VIRTUAL 

CURRENCIES

Emerging Regulatory,

Law Enforcement, 

and Consumer 

Protection Challenges

Report to the Committee on Homeland 

Security and Governmental Affairs, 

U.S. Senate

May 2014

GAO-14-496

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-496, a report to the 

Committee on Homeland Security and 

Governmental Affairs, U.S. Senate

May 2014

VIRTUAL CURRENCIES

Emerging Regulatory, Law Enforcement, and 

Consumer Protection Challenges

Why GAO Did This Study

Virtual currencies—digital 

representations of value that are not 

government-issued—have grown in

popularity in recent years. Some virtual 

currencies can be used to buy real 

goods and services and exchanged for 

dollars or other currencies. One

example of these is bitcoin, which was 

developed in 2009. Bitcoin and similar 

virtual currency systems operate over 

the Internet and use computer 

protocols and encryption to conduct 

and verify transactions. While these 

virtual currency systems offer some 

benefits, they also pose risks. For 

example, they have been associated 

with illicit activity and security 

breaches, raising possible regulatory, 

law enforcement, and consumer 

protection issues. GAO was asked to 

examine federal policy and interagency 

collaboration issues concerning virtual 

currencies. 

This report discusses (1) federal 

financial regulatory and law 

enforcement agency responsibilities 

related to the use of virtual currencies 

and associated challenges and (2) 

actions and collaborative efforts the

agencies have undertaken regarding 

virtual currencies. To address these 

objectives, GAO reviewed federal laws 

and regulations, academic and industry 

research, and agency documents; and 

interviewed federal agency officials, 

researchers, and industry groups.

What GAO Recommends

GAO recommends that CFPB take 

steps to identify and participate in

pertinent interagency working groups 

addressing virtual currencies, in 

coordination with other participating 

agencies. CFPB concurred with this 

recommendation.

What GAO Found

Virtual currencies are financial innovations that pose emerging challenges to 

federal financial regulatory and law enforcement agencies in carrying out their 

responsibilities, as the following examples illustrate:

• Virtual currency systems may provide greater anonymity than traditional 

payment systems and sometimes lack a central intermediary to maintain 

transaction information. As a result, financial regulators and law enforcement 

agencies may find it difficult to detect money laundering and other crimes 

involving virtual currencies.

• Many virtual currency systems can be accessed globally to make payments 

and transfer funds across borders. Consequently, law enforcement agencies

investigating and prosecuting crimes that involve virtual currencies may have 

to rely upon cooperation from international partners who may operate under 

different regulatory and legal regimes. 

• The emergence of virtual currencies has raised a number of consumer and 

investor protection issues. These include the reported loss of consumer 

funds maintained by bitcoin exchanges, volatility in bitcoin prices, and the 

development of virtual-currency-based investment products. For example, in 

February 2014, a Tokyo-based bitcoin exchange called Mt. Gox filed for 

bankruptcy after reporting that it had lost more than $460 million.

Federal financial regulatory and law enforcement agencies have taken a number

of actions regarding virtual currencies. In March 2013, the Department of the 

Treasury’s Financial Crimes Enforcement Network (FinCEN) issued guidance 

that clarified which participants in virtual currency systems are subject to antimoney-laundering requirements and required virtual currency exchanges to 

register with FinCEN. Additionally, financial regulators have taken some actions 

regarding anti-money-laundering compliance and investor protection. For 

example, in July 2013, the Securities and Exchange Commission (SEC) charged 

an individual and his company with defrauding investors through a bitcoin-based

investment scheme. Further, law enforcement agencies have taken actions 

against parties alleged to have used virtual currencies to facilitate money 

laundering or other crimes. For example, in October 2013, multiple agencies 

worked together to shut down Silk Road, an online marketplace where users paid 

for illegal goods and services with bitcoins. 

Federal agencies also have begun to collaborate on virtual currency issues 

through informal discussions and interagency working groups primarily 

concerned with money laundering and other law enforcement matters. However, 

these working groups have not focused on emerging consumer protection issues, 

and the Consumer Financial Protection Bureau (CFPB)—whose responsibilities

include providing consumers with information to make responsible decisions 

about financial transactions—has generally not participated in these groups. 

Therefore, interagency efforts related to virtual currencies may not be consistent 

with key practices that can benefit interagency collaboration, such as including all 

relevant participants to ensure they contribute to the outcomes of the effort. As a 

result, future interagency efforts may not be in a position to address consumer 

risks associated with virtual currencies in the most timely and effective manner.

