Many of those in the business of Bitcoin admit to pleasant surprise that financial regulators – notably the Treasury Department and its Financial Crimes Enforcement Network – have helped legitimize the virtual currency and avoided heavy-handed restrictions. That détente continued this week with an announcement that Bitcoin now has a seat at the regulatory table.

In a speech before the Association of Certified Anti-Money Laundering Specialists' annual conference in Miami, Jennifer Shasky Calvery, FinCEN's director, announced for the first time that a member of the virtual currency community will represent their interests as part of Treasury's Bank Secrecy Act Advisory Group. The group brings together representatives from regulatory and law enforcement agencies, financial institutions, and trade associations to advise it on policy recommendations.

“We are hopeful that formally including the virtual currency community's voice in BSAAG will mean that our regulatory approach as a whole, including virtual currencies specifically, is better informed and more effective,” Calvery said.

As Bitcoin grows in popularity, however, it may engender greater scrutiny. In fact, Calvery pointed out, its niche market is one reason that regulators haven't been more aggressive. Bitcoin users processed transactions worth approximately $8 billion over the twelve-month period preceding October 2013, a statistic that may be artificially high due to the extensive use of automated layering in many transactions, she said. By comparison, in 2012 Western Union made remittances totaling approximately $81 billion, PayPal processed approximately $145 billion in online payments, the Automated Clearing House Network processed $36.9 trillion in transactions, and Bank of America processed $244.4 trillion in wire transfers.

“While of growing concern, to date, virtual currencies have yet to overtake more traditional methods to move funds internationally, whether for legitimate or criminal purposes,” she said.

Calvery's come exactly one year after FinCEN issued interpretive guidance for businesses and individuals engaged in money transmitting services and offering virtual currencies. The guidance explains that administrators or exchangers of virtual currencies must register with FinCEN, and institute recordkeeping, reporting, and AML controls. The guidance also explains that those who use virtual currencies exclusively for buying goods or services online are users, and not subject to BSA regulatory requirements.

Since FinCEN issued the guidance, dozens of virtual currency exchangers have registered with it and some are beginning to comply with reporting requirements and filing suspicious activity reports,” Calvery said. “They appear to be appreciative of the need to develop controls to make themselves resilient to abuse by bad actors,” she said.

That perspective, not surprisingly, echoed remarks also made on March 18 by David Cohen, under secretary for Treasury's Office of Terrorism and Financial Intelligence.

Despite a litany of potential risks, Bitcoin is not yet popular and stable enough to be a top concern, Cohen said, describing a “measured” regulatory approach in the U.S.

“We do not currently see widespread use of virtual currencies as a means of terrorist financing or sanctions evasion,” he said. “The volatility associated with virtual currency, combined with its low capitalization and liquidity, has limited its appeal to these illicit actors. Terrorists generally need ‘real' currency, not virtual currency, to pay their expenses – such as salaries, bribes, weapons, travel, and safehouses. The same is true for those seeking to evade sanctions."

While the Bitcoin landscape is evolving at the state and federal level, Treasury's approach to regulating virtual currency is still “rooted in two guiding principles, fostering innovation and ensuring transparency,” Cohen said.

“In the long run, financial transparency and financial innovation are mutually reinforcing,” he added. “All responsible parties in the virtual currency industry should be able to agree to this proposition.  In fact, many invested in the virtual currency space have argued that only through effective regulation can the technology gain mainstream acceptance and become a real part of global commerce.”

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