The Financial Crimes Enforcement Network, by hosting the Bitcoin Foundation in Washington D.C. this week, demonstrated its commitment to learning more about the disruptive virtual currency.
The Foundation, a trade group for bitcoin companies, also met with an array of other government agencies, including the FDIC, Secret Service, FBI, DEA and IRS, as well as state regulators.
"For better or worse the government knows who we are now," says Marco Santori, an attorney representing virtual currency companies and chairman of the regulatory affairs committee at the Bitcoin Foundation.
During the Aug. 26 meeting, different members of the Bitcoin Foundation discussed the core Bitcoin protocol and technology, policy issues, enforcement and investigative methodologies and the regulatory climate.
"The current regulatory landscape does not effectively achieve the U.S. policy goals when applied to Bitcoin," Santori says. "The general thesis was that the stakes are very high; businesses are choosing not to do business in the U.S. or actually picking up their currently operating businesses to jurisdictions that are opaque to U.S. government investigation."
Coinapult, a company that allows people to initiate bitcoin transfers through emails and text messages, moved its operations from the U.S. to Panama in April. Coinapult has said the decision to move its operations came from a focus on non-U.S. customers, who have more reasons to use bitcoins.
When the U.S. loses businesses to foreign jurisdictions, the government also loses the ability to quickly look into their operations, Santori says. "The idea is to keep businesses here where the laws apply to them."
The current state of Bitcoin regulation will "guarantee putting our citizens' money in the hands of people who can avoid and evade enforcement," he says.
The current regulatory environment is a hot topic among bitcoin users. Bitcoin was designed to operate free of the constraints of mainstream electronic payments, so bitcoin users found it controversial when Fincen issued guidance on virtual currency, categorizing exchangers and administrators as money services businesses.
Since Fincen's March guidance, the state of California sent a cease-and-desist warning to the Bitcoin Foundation and the New York State Department of Financial Services issued 22 subpoenas to emerging payments companies, most of which handle bitcoins.
Other topics discussed in Washington include the need for bitcoins among the underbanked. Several businesses are trying to serve consumers who don't have traditional banking relationships. CoinTap plans to offer a stored-value card for obtaining bitcoins, and Lamassu Bitcoin Ventures has begun selling the Lamassu Bitcoin machine, a vending machine that sells bitcoins in exchange for cash.
Investigative agencies were also very interested in the idea of the Bitcoin blockchain, which logs all bitcoin transactions. The blockchain provides little detail on the bitcoins' users, but provides explicit detail on the path of each bitcoin used.
"In a typical investigation you know who the people involved are but you don't know what really happened; that's what you spend time on trying to figure out," Santori says. Because the Bitcoin ecosystem enables the opposite, "I see that sending the message that Bitcoin is a terrible choice for money laundering."
The Bitcoin Foundation has been speaking for some time to Fincen about organizing an educational meeting. Santori says the Foundation was "warmly received" and "every seat in the room was taken."
After the meeting, Jennifer Shasky Calvery, Fincen director, said the guidance stands as-is and Fincen will continue to act as a bridge between all interested parties in discussing virtual currency.
The trip to D.C. continued into Aug. 27 when the Foundation met with members of Congress.
Bitcoin "is still a very new idea on Capitol Hill," says Santori. "It's on Capitol Hill where closing the education gap and information gap is really critical; we need to ensure that Bitcoin is not a boogeyman to policymakers and legislators."
Overall Santori says the meeting was a success in that a dialogue has started to dispel misinformation about Bitcoin.
"There's a very good opportunity to share information" now, says Steve Hudak, spokesman for Fincen. We "don't know when the next movement will take place in the future we agree to keep the lines of communication open."