View GAO-14-496. For more information, 

contact Lawrance L. Evans, Jr. at (202) 512-

8678 or evansl@gao.gov.
Page i GAO-14-496 Virtual Currencies

Letter 1

Background 4

Federal Agencies Face Emerging Challenges in Carrying Out 

Responsibilities Related to the Use of Virtual Currencies 12

Agencies Have Taken Some Actions on Virtual Currencies, but 

Interagency Working Groups Have Not Focused on Consumer 

Risks 24

Conclusions 39

Recommendation for Executive Action 40

Agency Comments 40

Appendix I How Bitcoins Enter into Circulation and Are Used in Transactions 42

Appendix II Interagency Working Groups that Have Addressed Virtual Currency 

Issues 43

Appendix III Comments from the Consumer Financial Protection Bureau 49

Appendix IV Comments from the National Credit Union Administration 50

Appendix V GAO Contact and Staff Acknowledgments 51

Table

Table 1: Interagency Working Groups that Have Addressed Virtual 

Currency Issues, as of April 2014 43

Figures

Figure 1: Ways to Obtain and Spend Bitcoins 8

Figure 2: Bitcoin Price Index in U.S. Dollars, January 1, 2013 

through March 31, 2014 10

Figure 3: Screen Shot of the Silk Road Website 33

Contents
Page ii GAO-14-496 Virtual Currencies

Figure 4: How Bitcoins Enter into Circulation and Are Used in 

Transactions 42

Abbreviations

BSA Bank Secrecy Act

BSAAG Bank Secrecy Act Advisory Group

CFPB Consumer Financial Protection Bureau

CFTC Commodity Futures Trading Commission

DATA Digital Asset Transfer Authority

DEA Drug Enforcement Administration

DHS Department of Homeland Security

DOJ Department of Justice

ECTF Electronic Crimes Task Forces

EFTA Electronic Fund Transfer Act

FATF Financial Action Task Force

FBI Federal Bureau of Investigation

FDIC Federal Deposit Insurance Corporation

FFIEC Federal Financial Institutions Examination Council

FinCEN Financial Crimes Enforcement Network

HSI Homeland Security Investigations

ICE U.S. Immigration and Customs Enforcement

IOC-2 International Organized Crime Intelligence and Operations 

Center

IRS Internal Revenue Service

NCUA National Credit Union Administration

OCC Office of the Comptroller of the Currency

SEC Securities and Exchange Commission

TOR The Onion Router

USAID United States Agency for International Development

VCET Virtual Currency Emerging Threats Working Group

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

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Page 1 GAO-14-496 Virtual Currencies

441 G St. N.W.

Washington, DC 20548

May 29, 2014

The Honorable Thomas R. Carper

Chairman

The Honorable Tom A. Coburn

Ranking Member

Committee on Homeland Security and Governmental Affairs

United States Senate

While not widely used or accepted, virtual currencies, such as bitcoin, 

have grown in popularity in recent years and have emerged for some as 

potential alternatives to traditional currencies issued by governments. 

Virtual currencies operate over the Internet and, in some cases, may be 

used to buy real goods and services and exchanged for traditional 

currencies. They offer potential benefits over traditional currencies, 

including lower transaction costs and faster funds transfers. Because 

some virtual currency transactions provide greater anonymity than 

transactions using traditional payment systems, law enforcement and 

financial regulators have raised concerns about the use of virtual 

currencies for illegal activities. Additionally, recent cases involving the 

loss of funds from virtual currency exchanges have highlighted potential 

consumer protection issues.

You asked us to examine potential policy issues related to virtual 

currencies and the status of federal agency collaboration in this area. This 

report focuses on the federal financial regulatory agencies and selected 

federal law enforcement agencies that have a role in protecting the U.S. 

financial system and investigating financial crimes.1

 1

Other federal agencies that were outside the scope of this report, such as the Internal 

Revenue Service (IRS), have responsibilities related to virtual currencies. For example, as 

we reported in May 2013, IRS is responsible for ensuring taxpayer compliance for all 

economic areas, including virtual economies and currencies. For more information, see 

GAO, Virtual Economies and Currencies: Additional IRS Guidance Could Reduce Tax 

Compliance Risks, 

Specifically, this 

report addresses (1) agency responsibilities related to the use of virtual 

currencies and the emerging challenges these currencies pose to the 

GAO-13-516 (Washington, D.C.: May 15, 2013). In March 2014, IRS 

determined that virtual currencies will be treated as property for purposes of U.S. federal 

taxes. Therefore, general tax principles that apply to property transactions apply to 

transactions using virtual currency. See IRS Notice 2014-21.
Page 2 GAO-14-496 Virtual Currencies

agencies; and (2) actions the agencies have taken in response to the 

emergence of virtual currencies, including interagency collaborative 

efforts. We selected the law enforcement agencies included in our review 

based on their involvement in investigating virtual-currency-related crimes 

and participation in interagency collaborative efforts and congressional 

hearings on virtual currency issues.

To describe agency responsibilities related to the use of virtual currencies 

and the emerging challenges these currencies pose, we reviewed the 

following agency information: testimony and written statements from 

relevant congressional hearings, written responses to congressional 

questions, unclassified intelligence assessments, financial reports, 

training presentations, and descriptions of missions and responsibilities 

from agencies’ websites.2 We also reviewed prior GAO reports, 

Congressional Research Service reports, and relevant laws and 

regulations, including the Bank Secrecy Act (BSA) and related anti-money 

laundering provisions such as Title III of the USA PATRIOT Act, to gain 

an understanding of agencies’ responsibilities in administering and 

enforcing anti-money-laundering laws and regulations, as well as in 

investigating and prosecuting financial and other crimes.3

• The Board of Governors of the Federal Reserve System (Federal 

Reserve);

In addition, we 

reviewed academic articles and papers from industry stakeholders. 

Further, we interviewed officials from the following federal financial 

regulatory and law enforcement agencies:

• The Bureau of Consumer Financial Protection (also known as the 

Consumer Financial Protection Bureau or CFPB);

• The Commodity Futures Trading Commission (CFTC);

• The Department of Homeland Security (DHS), including U.S. 

Immigration and Customs Enforcement–Homeland Security 

Investigations (ICE-HSI) and the U.S. Secret Service (Secret Service);

 2

We reviewed testimony and agency statements from two congressional hearings: the 

November 18, 2013, U.S. Senate Committee on Homeland Security and Governmental 

Affairs hearing “Beyond Silk Road: Potential Risks, Threats, and Promises of Virtual 

Currencies,” and the November 19, 2013, U.S. Senate Committee on Banking, Housing, 

and Urban Affairs hearing, “The Present and Future Impact of Virtual Currency.”

