcoin to sell, and anybody who wanted to buy bitcoin. No identification necessary!

Now fast forward a few more months, and regulators are just starting to talk about AML regulations, compliance, and the requirement of having digital currency businesses operating in the space to get MSB (money service business) licenses. And surprise surprise, another new invention gets added into the mix…. Bitcoin ATMs (or BTMs as they are now called). The first BTM model was released by a company called Robocoin and were touted as being compliant (in my opinion overly compliant) with existing AML and KYC regulations. To first start using this ATM to buy bitcoin, you would have to scan your ID, put your hand on the screen for a biometric palm scan, and then take a picture of you, which would all work together to identify you for future purchases. Now how about that for massive invasion of privacy? Even casinos, banks and other money services business didn’t require these kind of procedures, and I wasn’t too sure most people would want such intimate parts of their biology and identity to be stored in a central database…. regardless of what they were doing with the bitcoin. Might as well have given a sample of your DNA while you were at it!

On the other end of the spectrum were less functional BTMs that would just take your money, let you know the bitcoin price, and print you out a temporary wallet. Anyone could go up to one at any time, and receive whatever amount of bitcoin they wanted. These users could then go and do whatever they pleased with their new purchases whether it was for investment or other much more nefarious purposes. These BTMs are now proliferating all over the world and as the next few years unfold, we will see thousands of them in almost every major city and country on the planet… facilitating the mainstream adoption and innovation of bitcoin and bitcoin technologies, but also bypassing every existing AML and KYC regulation now in place. How would government entities justify having compliance programs targeting existing money service providers for cash transactions, and not oversee bitcoin transactions?

Regulators are poised to lose their control on AML compliance in a big way. There is absolutely no existing law in place for them to reign in this ever increasing web of currency movement without making drastic changes to existing AML regulations.  Bitcoin technologies are already starting to disrupt existing financial systems and we are just seeing the frontend of this massive tsunami of innovation and change.

FinTRAC, the Financial Tracking & Analysis Centre of Canada, has recently announced it will be coming out with digital currency regulations for early 2015. Regulators in New York have also recently announced the creation of a proposed “BitLicense” program requiring digital currency business to adhere to impossibly demanding AML procedures that, if left unchanged, will move innovation in this new industry outside, into more favorable jurisdictions.

But where does this leave the Bitcoin ATM network? How will regulators deal with the ever increasing number of uncompliant BTMs? Will they require the hardware and software on these machines to be upgraded to meet such strict levels of compliance as those on the $15,000+ Robocoin machine? Will they fine and jail operators of these uncompliant BTMs if they don’t follow the existing or upcoming rules? How will they alleviate the fears of the average citizen who is not only concerned about the integrity of their identity and data, but also of those that have a vested interested in seeing worldwide terrorist and criminal organizations not gain more power through the use of these new technologies? What is the world coming to?

We, at SecuraCoin believe that uncompliant BTMs must be built or upgraded to meet at least minimum standards of operation. Operators of uncompliant BTMs must be fined or worse, for ultimately facilitating possible money laundering and criminal transactions. More professional, non-invasive methods of Bitcoin acquisition and selling must be introduced if the innovation that this new technology provides is to benefit all of us in as of yet, unforeseeable ways.

Government entities should create or update laws and regulations that take into consideration the immense gains startups, new business models and innovative new services could provide to our infrastructure…. or they could just say screw it! Throw out their antiquated laws and attempts at regulation. Let money laundering, terrorist financing and criminal financial transactions become rampant on a scale never before seen in the history of humanity, but also let financial and technological innovation take flight and see where this all takes us.

While government entities make up their mind, we have decided to take the road less travelled and create a service who is both compliant with existing AML laws, but also forward seeing. Our services are no more invasive than existing money services such as cheque cashing businesses, foreign exchangers, worldwide remitters and more. How can we do this? By partnering with existing local financial service providers who will do in-person verifications of your identity by simple methods, as just asking for your ID and verifying your photo with you to make sure you are who you say you are. We won’t ask you for a biometric handscan….. or ask you for your DNA for that matter. We won’t save your biological information in a database. We won’t make you wait a few days like online exchanges to verify your identity or wait a few days to even get your money in our out. We do everything in-person right at the point of sale, all at the same time as driving bitcoin innovation forward. We will do our best to meet and alleviate the fears of both the public and government regulators and work closely in building a system that is both easy to use and technologically innovative for an industry that is just starting to gain mainstream traction.

We will follow all the existing laws and work proactively to bring you services that are market driven, customer friendly and safe for you to use. Who knows, we may even pave the way for how this new innovation is used and processed. The future is as uncertain now as it ever was, but that won’t stop us.

Wish us luck!

Ageesen Sri
Executive Officer


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