After a recent three-day conference in London, the newly-formed Commonwealth Virtual Currencies Working Group, concluded that digital currencies, including Bitcoin, have “a potential to benefit Member States and to drive development,” but not without risks. A press release states the group made various recommendations, urging the 53 members of the Commonwealth to regulate virtual currencies as well as “providing awareness, education and funding for training for law enforcement, prosecutors, judges, regulatory authorities and the financial sector.”
“Member states should consider the applicability of their existing legal frameworks to virtual currencies and where appropriate they should consider adapting them or enacting new legislation to regulate virtual currencies.”
— – Commonwealth Virtual Currencies Working Group
At the meeting there were indications of both respect and the desire to control digital currencies. Overall, the tone sounded more positive than negative towards digital currencies, advocating education over any other prescription.
The Commonwealth of Nations is an intergovernmental organization composed of 53 Nations that are or used to be part of the extended British Empire. Nearly one-third of the Earth’s population belongs to a Commonwealth nation, including the United Kingdom, India, Canada, Australia, Malaysia, and many African, Caribbean, and Pacific Islands nations. Although they work closely with the UN, the IMF, and the World Bank, the United States is not typically represented at Commonwealth meetings.
The newly created specialist Commonwealth Virtual Currencies Working Group was created to “raise awareness, develop capacity among member states and provide technical guidance” about digital currencies. The group consists of The Commonwealth Secretariat, the UK, Australia, Barbados, Kenya, Nigeria, Singapore, and Tonga, together with the IMF, World Bank, Interpol and the United Nations Office on Drugs and Crime. (UNODC)
Their recent meeting was the first time the group had met, and took place on 24-26 August 2015. This three-day conference, chaired by Mr. Colin Nicholls, Queen’s Counsel and barrister, was attended by representatives of six Commonwealth member states, representatives of the Commonwealth Secretariat, Commonwealth Telecommunications Organization, International Monetary Fund, World Bank and US Government.
Several experts were invited from academia, the banking sector, virtual currency operations, and law enforcement agencies to explain the pros and cons of virtual currencies including Bitcoin.
Among presenters were the UK Digital Currency Association (UKDCA), the non-profit advocacy group for digital currency and blockchain technologies, BitPesa the Kenyan remittance service, Bitt a Barbadian virtual currency exchange, and Ripple Labs, a US-based provider of decentralized payment services.
The Group agreed that Member States should be encouraged to implement ‘Guidance for a Risk Based Approach to Virtual Currencies’, published in June by the Financial Action Task Force (FATF), an independent intergovernmental body whose recommendations are recognized as the global Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) standard.
Quoting from the FATF Guide, experts explained during the conference that bitcoin could “provide solutions to economic inequality”. Interest was shown in Bitcoin’s ability to provide alternative banking solutions to a large percentage of the unbanked globally, whilst reducing transaction costs.
The Financial Action Task Force (FATF) also states, “Virtual currency may also facilitate international remittances and support financial inclusion in other ways, as new virtual currency-based products and services are developed that may potentially serve the under- and un-banked.”
In addition to extolling virtues such as helping the unbanked, fee reductions, and enabling micropayments, bitcoin was mentioned for its use as a common global currency.
“Bitcoin functions as a global currency that can avoid exchange fees, is currently processed with lower fees/charges than traditional credit and debit cards, and may potentially provide benefit to existing online payment systems, like Paypal. Virtual currency may also facilitate micro-payments, allowing businesses to monetise very low-cost goods or services sold on the Internet, such as one time game or music downloads.”
— – Financial Action Task Force (FATF)
Bullish statements regarding virtual currency were also evident at the meeting. Aminiasi Kefu, Tonga’s Acting Attorney General, stated Tonga’s perspective, in that virtual currency is a phenomena which has already arrived. Tongan real estate, buildings and businesses are being advertised for sale on the internet for virtual currency, such as bitcoin.
“Small jurisdictions such as Tonga must therefore prepare themselves for this new wave of development, both in order to allow our citizens to embrace and advance their prosperity through this new technology, but at the same time protect our citizens and infrastructure from the criminal usage of virtual currencies."
— – Kefu
With such bullish insight, the group may very well have some immediate influence on member countries, such as Bangladesh, who have made Bitcoin illegal inside their own countries. However, other countries and presenters to the group pointed out in detail that there are associated risks with digital currencies such as value fluctuation and criminal misuse.
According to the Commonwealth Group, “Virtual currencies are digital representations of value that can be traded and exchanged between online communities. It is their function as an anonymised substitute for traditional currency to trade goods and services that provides their economic worth. Criminal use of virtual currencies mainly takes place in areas of the dark web or the hidden web making it very difficult for investigating authorities to determine the extent of illegal activity and take necessary action.”
The FATF Guidance listed a number of large online money laundering cases involving the use of virtual currency for money laundering purposes and referenced the May 2013 Liberty Reserve case as “the largest online money-laundering case in history.” The US Department of Justice charged the Costa Rica-based money transmitter, and seven of its principals and employees with operating an unregistered money transmitter business and money laundering of more than 6 billion USD.
Among topics discussed was the issue of anonymity. Not only was it mentioned that bitcoin addresses have no names or other customer identification attached, but the system has no central server or service provider. Users of bitcoin can therefore remain anonymous in such a way that is not possible with traditional or online methods of payments such as PayPal, credit and debit cards. In addition, different entities and jurisdictions may be involved in transactions, making it difficult for law enforcement and regulators to obtain records and enforce anti-money laundering laws.
“The Bitcoin protocol does not require or provide identification and verification of participants or generate historical records of transactions that are necessarily associated with real world identity. There is no central oversight body, and no AML software currently available to monitor and identify suspicious transaction patterns. Law enforcement cannot target one central location or entity (administrator) for investigative or asset seizure purposes (although authorities can target individual exchangers for client information that the exchanger may collect).” –Financial Action Task Force (FATF)
It appears, acceptance won out over fear, as practical solutions were discussed.
“The emergence of the first cryptocurrency, Bitcoins, showed law enforcers that criminals were able to conduct anonymous financial transactions. But recently researchers have shown how a global record of these transactions can be analysed to reveal who lies behind what were once thought to be anonymous transactions. This gives law enforcers a tool with which to fight back.”
— – Commonwealth Group
No matter what the group’s actual motives are, there appears to be a real sense of understanding of what the blockchain can provide and how it works. “Users can remain anonymous, making them susceptible to criminal exploitation. However, experts now argue transactions can be traced by analysing the blockchain – the public record of all transactions," stated the Commonwealth Group.
The next meeting of the Commonwealth Virtual Currencies Working Group is scheduled for “early 2016.” With time and so much understanding from such a powerful organization, the promise of good things for digital currencies, including Bitcoin, seems assured.