3

Pub. L. No. 91-508, 84 Stat. 1114 (1970) (codified as amended at 12 U.S.C. §§ 1829(b), 

1951-1959; 31 U.S.C. §§ 5311-5330); Pub. L. No. 107-56, 115 Stat. 272 (2001) (codified 

as amended in scattered sections of U.S.C.).
Page 3 GAO-14-496 Virtual Currencies

• The Department of Justice (DOJ), including the Criminal Division and 

two of its components—the Asset Forfeiture and Money Laundering 

Section and Computer Crime and Intellectual Property Section—and 

the Federal Bureau of Investigation (FBI);

• The Department of the Treasury (Treasury), including the Financial 

Crimes Enforcement Network (FinCEN) and the Office of the 

Comptroller of the Currency (OCC);

• The Federal Deposit Insurance Corporation (FDIC);

• The National Credit Union Administration (NCUA); and

• The Securities and Exchange Commission (SEC).

Additionally, we interviewed an academic whose research focused on 

virtual currencies and industry stakeholders, including the Bitcoin 

Foundation, the Digital Asset Transfer Authority (DATA), and the National 

Money Transmitters Association, which represent the interests of a large 

number of virtual currency and money transmission businesses.

To examine the actions and collaborative efforts federal agencies have 

undertaken in response to the emergence of virtual currencies, we 

reviewed agency information, including FinCEN’s regulatory guidance 

and administrative rulings on the applicability of BSA to virtual currency 

participants, testimony and written statements from the previously 

mentioned congressional hearings, written responses to congressional 

questions, intelligence assessments, a CFPB query of its Consumer 

Complaint Database, and press releases.4

 4

FinCEN, Application of FinCEN’s Regulations to Persons Administering, Exchanging, or 

Using Virtual Currencies, FIN-2013-G001, March 18, 2013; FinCEN, Application of 

FinCEN’s Regulations to Virtual Currency Mining Operations, FIN-2014-R001, January 30, 

2014; FinCEN, Application of FinCEN’s Regulations to Virtual Currency Software 

Development and Certain Investment Activity, FIN-2014-R002, January 30, 2014; and 

FinCEN, Application of Money Services Business Regulations to the Rental of Computer 

Systems for Mining Virtual Currencies, FIN-2014-R007, April 29, 2014.

We also interviewed officials 

from the agencies listed previously to obtain further information on the 

actions they have taken to address the emergence of virtual currencies 

and their efforts to collaborate with other federal agencies on this issue. 

Additionally, we interviewed the academic and industry stakeholders 

noted previously, as well as the Digital Economy Task Force, to 

determine the extent to which private sector groups were involved in 
Page 4 GAO-14-496 Virtual Currencies

interagency collaborative efforts.5 We reviewed GAO’s key practices on 

collaboration and assessed whether interagency collaborative efforts 

related to virtual currencies were consistent with practices concerning the 

inclusion of relevant participants.6

We conducted this performance audit from November 2013 to May 2014 

in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

Virtual currencies are financial innovations that have grown in number 

and popularity in recent years. While there is no statutory definition for 

virtual currency, the term refers to a digital representation of value that is 

not government-issued legal tender. Unlike U.S. dollars and other 

government-issued currencies, virtual currencies do not necessarily have 

a physical coin or bill associated with their circulation. While virtual 

currencies can function as a unit of account, store of value, and medium 

of exchange, they are not widely used or accepted. Some virtual 

currencies can only be used within virtual economies (for example, within 

online role-playing games) and may not be readily exchanged for 

government-issued currencies such as U.S. dollars, euro, or yen. Other 

virtual currencies may be used to purchase goods and services in the real 

economy and can be converted into government-issued currencies 

through virtual currency exchanges. In previous work, we described the 

 5

The Digital Economy Task Force was established in 2013 by Thomson Reuters (a 

multinational media and information firm) and the International Centre for Missing & 

Exploited Children to explore the benefits and risks of the emerging digital economy, 

including the use of virtual currency. This task force includes members from both the 

public and private sectors.

6

GAO, Managing for Results: Key Considerations for Implementing Interagency 

Collaborative Mechanisms, GAO-12-1022 (Washington, D.C.: Sept. 27, 2012) and 

Managing for Results: Implementation Approaches Used to Enhance Collaboration in 

Interagency Groups, GAO-14-220 (Washington, D.C.: Feb. 14, 2014).

Background
Page 5 GAO-14-496 Virtual Currencies

latter type of virtual currencies as “open flow.”7 Open-flow virtual 

currencies have received considerable attention from federal financial 

regulatory and law enforcement agencies, in part because these 

currencies interact with the real economy and because depository 

institutions (for example, banks and credit unions) may have business 

relationships with companies that exchange virtual currencies for 

government-issued currencies. Throughout the remainder of this report, 

we use the term virtual currencies to mean open-flow virtual currencies, 

unless otherwise stated.

8

Virtual currency systems, which include protocols for conducting 

transactions in addition to digital representations of value, can either be 

centralized or decentralized. Centralized virtual currency systems have a 

single administering authority that issues the currency and has the 

authority to withdraw the currency from circulation. In addition, the 

administrating authority issues rules for use of the currency and maintains 

a central payment ledger. In contrast, decentralized virtual currency 

systems have no central administering authority. Validation and 

certification of transactions are performed by users of the system and 

therefore do not require a third party to perform intermediation activities.

A prominent example of a decentralized virtual currency system is bitcoin. 

Bitcoin was developed in 2009 by an unidentified programmer or 

programmers using the name Satoshi Nakamoto. According to industry 

stakeholders, bitcoin is the most widely circulated decentralized virtual 

currency. The bitcoin computer protocol permits the storage of unique 

digital representations of value (bitcoins) and facilitates the assignment of 

bitcoins from one user to another through a peer-to-peer, Internet-based 

 7

GAO-13-516. In that report we described “closed-flow” virtual currencies as those that 

can be used only within a game or virtual environment and cannot be cashed out for 

dollars or other government-issued currencies. We also described hybrid virtual currencies 

as those that have characteristics of both open- and closed-flow currencies—for example, 

such currencies can be used to buy real goods and services but are not exchangeable for 

government-issued currencies.

