Five Recommendations for Bitcoin Companies to Ensure Compliance with the …

This is a guest post by Eugene Illovsky, a partner at Morrison Foerster in Palo Alto.  He advises on corporate compliance and represents companies in their interactions with government investigatory, enforcement, and prosecutorial authorities.

What compliance expectations does the Department of Justice have for businesses entering the virtual currency space? How can a company meet those expectations to stay out of trouble with DOJ, or at least mitigate the effects of any criminal inquiry on it as well as its executives, employees and investors? A recent speech by the Criminal Division head, Assistant Attorney General Leslie Caldwell, provides critical guidance on DOJ’s “approach to the emerging virtual currency landscape” and expands on its view that “compliance and cooperation from exchanges, companies and other market actors can ensure that emerging technologies are not misused to fund and facilitate illicit activities.”[1]

DOJ’s View of How Virtual Currencies Are Used

DOJ is skeptical. While it knows virtual currency has “many legitimate actual and potential uses,” its enforcement stance is informed by the observation that “the inherent features of virtual currencies are exactly what make them attractive to criminals.”[2] For instance, virtual currency systems “conduct transfers quickly, securely and with a perceived level of anonymity,” have an “irreversibility of payments made in virtual currency and lack of oversight by a central financial authority” and have the “ability to conduct international peer-to-peer transactions that lack immediately available personally identifiable information.”

Virtual currency thus “facilitates a wide range of traditional criminal activities as well as sophisticated cybercrime schemes.”[3] For instance, “online black markets” on the dark web offer a “wide selection of illicit goods and services” paid for in virtual currency, including “more traditional crimes such as narcotics trafficking, stolen credit card information, and hit-men for hire.” But there has also been “a significant evolution in criminal activity.” Virtual currency

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