Bitcoin is becoming an increasingly popular topic of discussion, especially among lawmakers. After high-profile scandals such as Silk Road and Mt. Gox, it’s hardly surprising that governments around the world are wary and trying to find ways to regulate and monitor the use of digital currencies. The supposed anonymous nature of bitcoin payments has given many law enforcement agencies and financial regulators cause for concern because transactions linked to criminal activity are difficult to link to specific individuals or groups.
On June 19, 2014, Bill C-31, a Canadian federal budget bill, was signed into law. Usually, this type of thing is non-event, but this bill is especially significant to anyone following digital currencies in Canada. One of the many parts of the bill was one that revised the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, requiring any organization dealing with “virtual currencies” to register with the Financial Transactions and Reports Analysis Centre (FINTRAC). This makes Canada the first country in the world to pass a law regarding Bitcoin and other digital currencies. What does this mean for Bitcoin in Canada?
In plain English, the new legislation defines any business that deals in bitcoin or other digital currencies as a money service business (MSB) – a category that includes foreign currency exchanges and money transfer services, such as Western Union and MoneyGram – must register with FINTRAC. They also must comply with all requirements that MSBs are subject to, including implementing anti-money laundering (AML) measures, detailed transaction record keeping, and reporting any and all suspicious transactions of any amount. An example of a suspicious transaction is one that is related to attempted money laundering or the financing of terrorist groups.
It’s worth noting that this new legislation applies not only to digital currency MSBs based in Canada but also any digital currency MSB based outside the country that provides services to clients in Canada. However, any Canadian digital currency MSB providing services to clients outside of Canada are not required to follow all of the regulations for these foreign transactions.
What has the response been from the Canadian bitcoin community so far? Bitcoin Foundation Canada, a Montreal-based advocacy group, has released a document stating that it does not see the need for “sweeping legislative measures concerning Bitcoin” because it believes that the current laws and regulations already apply to its use. The document states that existing private, criminal, tax, and financial services laws are already in place that adequately address any concerns and provide adequate protection.
Joseph Onorati with CAVIRTEX, a Canadian Bitcoin trading market, sees positive potential for the new legislation. In a recent article published by Coindesk, he said that his company believes that requiring Canadian bitcoin businesses to follow the new regulations will give them greater clout and a greater sense of legitimacy, especially with traditional financial institutions.
Although the first country to legislate digital currency, Canada is not alone when it comes to attempting to control the use of Bitcoin. Japan, despite having suffered greatly from the Mt. Gox disaster, has gone so far as to encourage self-regulation by the nation’s Bitcoin community in an effort to promote itself as the world’s most Bitcoin-friendly country. China has officially said that it does not recognize Bitcoin as currency and prohibits Chinese banks and payment institutions from dealing in Bitcoin. The Australian Senate is studying Bitcoin and other digital currencies in one of its committees and is due to table its report in March 2015.
So what does this mean for the future of Bitcoin in Canada? Will this discourage bitcoin businesses from being successful or will it give them more public credibility? What do you think?