The Government Accountability Office (the “GAO”) issued a report concerning virtual currencies (the “Report”) to the U.S. Senate’s Committee on Homeland Security and Governmental Affairs. The Report discusses emerging regulatory, law enforcement and consumer protection challenges related to virtual currencies i.e., digital representations of value (such as bitcoins) that are not government-issued.
The GAO found that virtual currencies are posing emerging and increasing challenges to federal financial regulatory and law enforcement agencies. As examples of these challenges, the GAO cited:
- the greater anonymity provided by virtual currencies as opposed to traditional payment systems, which makes it more difficult for agencies to detect money laundering and other criminal activity;
- the global nature of virtual currencies, which often leads to payments and fund transfers across borders thereby requiring U.S. agencies “to rely upon cooperation from international partners who may operate under different regulatory and legal regimes;” and
- consumer and investor protection issues raised by volatility in bitcoin prices, loss of consumer funds maintained by bitcoin exchanges and new virtual-currency-based investment products.
In the Report, the GAO found that federal financial regulatory and law enforcement agencies have focused their efforts on fighting money laundering and other criminal activities related to bitcoin and other virtual currencies. The GAO concluded that increased attention should be given to emerging consumer protection issues related to the use of virtual currencies, and the GAO recommended that the Consumer Financial Protection Bureau (“CFPB”) “take steps to identify and participate in pertinent interagency working groups addressing [issues related to] virtual currencies.” Included as an exhibit to the Report is a letter from the CFPB in which the CFPB agreed with the GAO’s recommendation that CFPB increase its involvement in interagency working groups addressing regulation of virtual currencies, and in particular, consumer protection concerns. Among the other appendices and figures provided with the Report are a figure listing ways to obtain and spend bitcoins and a figure illustrating the price volatility of bitcoins.