Bitcoin and money laundering

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Virtual currency

Virtual currency (VC) refers to any type of digital unit that is used as a medium of exchange or a form of digitally stored value created by agreement within the community of VC users. Bitcoin is just among virtual currency that may be exchanged for legal tender (money). As I previously wrote, the Bangko Sentral ng Pilipinas (BSP/ central bank) does not endorse but regulates the movement of VC in the country. It issued BSP circular no. 944, series of 2017 setting forth the guidelines for virtual currency exchanges.

Bitcoin and other VCs may be used as vehicles for money laundering
In subjecting VC and bitcoin movement to anti-money laundering laws, the BSP recognized that the high degree of anonymity, velocity of transactions, volatility of prices and global accessibility could make bitcoin and VCs potential tools to launder unlawfully-acquired money (drug money, kidnap ransom money, and the like).

This is why compliance with reportorial requirements are required of VC exchange companies such as coins.ph. In particular, payouts of more than PhP 500,000.00 (USD 10,000) must be paid by the VC exchange only by check payment or direct deposit to bank accounts.

This provides another layer of security to ensure compliance with anti-money laundering laws. Banks are subject to the general power of supervision of the BSP. Pursuant to such vast power, the BSP may examine the records of banks at any time to check compliance with banking and related laws.

In this way, while VC exchanges are not expressly “covered persons” under the anti-money laundering law ( Republic Act No. 9160 as amended) their transactions with banks may subject them to “covered transactions” which banks are required to report to the Anti-money Laundering Council. Covered transactions include transactions in cash or its equivalent exceeding PhP 500,000.00 / USD 10,000.

 

Closure of bank accounts with bitcoin transactions

I have read some unverified Facebook posts that certain depositors’ accounts who received bitcoin payouts were closed by their banks allegedly pursuant to BSP policy. Regardless of the amount of your bitcoin payout, your transaction may be flagged as a suspicious transaction under anti-money laundering law. A suspicious transaction refers to one, regardless of amount, with the following characteristics :

1. there is no underlying legal or trade obligation, purpose or economic justification;

2. the client is not properly identified;

3. the amount involved is not commensurate with the business or financial capacity of the client;

4. taking into account all known circumstances, it may be perceived that the client’s transaction is structured in order to avoid being the subject of reporting requirements under the AMLA;

5. any circumstance relating to the transaction which is observed to deviate from the profile of the client and/or the client’s past transactions with the covered person;

6. the transaction is in any way related to an unlawful activity or any money laundering activity or offense that is about to be committed, is being or has been committed; or

7. any transaction that is similar, analogous or identical to any of the foregoing.

The Facebook posts I saw claimed that their accounts were closed as they made money purely from bitcoin trading. The person had no job or other source of income aside from bitcoin trading. Moreover the payouts appeared to be in the six figures.

Now for a purely unemployed person, this raises red flags that the recipient of the payout is a mere mule for laundering dirty money. Clearly the transaction reeks of being one without any underlying economic justification, the amount is not commensurate to the person’s financial capacity and most importantly the source of the payout is unidentified, other than the bitcoin exchange of course (the buyer of the bitcoin with whom you trade with is unidentified unlike in conventional capital securities trading, where the corporation logs the transfers of shares), as to come within the purview of a suspicious transaction, which must be flagged and reported to the Anti-money Laundering Council.

Moreover the bank may review its relationship with the individual according to the 2016 IRR of the anti-money laundering law. Does this also give the bank the right to unilaterally close the account? Maybe, as the bank may justify that pursuant to its right to review its relationship with the individual who has suspicious transactions. Banking with you is a contract. Contracts are generally consensual so the bank cannot be forced to contract with you if it no longer wants to.

Do you trade bitcoin? How do you receive your payouts?

George

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