Memo warns of Bitcoin-related crime
OTTAWA—The high level of anonymity and lack of regulation associated with Bitcoin transactions may make the virtual currency “an attractive payment method for criminals,” warns a newly-disclosed Finance Department memo.
The internal memo, prepared for former Finance minister Jim Flaherty, said while the degree of criminal activity involving Bitcoin is unclear, some have raised flags about its potential to fund illicit behaviour.
Users can install a Bitcoin wallet on their computer or mobile phone, which will generate a special address to which others can send payments.
“With the press of a computer button, you’ve transferred the value,” said Christine Duhaime, a lawyer and certified financial crime and anti-money laundering specialist.
Transactions are sent to a public network for verification.
As the memo to Flaherty noted, although both parties’ Bitcoin and Internet Protocol, or IP, addresses are transmitted to the public network, no additional information is provided about either user.
Various Bitcoin exchange services allow users to convert local currency into Bitcoins, or vice-versa.
“Virtual currencies such as Bitcoin have been criticized for their potential to fund illicit activity, such as money laundering and terrorist financing,” the memo to Flaherty said.
While virtual currency schemes can promote financial innovation and provide payment alternatives, they also entail risks for consumers, the note added.
“For example, there have been a number of security incidents in which Bitcoin wallets or other infrastructures have been compromised,” it said.
“These incidents have exposed users to either theft of Bitcoins or theft of personal information given to Bitcoin exchanges.”
The May, 2013 memo to Flaherty, who died in April, was released under the Access to Information Act.
It was among several internal notes—including an RCMP analysis—revealing concern among federal officials about Bitcoin and other virtual currencies.
Since Bitcoin transactions are digitally recorded, authorities “can usually figure out” who has made a transfer, Duhaime said.
But it currently requires considerable effort to do so, taxing police resources, she added.