8

Some stakeholders with whom we spoke said they preferred the term digital currency to 

virtual currency, due partly to the connotation that something which is virtual cannot be 

used in the real world. We use the term virtual currency to be consistent with terminology 

used in prior GAO work and in key federal guidance on participants in virtual currency 

systems.
Page 6 GAO-14-496 Virtual Currencies

network.9 Each bitcoin is divisible to eight decimal places, enabling their 

use in any kind of transaction regardless of the value. Users’ bitcoin 

balances are associated with bitcoin addresses (long strings of numbers 

and letters) that use principles of cryptography to help safeguard against 

inappropriate tampering with bitcoin transactions and balances.10

Because peer-to-peer bitcoin transactions do not require the disclosure of 

information about a user’s identity, they give the participants some degree 

of anonymity. In addition, computer network communication can be 

encrypted and anonymized by software to further hide the identity of the 

parties in transactions.

When 

users transfer bitcoins, the recipient provides their bitcoin address to the 

sender, and the sender authorizes the transaction with their private key 

(essentially a secret code that proves the sender’s control over their 

bitcoin address). Bitcoin transactions are irrevocable and do not require 

the sender or receiver to disclose their identities to each other or a third 

party. However, each transaction is registered in a public ledger called 

the “blockchain,” which maintains the associated bitcoin addresses and 

transaction dates, times, and amounts. Users can define how much 

additional information they require of each other to conduct a transaction.

11

 9

A peer-to-peer network allows users to share data directly and conduct permitted 

activities without a central server.

However, the transactions are not completely 

anonymous because the time and amount of each transaction and the 

associated bitcoin addresses are permanently recorded in the blockchain. 

As a result, peer-to-peer bitcoin transactions are sometimes described as 

“pseudonymous.” The anonymity of bitcoin is also limited by data analysis 

techniques that can potentially link bitcoin addresses to personal 

identities. For example, information about a customer’s identity may be 

recorded when an individual exchanges dollars for bitcoins, and this 

information may be combined with data from the blockchain to determine 

10Cryptography is a branch of mathematics that is based on the transformation of data 

and can be used to provide security services such as confidentiality and authentication. 

Bitcoin and other virtual currencies that use cryptography are sometimes called 

cryptocurrencies.

11According to industry observers, examples of technologies used to increase the privacy 

of participants in virtual currency transactions include (1) anonymizing networks, which 

use a distributed network of computers to conceal the real Internet address of users, such 

as The Onion Router (TOR); (2) “tumblers” such as BitcoinBath and BitLaundry that 

combine payments from multiple users to obstruct identification through the blockchain; 

and (3) alternative virtual currencies such as Zerocoin and Anoncoin that aim to make 

transactions fully anonymous.
Page 7 GAO-14-496 Virtual Currencies

the identities of participants in bitcoin transactions. In addition, 

researchers have developed methods to determine identities of parties 

involved in some bitcoin transactions by analyzing clusters of transactions 

between specific addresses.12

Bitcoins are created and entered into circulation through a process called 

mining. Bitcoin miners download free software that they use to solve 

complex math problems. Solving these problems verifies the validity of 

bitcoin transactions by grouping several transactions into a block and 

mathematically proving that the transactions occurred and did not involve 

double spending of a bitcoin. On average, this process takes about 10 

minutes. When a miner or group of miners (mining pools) solves a 

problem, the bitcoin network accepts the block of transactions as valid 

and creates new bitcoins and awards them to the successful miner or 

mining pool.13

In addition to mining new bitcoins, users can also acquire bitcoins already 

in circulation by accepting bitcoins as gifts or payments for goods or 

services, purchasing them at bitcoin kiosks (sometimes referred to as 

bitcoin automated teller machines), or purchasing them on third-party 

exchanges. These exchanges allow users to exchange traditional 

currencies such as U.S. dollars for bitcoins, and exchange bitcoins back 

to traditional currencies. Individuals may store their bitcoins in a “virtual 

wallet” (a program that saves bitcoin addresses) on their computer or 

other data storage device, or use an online wallet service provided by an 

exchange or third-party virtual wallet provider. To spend their bitcoins, 

individuals can buy goods or services from other bitcoin users. They may 

also make purchases from online businesses that either accept bitcoins 

(For a diagram on how bitcoins enter into circulation 

through mining, how transactions are conducted, and how miners verify 

transactions, see app. I.) Over time, the computer processing power 

needed to mine new bitcoins has increased to the point where mining 

requires specialized computer hardware and has become increasingly 

consolidated into large mining pools.

 12See Sarah Meiklejohn, et al, “A Fistful of Bitcoins: Characterizing Payments Among Men 

with No Names,” ;Login:, vol. 38 no. 6 (2013), available at 

https://www.usenix.org/system/files/login/articles/03_meiklejohn-online.pdf.

13By design, there will be a maximum of 21 million bitcoins in circulation once all bitcoins 

have been mined, which is projected to occur in the year 2140. Once all bitcoins have 

been mined, miners will be rewarded for solving the math problems that verify the validity 

of bitcoin transactions through fees rather than bitcoins. 
Page 8 GAO-14-496 Virtual Currencies

directly or use third-party payment processors that take payments in 

bitcoins from buyers and provide businesses the payments in the form of 

a traditional currency or a combination of bitcoins and traditional currency. 

Figure 1 shows various ways that individuals can obtain and spend 

bitcoins.

