Bitcoin trading was originally conducted face to face, with buyers carrying wads of cash to coffee shops, city centers and other public spots to meet sellers, barter, and then swap using QR codes on mobile phones or laptops – an activity that was fraught with risks and danger. Besides Bitcoin Exchanges, transacting through a BTM with built-in customer verification processes appeared to be a much simpler alternative.  

As more pop up across the globe (5 new ones installed every day), is it really a safer, more viable platform that can take us closer to equitable financial inclusion?

BTMs: money laundering hotspots

Unlike Bitcoin exchanges that require biometric information for verification, these machines allow direct conversion of cash without any identity verifications or bank account disclosures. For example, although the first BTM installed in 2013 in Vancouver, Canada, registers unique palms for comparison against other transactors, it does not collect personal information.

Just how far can launderers exploit the system? Spencer, a US attorney employed with a manufacturer, sheds light on this question. He was able to buy bitcoins at a competitor’s BTM in Texas, using a fake ID with Frank Sinatra’s image, and a random phone number, breaking several US regulatory laws. He used his wife’s driver’s license for the barcode on the ID. The lack of compliance controls, therefore, make them havens for illicit trading.

Regulatory oversight

Money laundering through BTMs is something of an open secret. The companies that manufacture them tout their ability to allow total anonymity while it is in fact illegal to do so. They are required to file SAR with the US Govt.Treasury Department by implementing measures to detect fraudulent patterns, and identify transaction amounts that exceed set limits.

In reality, compliance is non-existent and regulators do not yet have the resources to investigate BTMs. Although BTM operations in the US requires registration with FinCEN and a state specific license, it is a carefree process that takes only 15 minutes for approval by web, making it easy for just about anyone to install one.

Mixed feelings

In India, the first machine installed at Bangalore amidst fanfare, was quickly seized and the owner penalized for not securing appropriate permissions. With RBI’s crackdown on crypto-currency in India, entities under the RBI are prohibited from providing services to businesses dealing in any virtual currency.

However, not all countries are averse to crypto-projects. Switzerland, Malta, Estonia, Israel, and Bermuda are some of the countries that support the creation of crypto/blockchain friendly legislation. These countries see cryptocurrencies and blockchain technology as a potential enabler of economic growth and cross border economic cooperation.

A growth focused approach

Seizing BTMs without creating the necessary compliance framework is a conservative turn away from the myriad possibilities of this decentralized system. It is a move akin to ‘de-risking’ by FIs (all of the losses, none of the gains). An alternate approach would prioritize growth by enforcing regulations to identify users, monitor transactions, assess risks, and prevent fraudulent activity through the BTMs.

The 2018 G20 summit, in a step towards cryptocurrency regulation, has set out to identify the data required to draft regulatory recommendations for crypto-currencies. Tech enabled AML and Compliance solutions tailored for virtual currencies can boost trust and investments in the Bitcoin in the current climate. Oversight and interest combined, could potentially even the scales between economies, as more and more currencies are democratized.

2019-01-28T10:58:33+00:00January 28th, 2019|AML Solutions, Financial Processing Services|