Virtual currency invites real crime: NY officials
By Tom Hays, AP
February 18, 2014, 12:19 am TWN
NEW YORK--The account information given by a new customer at Liberty Reserve read like a not-so-clever prank: Joe Bogus, 123 Fake Main Street, Completely Made Up City, New York.
But at the multibillion-dollar virtual banking operation, it didn't matter. Mr. Bogus — in reality, an undercover federal agent — was free to begin transferring funds, no questions asked.
Authorities say the recent investigations of Liberty Reserve and the hidden website Silk Road, a vast black-market bazaar for narcotics and other contraband, demonstrate how the anonymity inherent in the use of virtual currency is attracting a legion of flesh-and-blood criminals.
“The perpetrators feel they can more easily conceal their activity, their identities and their proceeds,” Deputy U.S. Attorney Richard Zabel said at a hearing last month held by the New York State Department for Financial Services.
Hard cash carries the burden of needing to be physically smuggled and hand-delivered, Zabel said. By contrast, in the Silk Road case, “users were able to purchase drugs from drug dealers located anywhere in the world, essentially with a push of a button,” he said.
At the same hearing, Manhattan District Attorney Cyrus Vance Jr. urged state regulators to put tighter controls on digital currency exchanges to tame “a digital Wild West.”
New York's chief financial regulator, Benjamin Lawsky, said in a speech last week that he's considering new rules requiring businesses to obtain a Bitlicense if they use the new currencies and comply with know-your-customer guidelines to prevent money-laundering activities.
The dialogue comes at a time when Bitcoins and other virtual currencies have been gaining the backing of legitimate investors and mainstream businesses. Last month, Overstock.com became the first major retailer to accept digital money. An online florist, Bloomnation, also began accepting Bitcoins in time for Valentine's Day.
Users exchange cash for digital money using online exchanges, then store it in a wallet program in their computer. The program can transfer payments directly to a merchant who accepts the currency or to private parties anywhere in the world, eliminating transaction fees and the need to provide bank or credit card information.