Figure 1: Ways to Obtain and Spend Bitcoins
Page 9 GAO-14-496 Virtual Currencies

Due to limitations in available data, the size of the bitcoin market is 

unclear.14

• According to statistics from the bitcoin blockchain, as of March 31, 

2014, approximately 12.6 million bitcoins were in circulation.

Nonetheless, some data exist that may provide some context 

for the size of this market:

15

• At exchange rates as of March 31, 2014 (about $458 per bitcoin), the 

total value of the approximately 12.6 million bitcoins in circulation was 

about $5.6 billion.16 For perspective, the total amount of U.S. currency 

held by the public and in transaction deposits (mainly checking 

accounts) at depository institutions was about $2.7 trillion as of March 

2014.17

• Bitcoin exchange rates against the U.S. dollar have changed 

dramatically over time (see fig. 2). According to one bitcoin price 

index, the price was about $13 per bitcoin in the beginning of January 

2013 and rose to more than $1,100 by the beginning of December 

2013. Prices subsequently fell to about $522 in mid-December 2013 

and have fluctuated between roughly $450 and $950 since then.18

• From April 2013 through March 2014, the number of bitcoin 

transactions per day ranged from about 29,000 to 102,000.19

 14Given these limitations, we did not test the reliability of data, such as the data generated 

from the bitcoin network, but we are providing some figures to provide context for the 

possible size of the bitcoin market and other virtual currency markets. 

In 

comparison, the Federal Reserve Banks processed an average of 44 

15http://blockchain.info. (Accessed on Mar. 31, 2014.) Due to data limitations, it is difficult 

to calculate the velocity, or the rate at which bitcoins are spent, and the number of 

transactions between unique users in a given time period.

16For data on bitcoin price, see https://www.coindesk.com. (Accessed on Apr. 1, 2014.) 

For data on the total value and number of bitcoins in circulation, see 

https://blockchain.info. (Accessed on Mar. 31, 2014.)

17See Federal Reserve Statistical Release H.6 “Money Stock Measures” (Apr. 10, 2014) 

at http://www.federalreserve.gov/releases/h6/current/H6.pdf.

18https://www.coindesk.com. (Accessed on Apr.1, 2014.) This index is a composite price 

calculated as the simple average of bitcoin prices across leading global exchanges that 

meet certain criteria.

19https://blockchain.info. (Accessed on Apr. 1, 2014.)
Page 10 GAO-14-496 Virtual Currencies

million commercial Automated Clearing House (a traditional payment 

processor) transactions per day in 2013.20

Figure 2: Bitcoin Price Index in U.S. Dollars, January 1, 2013 through March 31, 2014

Note: The index is a composite price calculated as the simple average of bitcoin prices across leading 

global exchanges that meet certain criteria. The values are expressed in current U.S. dollars.

While bitcoin is the most widely used virtual currency, numerous others 

have been created. For example, dozens of decentralized virtual 

currencies are based on the bitcoin protocol such as Litecoin, Auroracoin, 

Peercoin, and Dogecoin. Similar to the bitcoin market, the size of the 

market for these virtual currencies is unclear. However, as of March 31, 

2014, the total reported value of each of these currencies was less than 

$400 million (ranging from about $33 million for Dogecoin to about $346 

million for Litecoin).21

 20Federal Reserve. See 

Other virtual currencies that have been created are 

http://www.federalreserve.gov/paymentsystems/fedach_yearlycomm.htm. (Accessed on 

Apr. 1, 2014.)

21https://coinmarketcap.com. (Accessed on Apr. 1, 2014.)
Page 11 GAO-14-496 Virtual Currencies

not based on the bitcoin protocol. One of the more prominent examples is 

XRP, which is used within a decentralized payment system called Ripple. 

Ripple allows users to make peer-to-peer transfers in any currency. A key 

function of XRP is to facilitate the conversion from one currency to 

another. For example, if a direct conversion between Mexican pesos and 

Thai baht is not available, the pesos can be exchanged for XRP, and then 

the XRP for baht. As of March 31, 2014, the total value of XRP was $878 

million.22

Virtual currencies have drawn attention from federal agencies with 

responsibilities for protecting the U.S. financial system and its participants 

and investigating financial crimes. These include, but are not limited to, 

CFPB, CFTC, DHS, DOJ, SEC, Treasury, and the prudential banking 

regulators. The prudential banking regulators are the FDIC, Federal 

Reserve, NCUA, and OCC. Within Treasury, FinCEN has a particular 

interest in the emergence of virtual currencies because of concerns about 

the use of these currencies for money laundering and FinCEN’s role in 

combating such activity.23 Additionally, because virtual currencies (like 

government-issued currencies) can play a role in a range of financial and 

other crimes, including cross-border criminal activity, key components of 

DOJ and DHS have an interest in how virtual currencies are used. 

Relevant DOJ components include the Criminal Division (which oversees 

the Computer Crime and Intellectual Property Section and the Asset 

Forfeiture and Money Laundering Section), the FBI, and the Offices of the 

U.S. Attorneys (U.S. Attorneys). Relevant DHS components include the 

Secret Service and ICE-HSI.

 22https://coinmarketcap.com.(Accessed on Apr. 1, 2014.) 

23Money laundering is the process of disguising or concealing the source of funds 

acquired illicitly to make the acquisition appear legitimate.
Page 12 GAO-14-496 Virtual Currencies

While federal agencies’ responsibilities with respect to virtual currency are 

still being clarified, some virtual currency activities and products have 

implications for the responsibilities of federal financial regulatory and law 

enforcement agencies. Virtual currencies have presented these agencies 

with emerging challenges as they carry out their different responsibilities. 

