August 13, 2013

N.Y. seeks to rein in virtual currencies

Products such as bitcoin are legitimate but offer anonymity for criminal acts, a state official says.

The Associated Press

ALBANY, N.Y. — New York is trying to corral the "Wild West" atmosphere of virtual currencies such as Bitcoin and may create new regulations to keep the growing technology from being used in crimes.

Financial Services Superintendent Benjamin Lawsky's inquiry is confirmed in a memo provided Monday to The Associated Press.

"We have seen instances where the cloak of anonymity provided by virtual currencies has helped support dangerous criminal activity, such as drug smuggling, money laundering, gun running and child pornography," Lawsky wrote in the memo dated Monday. He described virtual currencies as a "Wild West" for criminals that could threaten national security.

The memo cites a wide range of companies and investors who received subpoenas for documents and data, which Lawsky said will be reviewed to help better understand the burgeoning industry. Among the investors on the list are Google Ventures and another company called Winklevoss Capital Management, with "key personnel" listed as Tyler and Cameron Winklevoss -- the twins who sued Mark Zuckerberg in 2004, claiming he stole the idea for Facebook from a company founded by the Winklevosses and a third person from Harvard.

There was no immediate response to a request for comment from the Winklevoss brothers.

Lawsky said the investigation could lead to regulations that would also benefit virtual currency, which he called an innovative product and a legitimate business enterprise.

Virtual currency is composed of digital bits and based on mathematical schemes that guard against counterfeiting. Bitcoin was started in 2009 as a currency free from government controls, an entirely digital means of exchange for a digital age. It's a rapidly growing phenomenon that has taken root as a payment method on some websites for both legal and illegal goods.

Lawsky said his department is considering whether it should issue new regulatory guidelines, rather than try to adjust current laws on legal tender to include the new technology.

Lawsky said he plans to meet with members of the virtual currency industry before new regulations are created to protect consumers and national security.

Bitcoin is similar to the gold standard monetary system in force before modern central banking began in the 1930s. Under the gold standard, each unit of currency was worth a certain amount of gold, leaving governments few means to increase the amount of currency in circulation.

 

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