US agencies coming around cautiously to seeing benefits in virtual currencies

Virtual currencies are still associated by law enforcement agencies largely with illicit activity

By , IDG News Service |  Government

Federal officials told a U.S. Senate hearing on Monday that virtual currencies like bitcoin can offer benefits to the financial system, but also cautioned about its possible misuse for illicit activity.

"The Department of Justice recognizes that many virtual currency systems offer legitimate financial services and have the potential to promote more efficient global commerce," said Mythili Raman, acting assistant attorney general at the Department of Justice in her testimony before the Senate Homeland Security and Governmental Affairs Committee.

"We have also seen, however, that certain aspects of virtual currencies appeal to criminals and present a host of new challenges to law enforcement," Raman added in her written testimony before the committee, which is conducting an inquiry into virtual currencies.

Law enforcement agencies suspect that virtual currencies are being used for money laundering and other illegal activities as they typically allow users to remain anonymous. Dealers of drugs and other illegal items on online marketplaces like the Silk Road and Black Market Reloaded are said to have taken cover behind the Tor anonymity service and anonymous bitcoin transactions. The Silk Road site was brought down about a month ago by U.S. officials and its alleged owner and operator arrested.

Ernie Allen, president and chief executive officer of the International Centre for Missing & Exploited Children, said his organization is concerned about the apparent migration of commercial child sexual exploitation and other criminal enterprises to a "new unregulated digital economy, made up of digital currencies; anonymous online payment systems; anonymous internet tools; and file hosting companies."

Criminals have exploited virtual currency systems because they do transfers quickly, securely, and often with a perceived higher level of anonymity than that afforded by traditional financial services, Raman said.

Tom Carper, U.S. Senator for Delaware and chairman of the Homeland Security and Governmental Affairs Committee, said in his opening statement that some people wanted to play by the rules, which is difficult to do "if the rules or proper authorities aren't clear or if the future is uncertain."

The Treasury Department's Financial Crimes Enforcement Network has tried to bring some rules to virtual currency, said Jennifer Shasky Calvery, director of FinCEN, in her testimony. "Virtual currency is a medium of exchange that operates like a currency in some environments but does not have all the attributes of real currency," Calvery said. "In particular, virtual currency does not have legal tender status in any jurisdiction."

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