These challenges stem partly from certain characteristics of virtual 

currency systems, such as the higher degree of anonymity they provide 

compared with traditional payment systems and the ease with which they 

can be accessed globally to make payments and transfer funds across 

borders.

Although virtual currencies are not government-issued and do not 

currently pass through U.S. banks, some activities and products that 

involve virtual currencies have implications for the responsibilities of 

federal financial regulatory and law enforcement agencies. These 

activities and products encompass both legitimate and illegitimate uses of 

virtual currencies. Examples of legitimate uses include buying virtual 

currencies and registered virtual-currency-denominated investment 

products. Examples of illegitimate uses include money laundering and 

purchasing illegal goods and services using virtual currencies.

FinCEN administers BSA and its implementing regulations.24

 24Pub. L. No. 91-508, 84 Stat. 1114 (1970) (codified as amended at 12 U.S.C. §§ 1829(b), 

1951-1959; 31 U.S.C. §§ 5311-5330); 31 C.F.R. chap. X. In 1994, the Secretary of the 

Treasury delegated overall authority for enforcement of, and compliance with, BSA and its 

implementing regulations related to money laundering to the Director of FinCEN. In the 

same year, the Secretary also delegated BSA examination authority to the prudential 

banking regulators. 31 C.F.R. § 1010.810(b)(1)-(5). 

The goal of 

BSA is to prevent financial institutions from being used as intermediaries 

for the transfer or deposit of money derived from criminal activity and to 

provide a paper trail to assist law enforcement agencies in their money 

laundering investigations. To the extent that entities engaged in money 

transmission conduct virtual currency transactions with U.S. customers or 

become customers of a U.S. financial institution, FinCEN has 

Federal Agencies 

Face Emerging 

Challenges in 

Carrying Out 

Responsibilities 

Related to the Use of 

Virtual Currencies

Some Virtual Currency 

Activities and Products 

May Have Implications for 

Federal Agencies’

Responsibilities

FinCEN
Page 13 GAO-14-496 Virtual Currencies

responsibilities for helping ensure that these entities comply with BSA and 

anti-money-laundering regulations.25

FinCEN regulations set forth requirements for money services 

businesses, which include financial institutions and other entities engaged 

in money transmission.26 FinCEN guidance states that the agency’s 

regulations regarding money services businesses apply to virtual 

currency exchangers and administrators.27 FinCEN applies its regulations 

to “convertible virtual currency,” which either has an equivalent value in 

real currency or acts as a substitute for real currency. FinCEN regulations 

require money services businesses to assess their exposure to money 

laundering and terrorist financing and establish risk mitigation plans in the 

form of anti-money-laundering programs.28

 25FinCEN shares this responsibility with IRS, to which FinCEN has delegated examination 

authority for money services businesses. See 31 C.F.R. § 1010. 810(b)(8). IRS activities 

were outside the scope of our review. FinCEN has also delegated examination authority 

for BSA compliance to a number of other federal agencies, including the prudential 

banking regulators, CFTC, and SEC. See 31 C.F.R. § 1010.810(b). These agencies can 

also use their independent authorities to examine entities under their supervision for 

compliance with applicable BSA and anti-money-laundering requirements and regulations.

Additionally, money services 

businesses are required to maintain transaction records. For example, for 

money transfers that are $3,000 or more, money services businesses 

must obtain information on the transmitter, the recipient, and the 

transaction itself, and pass on such information to other intermediary 

financial institutions in any subsequent fund transmissions. Money 

26Under 31 C.F.R. § 1010.100(ff)(1)-(7), money services businesses are generally defined 

as any of the following: (1) currency dealer or exchanger, (2) check casher, (3) issuer or 

seller of traveler’s checks or money orders, (4) provider or seller of prepaid access, (5) 

money transmitter, and (6) the U.S. Postal Service. FinCEN’s regulations define a money 

transmitter as a person that provides money transmission services, or any other person 

engaged in the transfer of funds. 31 C.F.R. § 1010.100(ff)(5)(i).The term money 

transmission services means the “acceptance of currency, funds, or other value that 

substitutes for currency to another location or person by any means.” Id.

27 FinCEN, Application of FinCEN’s Regulations to Persons Administering, Exchanging, or 

Using Virtual Currencies, FIN-2013-G001, March 18, 2013. FinCEN defines an exchanger 

as a person engaged as a business in the exchange of virtual currency for real currency, 

funds, or other virtual currency. Id. FinCEN defines an administrator as a person engaged 

as a business in issuing (putting into circulation) a virtual currency, and who has the 

authority to redeem (to withdraw from circulation) such virtual currency. Id. An 

administrator or exchanger that (1) accepts and transmits a convertible virtual currency, or 

(2) buys or sells convertible virtual currency for any reason is a money transmitter under 

FinCEN’s regulations. 

2831 C.F.R. § 1022.210, subpart C.
Page 14 GAO-14-496 Virtual Currencies

services businesses are also required to monitor transactions and file 

reports on large currency transactions and suspicious activities. In 

addition, certain financial institutions must establish a written customer 

identification program that includes procedures for obtaining minimum 

identification information from customers who open an account, such as 

date of birth, a government identification number, and physical address.29

Further, financial institutions must file currency transaction reports on 

customer cash transactions exceeding $10,000 that include information 

about the account owner’s identity and occupation.30

FinCEN also supports the investigative and prosecutive efforts of multiple 

federal and state law enforcement agencies through its administration of 

the financial transaction reporting and recordkeeping requirements 

mandated or authorized under BSA. In addition, FinCEN has the authority 

to take enforcement actions, such as assessing civil money penalties, 

against financial institutions, including money services businesses, that 

violate BSA requirements.

