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Bitcoin buys big-ticket items

August 27th, 2014 - Posted by Claire Barker in Anti-Money Laundering

The increasing popularity of bitcoin has driven its value to record levels. Once described as 'a high risk system' by the European Central Bank, bitcoin is now set to stay at a stable price of $500, but has risen to more than $1000 in recent years.

bitcoin 

Increasingly, day-to-day purchases are taking place with bitcoin as more businesses begin to accept it. In and around East London's Silicone Roundabout, the heart of the UK's Tech City, cutting edge restaurants and shops are accepting Bitcoin payments for coffees, clothes and food. Many cities have installed 'Bitcoin ATMs,' allowing customers to deposit cash in exchange for Bitcoins.  

While small purchases are gaining popularity, large-scale purchases are happening more commonly in the bitcoin marketplace:

  • Cai-Capital Limited (London property investment specialists) has helped buyers secure homes for £1m and £750,000 with bitcoin.

  • Euro Pacific (a major international gold and silver dealer) now accepts bitcoin payments through BitPay

  • In December 2013, Lamborghini Newport Beach announced they had just completed their first sale using bitcoin

  • If you have £150,000-worth of bitcoins at your disposal, Richard Branson's space tourism company Virgin Galactic began accepting bitcoin for tickets back in November 2013

plane 

An increase in big ticket items being paid for by bitcoins increases the potential risks in relation to money laundering. One of the key attractions for many buyers is the notion of anonymity associated with digital currencies. Being able to carry out transactions anonymously and tax free is rapidly establishing bitcoin as a currency of choice for a number of criminal enterprises:

  • The South China Morning Post has reported how telecoms firms have been targeted in a global hacking attack with the perpetrators asking for the ransom to be paid in bitcoins worth US$350

  • In April, Canada-based bank 'Flexcoin bank', specialising in bitcoins, announced its closure after computer hackers stole its digital currency

  • Bank of Russia deputy chairman Georgy Luntovsky has said there has been evidence that bitcoin is being used to pay for drugs and weapons in Russia

  • Charlie Shrem, one of the co-founders of bitcoin payment company BitInstant was arrested following allegations of conspiracy to commit money laundering and operating as an unlicensed money transmitter.

Many critics have dismissed the virtual currency as shady and dangerous, pointing to its unregulated nature as the source of its popularity. Industry experts warn this notion of anonymity poses risks to anti-money laundering and sanctions-checking measures, which are underpinned by know your customer (KYC) rules.

"The financial crime risks of virtual currencies are considered significant. The clue is in the name, it's 'virtual', without central bank or similar oversight. Regulators are playing catch up and right now the perceived risks of virtual currencies outweigh the benefits"," says Mark Dunn, Due Diligence segment leader for LexisNexis.

Government regulation of bitcoin seems inevitable and, although the Money Laundering Regulations 2007 have a wide scope and apply to a number of different business sectors, technology and online payment systems move too quickly for legislation to encompass every development. Criminal enterprises will always try and launder money through new methods of financial transacting and take advantage of legal loopholes. The widespread popularity of these payment systems means that organisations will need to be even more vigilant when conducting business online.

End notes

For more info on the bitcoin, read our earlier blog 'Bitcoin is about to make money laundering easier than ever'

 If you are looking for ways to gain more transparency over your customers and suppliers, why not look at the range of solutions that LexisNexis offers – click here for more information.

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