New York's top banking overseer said any regulation of the nascent Bitcoin industry has to include transparency on who does the trading of the virtual currency, and if that hurts a business dominated by anonymous transactions, "so be it."
Benjamin Lawsky, superintendent of New York's Department of Financial Services, said he doesn't have an opinion about the viability of Bitcoin as a digital currency. In an interview with Bloomberg editors and reporters, he said his primary concern involved anti-money-laundering safeguards.
Lawsky said his goal in sending out subpoenas to almost two dozen digital currency companies this summer was not to "squelch out" the fledgling industry; it was to make sure the proper know-your-customer guidelines were in place.
In starting his investigation into the payment practices of the virtual currency industry, Lawsky inserted himself into a discussion among national regulators about appropriate disclosure practices for Bitcoin and similar digital products.
In August, members of the Bitcoin Foundation, a trade group, met with members of the U.S. Treasury Department's Financial Crimes Enforcement Network and other regulatory officials to discuss the digital currency.
"Virtual currencies may ultimately turn out to be a very big thing that people want to use," Lawsky said in an interview with Bloomberg TV. "Right now, it feels as if the major advantage they're providing is anonymity. We've learned over the years that if you see huge international transactions over the Internet, anonymous, it can often become a haven for money launderers, terrorists."
If people are using Bitcoin for legitimate financial transactions, transparency rules won't harm the industry, Lawsky said in the Bloomberg meeting.
Lawsky sent subpoenas to startup companies in the virtual currency industry in August, asking for specific information about how the industry could monitor the transactions taking place.
"We as regulators need to have protections in place," Lawsky said. "We need to make sure records are being created. If you don't, it becomes a real haven for these anonymous transactions, where you have terrorists, narco-traffickers engaging in actions that prosecutors someday could never find out about."
In the two years since he became superintendent of New York's Department of Financial Services, formed when Governor Andrew Cuomo combined the departments of banking and insurance, Lawsky is best known for threatening to pull the banking license of Standard Chartered Plc for violating statutes related to dollar-clearing transactions for Iranian clients.
Now, with his investigation into money transmission practices in the realm of digital currency, Lawsky is once again using his New York platform to play a role in shaping national policy.