The prudential banking regulators—FDIC, Federal Reserve, NCUA, and 

OCC—provide oversight of depository institutions’ compliance with BSA 

and anti-money-laundering requirements. Therefore, these regulators are 

responsible for providing guidance and oversight to help ensure that 

depository institutions that have opened accounts for virtual currency 

exchanges or other money services businesses have adequate antimoney-laundering controls for those accounts.31

 2931 C.F.R. § 1020.220(a)(2)(i). Under the USA PATRIOT Act, financial institutions also 

must implement appropriate, specific, and, where necessary, enhanced, due diligence for 

correspondent accounts and private banking accounts established in the United States for 

non-U.S. persons. 31 U.S.C. § 5318(i).

In April 2005, FinCEN 

and the prudential banking regulators issued joint guidance to banking 

organizations (depository institutions and bank holding companies) to 

clarify BSA requirements with respect to money services businesses and 

to set forth the minimum steps that banking organizations should take 

3031 U.S.C. § 5313(a); 31 C.F.R. § 1010.311.

31In addition, officials from the prudential banking regulators either stated or 

acknowledged that they would have authority to regulate a supervised entity that issued 

virtual currency, or cleared or settled transactions related to virtual currency.

Prudential Banking Regulators
Page 15 GAO-14-496 Virtual Currencies

when providing banking services to these businesses.32 As part of safety 

and soundness or targeted BSA compliance examinations of depository 

institutions, the prudential banking regulators assess compliance with 

BSA and related anti-money-laundering requirements using procedures 

that are consistent with their overall risk-focused examination approach.33

In examining depository institutions for BSA compliance, the regulators 

review whether depository institutions (1) have developed anti-moneylaundering programs and procedures to detect and report unusual or 

suspicious activities possibly related to money laundering; and (2) comply 

with the technical recordkeeping and reporting requirements of BSA.34

While most cases of BSA noncompliance are corrected within the 

examination framework, regulators can take a range of supervisory 

actions, including formal enforcement actions, against the entities they 

supervise for violations of BSA and anti-money-laundering requirements. 

These formal enforcement actions can include imposing civil money 

penalties and initiating cease-and-desist proceedings.35

CFPB is an independent entity within the Federal Reserve that has broad 

consumer protection responsibilities over an array of consumer financial 

products and services, including taking deposits and transferring money. 

CFPB is responsible for enforcing federal consumer protection laws, and 

it is the primary consumer protection supervisor over many of the 

 32FinCEN, Interagency Interpretive Guidance on Providing Banking Services to Money 

Services Businesses Operating in the United States, April 26, 2005. FinCEN concurrently 

issued guidance to money services businesses that identified and explained the types of 

information and documentation that money services businesses were expected to have 

and provide to banking organizations. Bank holding companies are companies that own or 

control one or more banks. In the United States, most banks insured by FDIC are owned 

or controlled by a bank holding company.

33Under the risk-focused approach, those activities judged to pose the highest risk to an 

institution are to receive the most scrutiny by examiners.

34See 12 U.S.C. § 1786(q), § 1818(s) (federal banking agencies must promulgate 

regulations requiring insured depository institutions and credit unions to establish 

procedures regarding BSA compliance; regulators’ examinations must include review of 

BSA compliance procedures); see also procedures for monitoring BSA compliance: 12 

C.F.R. § 208.63 (Federal Reserve), 12 C.F.R. § 326.8 (FDIC), 12 C.F.R. § 748.2 (NCUA), 

and 12.C.F.R. § 21.21 (OCC).

35A civil money penalty is a punitive fine assessed for the violation of a law or regulation or 

for other misconduct. A cease-and-desist proceeding is a formal process that may result in 

an order that a party halt certain activities or practices; the order may also require the 

party to take affirmative action to correct the conditions resulting from the practices. See 

12 U.S.C. § 1786(e), § 1818(b).

Consumer Financial Protection 

Bureau
Page 16 GAO-14-496 Virtual Currencies

institutions that offer consumer financial products and services. CFPB 

also has authority to issue and revise regulations that implement federal 

consumer financial protection laws, including the Electronic Fund Transfer 

Act36 and title X of the Dodd-Frank Wall Street Reform and Consumer 

Protection Act (Dodd-Frank Act).37

Other relevant CFPB responsibilities concerning virtual currencies include 

accepting and handling consumer complaints, promoting financial 

education, researching consumer behavior, and monitoring financial 

markets for new risks to consumers. For example, under authorities 

provided by the Dodd-Frank Act, CFPB maintains a Consumer Complaint 

Database and helps monitor and assess risks to consumers in the 

offering or provision of consumer financial products or services.

CFPB officials stated that they are 

reviewing how these responsibilities are implicated by consumer use (or 

potential consumer use) of virtual currencies.

38

SEC regulates the securities markets—including participants such as 

securities exchanges, broker-dealers, investment companies, and 

investment advisers—and takes enforcement actions against individuals 

and companies for violations of federal securities laws. SEC’s mission is 

to protect investors; maintain fair, orderly, and efficient markets; and 

facilitate capital formation. Virtual currencies may have implications for a 

number of SEC responsibilities. For example, SEC has enforcement 

CFPB 

also issues consumer advisories to promote clarity, transparency, and 

fairness in consumer financial markets.

 36Pub. L. No. 90-321, 92 Stat. 3728 (1978) (codified as amended at 15 U.S.C. §§ 1693-

1693r). CFPB issues and enforces Regulation E, which implements the Electronic Fund 

Transfer Act (EFTA). EFTA establishes basic rights, liabilities, and responsibilities of 

consumers who use electronic fund transfer services and of financial institutions that offer 

these services. 

