Bitcoin One Step Closer to Being Regulated in Australia

 

Bitcoin is one step closer to being regulated in Australia, with Parliament expected to this week vote on a bill to strengthen the nation’s anti-money laundering laws.

The value of the controversial cryptocurrency’s hit its all-time high on October 21, with each Bitcoin trading at $7,467 (or $US6,149).

That was almost a ten-fold surge from last October, when each unit was worth just $803 (or $US630). But even at that lower price, many people thought the digital currency was “over-valued”.

The proposed laws

If the new laws are passed, the financial intelligence regulator AUSTRAC will be given new powers to police digital currency exchanges — where traders buy and sell Bitcoin, Ethereum and other cryptocurrencies.

These exchanges like Independent Reserve and BTC Markets would need to be registered under the new regime.

It will also become an offence for an “unregistered person” to provide digital currency exchange services.

“Businesses that trade digital currencies for money, and vice versa, will be required to enrol and register with AUSTRAC,” Justice Minister Michael Keenan said in a Parliamentary speech about the bill in August.

Mr Keenan said these businesses would need to “establish, implement and maintain an AML/CTF (anti-money laundering and counter-terrorism financing) program”.

In addition, they would have to “report threshold transactions and suspicious matters to AUSTRAC, and keep appropriate records”.

This is a softer approach compared to China, which banned initial coin offerings (ICOs) last month — a move which led to Bitcoin’s value dropping by more than US$1,000 to $US3,226 (on September 14).

Digital currencies and crime

The Australian Criminal Intelligence Commission (ACIC) has been a strong advocate for regulating digital currencies.

“Virtual currencies, such as Bitcoin, are increasingly being used by serious and organised crime groups,” ACIC said in its report on Australian organised crime, released in August.

“They are a form of currency that can be sold anonymously online, without reliance on a central bank or financial institution to facilitate transactions.”

They can be used on darknet marketplaces like Silk Road 3.0 and Valhalla Marketplace to facilitate the sale and trafficking of illicit drugs, firearms, precursor chemicals and child exploitation materials.

They are also the currency of choice when it comes to cyber attacks.

The hackers behind the Wannacry ransomware attack, which infected nearly 100 countries around the world demanded their ransom be paid with Bitcoin.

That was also the case with the Petya cyber attack in June, which targeted the Cadbury chocolate factory in Tasmania.

But the buying and selling of Bitcoin and similar virtual currencies is currently unregulated in Australia due to a loophole in existing laws.

The loophole is that the term “e-currencies” is defined too specifically in the Anti-Money Laundering and Counter-Terrorism Financing Act.

“E-currencies” are defined as “an internet-based, electronic means of exchange” backed by something physical like a “precious metal” (gold or silver), or “bullion”.

This problem was pointed out by the Attorney-General’s Department’s (AGD) submissions in submissions to the Senate.

In particular, the AGD said this specific definition does not cover Bitcoin. That is because the digital currency is not backed by physical assets at all — but by a “cryptographic algorithm”.

“This regulatory gap is also having an impact on the legitimacy and public perception of the digital currency sector, which may impede developments or the use of these currencies in the future,” the AGD said.

A mixed industry response

There is a “legacy stigma” with digital currencies, and that people unfortunately associate Bitcoin with crime, Independent Reserve’s director Lasanka Perera said.

“These new laws would be good for the industry, it will give more confidence to investors, consumers and businesses to enter the industry,” he said.

But some digital currency businesses believe that the anti-money laundering bill imposes unduly harsh obligations.

“The proposed legislation will have the effect of requiring KYC [Know Your Customer] procedures of our customers for even very small transactions,” said Daniel Alexiuc, who runs an online business called Living Room of Satoshi.

He said this includes small transactions like “paying your phone bill or buying a banh mi (Vietnamese bread roll) for lunch”.

Through Mr Alexiuc’s website, customers can use Bitcoin and 10 other cryptocurrencies to pay their household bills — as long as they have BPAY facilities like ANZ Bank, Optus and Australia Post.

Mr Alexiuc made submissions to the Senate’s legal affairs committee arguing that there should be an exemption for payments under $1,000.

His concern is, under the proposed laws, he would be required to ask his customers to provide photo identification before they register for an account.

“It will kill our retail payment system, and these new laws are completely unfeasible,” he said.

The law currently does not require digital currency exchanges to conduct an identification check on customers who open accounts

However, some of the operators who spoke with the ABC said they, nevertheless, ask for “100 points of ID” from their customers because it is “best practice”.

The imposition of new regulations on digital currency exchanges may also impose high entry barriers to new entrants.

“There is likely to be an ongoing expensive compliance cost, particularly in regards to ongoing transaction monitoring,” said BTC Markets’ director Jarrod Crane, who is supportive of the proposed laws.

However, he conceded that: “If this regulation was around in 2013, we probably wouldn’t have been able to start our business.”

by