Virtual money investigated to stem criminal use (Update 2)

Aug 12, 2013

New York is trying to corral the "Wild West" atmosphere of virtual currencies such as Bitcoin and may create new regulations to keep the growing technology from being used in crimes.

Financial Services Superintendent Benjamin Lawsky's inquiry is confirmed in a memo provided to The Associated Press on Monday.

"We have seen instances where the cloak of anonymity provided by virtual currencies has helped support dangerous criminal activity, such as drug smuggling, money laundering, gun running and child pornography," Lawsky wrote in the memo dated Monday. He described virtual currencies as a "Wild West" for criminals that could threaten national security.

The memo cites a wide range of companies and investors who received subpoenas for documents and data which Lawsky said will help better understand the burgeoning industry. Among the investors on the list are Google Ventures and another company called Winklevoss Capital Management, with "key personnel" listed as Tyler and Cameron and Winklevoss—the twins who sued Mark Zuckerberg in 2004 claiming he stole the idea for Facebook from a company founded by the Winklevosses and a third person from Harvard.

There was no immediate response to a request for comment from the Winklevoss brothers.

Lawsky said the investigation could lead to regulations that would also benefit virtual currency, which he called an innovative product and a legitimate business enterprise.

Virtual currency is composed of digital bits and based on mathematical schemes that guard against counterfeiting. Bitcoin was started in 2009 as a currency free from government controls, an entirely digital means of exchange for a digital age. It's a rapidly growing phenomenon that has taken root as a payment method on some websites for both legal and illegal goods.

A state official said 22 subpoenas were issued last week that seek records of anti-money laundering measures, consumer protections, and investment and promotional materials. The official spoke on the condition of anonymity because the investigation hasn't been announced yet.

Lawsky said his department is considering whether it should issue new regulatory guidelines, rather than try to adjust current laws on legal tender to include the new technology.

Lawsky said he plans to meet with members of the virtual currency industry before new regulations are created to protect consumers and national security.

Bitcoin is similar to the gold standard monetary system in force before modern central banking began in the 1930s. Under the gold standard, each unit of currency was worth a certain amount of gold, leaving governments few means to increase the amount of currency in circulation.

No country uses the gold standard today, but some libertarians want to revive it and see Bitcoin as a modern-day alternative or complement.

Explore further: Texas man charged in alleged Bitcoin scam

5 /5 (2 votes)
add to favorites email to friend print save as pdf

Related Stories

US seizes Bitcoin operator accounts

May 18, 2013

US authorities seized the accounts of a Bitcoin digital currency exchange operator, claiming it was functioning as an "unlicensed money service business," court documents showed Friday.

US studying risk from online payment providers

Jun 03, 2013

The United States is studying the potential risk from online payment mechanisms like PayPal and Bitcoin, a top US Federal Reserve official told an international conference on Monday.

Recommended for you

Researchers uncover likely creator of Bitcoin

4 hours ago

The primary author of the celebrated Bitcoin paper, and therefore probable creator of Bitcoin, is most likely Nick Szabo, a blogger and former George Washington University law professor, according to students ...

White House updating online privacy policy

8 hours ago

A new Obama administration privacy policy out Friday explains how the government will gather the user data of online visitors to WhiteHouse.gov, mobile apps and social media sites. It also clarifies that ...

Net neutrality balancing act

Apr 17, 2014

Researchers in Italy, writing in the International Journal of Technology, Policy and Management have demonstrated that net neutrality benefits content creator and consumers without compromising provider innovation nor pr ...

User comments : 0

More news stories

Under some LED bulbs whites aren't 'whiter than white'

For years, companies have been adding whiteners to laundry detergent, paints, plastics, paper and fabrics to make whites look "whiter than white," but now, with a switch away from incandescent and fluorescent lighting, different ...

Researchers uncover likely creator of Bitcoin

The primary author of the celebrated Bitcoin paper, and therefore probable creator of Bitcoin, is most likely Nick Szabo, a blogger and former George Washington University law professor, according to students ...

The importance of plumes

The Hubble Space Telescope is famous for finding black holes. It can pick out thousands of galaxies in a patch of sky the size of a thumbprint. The most powerful space telescope ever built, the Hubble provided ...