Academic journal article St. Thomas Law Review

Bitcoin ATM: A Criminal's Laundromat for Cleaning Money

Academic journal article St. Thomas Law Review

Bitcoin ATM: A Criminal's Laundromat for Cleaning Money

Article excerpt


Bitcoin and other "virtual currencies" are becoming more popular with each passing day. (2) Most recently, Bitcoin Automated Teller Machines ("Bitcoin ATM") have been gaining publicity as the machines become more popular with Bitcoin users. (3) Prior to the advent of the Bitcoin ATM, Bitcoin already had an increased potential for money laundering because the area in which it operates is semi self-regulated. (4) With the addition of Bitcoin ATMs, there is an even higher risk of money laundering because users can exchange cash for Bitcoins and, in some cases, vice versa via the Bitcoin ATM. (5) For example, Drug Dealer Dan, who just completed a cash for drugs transaction, takes his "hard earned" cash and deposits it into a Bitcoin ATM. (6) Once the cash is deposited, the Bitcoin ATM exchanges the cash for Bitcoins at the going rate. (7) With little to no personal information necessary for the exchange, Drug Dealer Dan is now free to purchase items using his Bitcoin Wallet or exchange the Bitcoins for cash at another Bitcoin ATM. (8) Voila! His "dirty" cash has been cleaned. (9)

This comment discusses how solely applying current Bank Secrecy Act (10) ("BSA") and Department of Treasury Financial Crime Enforcement Network (11) ("FinCEN") regulations to virtual currency--specifically Bitcoin ATMs--will put a strain on Bitcoin ATM owners and the industry, but will not reduce the risk of money laundering. (12) Part II of this comment discusses the characteristics of Bitcoin, explains the environment in which it exists, and how individuals use Bitcoin. (13) In Part III, this comment discusses how BSA regulations apply to virtual currency. (14) Additionally, Part III analyzes how Bitcoin ATM owners and operators would be classified under FinCEN's 2013 guidance. (15) Part IV shifts focus to the potential BSA requirements for Bitcoin ATM owners and operators, and discusses the potential for criminal and civil sanctions for disregarding BSA regulations. (16) Lastly, Part V discusses how the current identification requirements under the BSA are not conducive for Bitcoin ATMs to properly identify their customers. (17) Part V additionally suggests FinCEN implement regulations that will create a balance between the need to identify customers and Bitcoin's focus of anonymity. (18) The focus of the suggested regulation is to equip Bitcoin ATMs with (1) a passport or government issued identification ("ID") scanner; (2) software that matches the information gathered from the ID with state and national databases; (3) a camera that takes a picture of the Bitcoin ATM user in real-time (19); and (4) facial recognition software that matches the scanned ID with the picture taken in real-time and with the picture on file with the issuing authority. (20) This proposed regulation would make it easier to fight money laundering at Bitcoin ATMs while balancing the privacy concerns held by Bitcoin users. (21)


In 2008, the concept of Bitcoin--"a peer-to-peer electronic cash system"--was originally proposed on the Cryptography Mailing List by someone named Satoshi Nakamoto. (22) Nakamoto's true identity is somewhat of a folklore among the various sectors of the computer industry. (23) Although no one may know the true identity of the creator of Bitcoin, one thing is certain--Bitcoin and other virtual currencies are becoming more popular. (24)

Even with its increased popularity, most people still have no idea what a Bitcoin is or how it works. (25) In March 2013, FinCEN issued a guidance which defined "virtual" currency as "a medium of exchange that operates like [real] currency (26) in some environments, but ... does not have legal tender status in any jurisdiction." (27) As a virtual currency, Bitcoin is decentralized and is based solely on the Internet. (28) Because Bitcoin is decentralized, it is not backed by any country's government and no single individual controls it. (29) Furthermore, every transaction (or exchange)-whether it be "mined" (30) Bitcoins, individuals and businesses using them to purchase goods and services, or exchanges for investment purposes--is recorded and confirmed (31) in an online public ledger ("Blockchain" or "General Ledger") which is available for the world to see. …

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