Author: Nyman Gibson Miralis
Subject: Digital Currency
Keywords: regulating digital currency, monitoring digital currencies, digital money, suspicious online financial activity.
There are many advantages to the use of digital currencies, including the ability to trade online without having to use “real” money, lower transaction costs and increased payment efficiency. However, the very real downside of digital currencies is that their use can provide a fertile breeding ground for financial crimes.
In its Money Laundering in Australia and Terrorism Financing in Australia 2014 reports, the Australian Transaction Reports and Analysis Centre (AUSTRAC) outlines key areas of concern about digital currencies, including the potential for them to be used by criminal organisations to launder money, or to easily and covertly provide terrorism financing.
The vastly increased reach of online connectivity also means that digital currencies can now be transferred anonymously into much more remote parts of the globe.
Given these circumstances, any illegal activities relating to digital currencies are not simply the problem of one country’s law enforcement. Particularly against the background of AUSTRAC’s concerns about the ultimate uses of digital currencies, it is evident that there needs to be a clearly implemented system for regulating and monitoring the use of this technology.
But how does the current Australian and international approach to regulating and monitoring digital currencies look? Is there room for improvement?
The Current Approach to Regulating Digital Currencies
As set out in the Attorney-General’s Department’s submission to the Senate Economics References Committee Inquiry into Digital Currencies in December 2014, Australia has not implemented a specific digital currency legislative regime.
Instead, it has defined a very narrow sub type of digital currencies (those backed either by precious metals or bullion) as coming within the scope of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth).
In addition, because most frequently used digital currencies still require actual “real” money at some point (either to convert into digital currency or to be converted back into cash at the end of the transaction), Australia’s pre-existing banking and finance laws tend to cover the financial transaction at some point.
To July 2017, Australia has effectively been able to rely on a legal loophole when regulating digital currencies.
However, it is anticipated that in the future there will be no need to convert any form of “hard” cash into digital money before it can be used. It is therefore essential that Australia improves its regulatory regime well in advance of this time.
Internationally, the submission notes that only the US and Canada have provided any clear indication as to how their governments intend to deal with digital currencies. The US has released various clarifying guidelines as to what it considers to be “digital currency” and how this is to fall within its current banking and regulatory regime. Canada has implemented specific legislation which makes it clear that dealers in digital currencies are subject to the same legal requirements and potential penalties as dealers in traditional currencies.
By contrast, Europe and the United Kingdom have generally suggested that it is important to have regulation surrounding digital currencies, but have not taken any concrete steps to implement any such regulations.
What are the key areas for improvement?
Domestically speaking, an obvious regulatory improvement is the creation of specific legislation aimed at digital currencies. This would need to clearly define what the use of digital currencies constitutes, but would also readily identify that, as digital currencies improve in efficiency and reliance on “real world” money reduces, Australia’s financial laws are intended to regulate their use in the same way as traditional currencies.
As the submission states, it is clear that digital currencies pose a potential global problem. Funds can be sent from a person in Beijing to another person in Coober Pedy, and ultimately be used by somebody as far away as Riga. Perhaps the key area for improvement is to ensure that there is movement towards a global approach for dealing with the regulation of digital currencies.
Although it is unfeasible and impractical to suggest that there be uniform legislation worldwide, an important step would at least involve an acknowledgement that digital currencies need to be monitored and dealt with on a global basis.
In practical terms, this could be effected via increased information-sharing between national governments and law enforcement organisations, improved monitoring of suspicious online financial activity, and better evidence sharing between regulators, legislators and enforcers of financial crimes in different countries.
Digital currencies are here to stay and represent a very useful modern payment method. However, given the potential risks for criminal activity associated with digital currencies, it is essential that governments maintain a strong focus on regulating and monitoring their use by creating new legislative instruments and seeking to cooperate worldwide to deal with a potentially global threat.
Nyman Gibson Miralis specialise in all aspects of Bitcoin and digital currency & encryption law, assisting companies and individuals who are the subject of investigations by AUSTRAC, the AFP, ATO and ACIC. If you require assistance, contact one of our expert criminal defence lawyers