Canadian Finance Department memo notes bitcoin is attractive to criminals

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Last updated on July 29th, 2014 at 05:22 pm

A newly disclosed Canadian Department of Finance internal memo warns that the peer-to-peer decentralized digital currency bitcoin’s anonymity and paucity of regulations may be determining factors that make it attractive to criminals.

The internal memo, which was prepared for Finance Minister Jim Flaherty, who passed away earlier this year, noted that it remains unclear to how much bitcoin is complicit in illicit transactions, but there are still plenty of white flags to suggest that it has the potential be involved in illegal activities.

Bitcoin exchanges, says the memo, could be venues to fund money laundering schemes and terrorist plans, while also generating tremendous risk for consumers who wish to participate in the financial innovation and payment alternatives.

“Virtual currencies such as Bitcoin have been criticized for their potential to fund illicit activity, such as money laundering and terrorist financing,” the memo states. “For example, there have been a number of security incidents in which Bitcoin wallets or other infrastructures have been compromised. These incidents have exposed users to either theft of Bitcoins or theft of personal information given to Bitcoin exchanges.”

Although this department memo is garnering headlines, there were actually several more, including an analysis performed by the Royal Canadian Mounted Police (RCMP), which concluded that bitcoin and other virtual currencies offer a new method to launder money received from criminal endeavors and practices.

In February, then-Finance Minister Jim Flaherty introduced his final budget. In it, the federal government confirmed that it does not view bitcoin and other digital currencies as legitimate currencies. The budget documents further added that the “emerging risks” stemming from bitcoin need to be addressed immediately.

“It is important to continually improve Canada’s regime to address emerging risks, including virtual currencies such as Bitcoin, that threaten Canada’s international leadership in the fight against money laundering and terrorist financing,” the budget noted.

Last month, according to Christine Duhaime, B.A., J.D., Financial Crime and Certified Anti-Money Laundering Specialist, the Canadian government passed Bill C-31, a measure that essentially became the first bitcoin regulation in the Great White North.

A few of the regulations consisted of extensive record keeping and registration under the Proceeds of Crime Money Laundering and Terrorist Financing Act, bitcoin businesses being required to register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and banks would be banned from dealing with business businesses that are not registered under FINTRAC.

This created dissension in the Canadian community. The Montreal Economic Institute (MEI) wrote in a report that bitcoin could not grow without government regulations.

“Everyone’s looking at the way the Bitcoin protocol works because it’s so much less expensive and so much more seamless, and kids love it and that’s the way we’re going. So the danger is, if we over-regulate this, we’re going to lose the technology we’re developing in Canada,” Duhaime told the Canadian Press. “It’s fantastic technology, and the other side, though, is it does have some financial crime risk.”

Nevertheless, Canada is still home to the second-most bitcoin investments from venture capitalists and angel investors.


CoinBuzz provides news and analysis on Bitcoin and other digital currencies. Founded in 2014, the site has quickly become a leading source of information on digital currency technologies, businesses, markets, and regulation.

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