Bitcoin Exchange in U.S. Crosshairs Banked at Wells Fargo
by Brian Browdie
MAY 16, 2013 8:43am ET
A move by the U.S. government to rein in the unregulated use of Bitcoin involved the seizure of a Japanese company's account at Wells Fargo (WFC).
Mt. Gox, the world's largest exchange for trading the virtual currency, has operated as an unlicensed money transmitting business in violation of federal law, the Department of Homeland Security charged in warrants issued recently by the U.S. District Court in Baltimore.
The warrants authorize the government to seize funds held in accounts that Mt. Gox, based in Tokyo, allegedly maintains at Wells Fargo, the nation's fourth-biggest bank, and at Dwolla, an alternative payments provider in Des Moines, Iowa.
While opening a Wells Fargo account for a subsidiary in 2011, Mt. Gox's chief executive allegedly answered "no" when asked by the bank if his company dealt in, exchanged or transmitted money.
A Wells Fargo spokesman would not discuss the warrant.
U.S. law requires businesses that transmit money to adhere to state licensing laws and to register with the Treasury Department's Financial Crimes Enforcement Network, which enforces laws that aim to prevent money laundering.
Businesses that register with Fincen also must authenticate the identity of customers and report suspicious activity, a requirement that runs counter to the setup of Bitcoin, which enables users to transact anonymously.
In March, Fincen issued rules "clarifying" that registration requirements apply to certain businesses that deal in bitcoins and other cryptocurrencies. Neither Mt. Gox nor Mutum Sigillum, the Delaware-based subsidiary of the exchange that banked at Wells Fargo, has registered with Fincen as a money services business, the government charged.
"The moment an exchanger is considered a money transmitter a whole slew of regulations fall on you," says Juan Llanos, a risk management expert. "This should be seen as a huge red flag by Bitcoin entrepreneurs."