As Bitcoin gets popular, regulators worry about money laundering

New Delhi: As Bitcoin becomes more popular day by day, regulators are getting worried about potential money laundering risks associated with this digital currency and its possible misuse by fraudsters to lure gullible investors into ’e-ponzi’ schemes.

Adding to the challenges posed by Bitcoin before the regulators, this e-currency is already being accepted by some online retailers in countries like the US, China and a few others, for various purposes including pizza delivery.

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Hardly three years into existence, Bitcoin has already become the world’s most expensive currency with a per unit value of over USD 1,000 or about Rs 63,000, and it is posing all possible questions to regulators in India – whether to regulate it or not, who should do it, what should be the norms, how to regulate etc.

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Those looking at this new phenomenon include almost all financial sector regulators as also agencies mandated to handle economic crimes, such as RBI, Sebi and various agencies under the Finance Ministry, a senior official said.

When contacted, an RBI spokesperson said, “As of now we don’t regulate bitcoins, but are observing developments.”

While regulators are tight-lipped about their plan of action, a senior official said that one possible way forward can be following the US, where authorities have decided to subject bitcoins to money laundering rules applicable to all other financial transactions in the country.

Regulators are also looking into claims being made by some entities of being registered bitcoin exchange providers, although they might have merely registered as a company with the Registrar of Companies with some generic business purposes.

Sources said that regulatory and enforcement authorities here are very much concerned about potential money laundering risks emanating from growing use of bitcoins. To make the things worse, this virtual currency has become the latest tool adopted by fraudsters who are promoting bitcoins as the next big investment products with unlimited returns.

A few complaints have already poured in about bitcoins being used by some operators in certain new-age and e-versions of multi-level marketing or ponzi schemes.

Regulators fear that this new phenomenon can give rise to a new kind of illegal investment schemes that could be very difficult to track and clamp down. This is because there is almost zero physical activity when dealing in bitcoins and nearly all transactions take place in the electronic format.

Being an ‘open source’ product, bitcoin can be mined by anyone through a complex computer software through solutions shared on an entire network, although the process is complex and such ‘mining’ can be done only on very powerful computers.

The huge surge in the valuation of bitcoins, from little over USD 200 to well past USD 1,000 during the last month, has certainly added to their investment profile and people are also getting attracted to it in India, which already has a few significant players offering bitcoin exchange service online in lieu of rupee or other currencies.

The collapse of another digital currency operator Liberty Reserve after charges of money laundering, as also the fall of a few other smaller digital currency exchanges in different parts of the world, have added to the concerns of regulators.

The US authorities have charged Liberty Reserve of operating as a global banker for criminals and of laundering over USD six billion of crime proceeds. Incorporated in 2006, it had over a million users, including about one-fifth in the US.

Bitcoin came into existence in 2009 and the current number of bitcoin units generated so far stands at about 12 million. However, only a small number of bitcoins are being used for real commercial and retail purposes and a vast majority of exchanges are taking place due to speculative investment purposes.

Besides, the US authorities have already come across a few cases of bitcoin being used for illegal activities, including one case of payments for illicit drugs.

PTI