WASHINGTON – Federal officials have seized funds belonging to a website that serves as an exchange for the virtual currency Bitcoin, marking the first time the government has moved against the controversial online money system.

Immigration and Customs Enforcement confirmed that it had frozen the accounts of Mt.Gox, the world’s leading Bitcoin exchange. Many people use Dwolla, a PayPal-like payment network, to send dollars to their Mt.Gox accounts. They then use those dollars to buy Bitcoins.

On Tuesday, Dwolla announced that it had frozen Mt.Gox’s account based on a warrant issued by a federal judge in Baltimore.

Washington has been rumbling about the digital currency since it broke into mainstream attention in 2011, when the website Gawker explained how to use it to buy drugs.

In the wake of that, Sen. Charles Schumer, D-N.Y., described Bitcoin as an “online form of money laundering” and called for the authorities to shutter the Bitcoin-based drug market Silk Road. Yet until recently, the federal government has taken a relatively hands-off posture.

A new wave of attention has focused on the currency as its value has soared in recent months. One Bitcoin is currently worth about $110, up from $13.50 at the start of the year.

Federal law requires organizations that provide money transmission services to register with the Treasury Department’s Financial Crimes Enforcement Network. In March, FinCEN issued guidance classifying Bitcoin exchanges as money transmitters. But according to a warrant sought by ICE and approved Tuesday, Mt.Gox had failed to register as the law requires, subjecting its funds to forfeiture.

The government relies heavily on financial institutions to help monitor financial activities and flag or block potentially illegal transactions. The lack of intermediaries makes Bitcoin an attractive technology for those who want to evade government scrutiny, which has drawn the attention of federal authorities.


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