37Pub. L. No. 111-203, § 1021(c)(5), 124 Stat. 1376, 1980 (2010) (codified at 12 U.S.C. § 

5511(c)(5)). For example, section 1032(a) of the Dodd-Frank Act confers authority on 

CFPB “to prescribe rules to ensure that the features of any consumer financial product or 

service, both initially and over the term of the product or service, are fully, accurately, and 

effectively disclosed to consumers in a manner that permits consumers to understand the 

costs, benefits, and risks associated with the product or service, in light of the facts and 

circumstances.” 12 U.S.C. § 5532(a). In prescribing such disclosure rules, section 1032 

requires the Bureau to “consider available evidence about consumer awareness, 

understanding of, and responses to disclosures or communications about the risks, costs, 

and benefits of consumer financial products or services.” 12 U.S.C. § 5532(c). 

38Pub. L. No. 111-203, § 1013(b)(3), § 1021(c), 124 Stat. 1376, 1969, 1980 (2010) 

(codified at 12 U.S.C. §§ 5493(b)(3), 5511(c)).

Securities and Exchange 

Commission
Page 17 GAO-14-496 Virtual Currencies

authority for violations of federal securities laws prohibiting fraud by any 

person in the purchase, offer, or sale of securities. SEC enforcement 

extends to virtual-currency-related securities transactions. Additionally, 

when companies offer and sell securities (including virtual-currencyrelated securities), they are subject to SEC requirements to either register 

the offering with SEC or qualify for a registration exemption. SEC reviews 

registration statements to ensure that potential investors receive 

adequate information about the issuer, the security, and the offering. 

Further, if a registered national securities exchange wanted to list a 

virtual-currency-related security, it could only do so if the listing complied 

with the exchange’s existing rules or the exchange had filed a proposed 

rule change with SEC to permit the listing.

Virtual currencies may also have implications for other SEC 

responsibilities, as the following examples illustrate:

• SEC has examination authority for entities it regulates, including 

registered broker-dealers, to ensure compliance with federal 

securities laws, SEC rules and regulations, and BSA requirements. 

According to SEC officials, if a broker-dealer were to accept payments 

in virtual currencies from customers, this could raise potential antimoney-laundering issues that the broker-dealer would have to 

account for.

• SEC also regulates and has examination authority over investment 

advisers subject to its jurisdiction.39 Under the Investment Advisers 

Act of 1940, investment advisers are fiduciaries.40

• If registered broker-dealers held virtual currencies for their own 

account or an account of a customer, SEC would have to determine 

how to treat the virtual currencies for purposes of its broker-dealer 

financial responsibility rules, including the net capital rule.

To the extent that 

an investment adviser recommends virtual currencies or virtualcurrency-related securities, the investment adviser’s federal fiduciary 

duty would govern this conduct.

41

 3915 U.S.C. §§ 80b-2(a)(11), 80b-11(g)-(h).

40See 15 U.S.C. § 80b-6(1)-(2); SEC v. Capital Gains Research Bureau, Inc., et al., 375 

U.S. 180 (1963).

4117 C.F.R. § 240.15c3-1. SEC’s net capital rule requires all broker-dealers to maintain a 

minimum level of net capital consisting of highly liquid assets. Assets that are not liquid 

are deducted in full when computing net capital.
Page 18 GAO-14-496 Virtual Currencies

CFTC has the authority to regulate financial derivative products and their 

markets, including commodity futures and options.42 In addition, CFTC 

investigates and prosecutes alleged violations of the Commodity 

Exchange Act and related regulations.43 CFTC’s mission is to protect 

market users and the public from fraud, manipulation, abusive practices, 

and systemic risk related to derivatives subject to the Commodity 

Exchange Act. CFTC’s responsibilities with respect to virtual currencies 

depend partly on whether bitcoin or other virtual currencies meet the 

definition of a commodity under the Commodity Exchange Act.44

Similar to SEC, CFTC has examination authority for BSA compliance—in 

this case directed at futures commission merchants and other futures 

market intermediaries—and acceptance of virtual currency payments by 

CFTC 

officials said the agency would not make a formal determination on this 

issue until market circumstances require one. According to CFTC, such 

circumstances could include virtual-currency derivatives emerging or 

being offered in the United States or CFTC becoming aware of the 

existence of fraud or manipulative schemes involving virtual currencies. 

The officials said that if prospective derivatives that are backed by or 

denominated in virtual currencies that CFTC determines to be 

commodities emerge, CFTC’s regulatory authorities would apply to those 

derivatives just as they would for any other derivative product subject to 

CFTC's jurisdiction. To carry out its regulatory responsibilities, CFTC 

would, among other things, evaluate the derivatives to ensure they were 

not susceptible to manipulation, review applications for new exchanges 

wishing to offer such derivatives, and examine exchanges offering these 

derivatives to ensure compliance with the applicable commodity 

exchange laws.

 427 U.S.C. § 2. Financial derivatives are financial instruments whose value is based on 

one or more underlying reference items. They are used to hedge risk or to exchange a 

floating rate of return for a fixed rate of return. In the virtual currency context, a derivative 

might be used to reduce exposure to volatility in virtual currency exchange rates.

437 U.S.C. §§ 1-26; 17 C.F.R. chap. I.

44The Commodity Exchange Act defines a commodity as certain agricultural goods and 

“all services, rights, and interests (except motion picture box office receipts, or any index, 

measure, value or data related to such receipts) in which contracts for future delivery are 

presently or in the future dealt in.” 7 U.S.C. § 1a(9). 

Commodity Futures Trading 

Commission
Page 19 GAO-14-496 Virtual Currencies

these entities could raise BSA compliance concerns.45

Law enforcement agencies, including but not limited to DHS and DOJ 

component agencies and offices, have responsibilities to investigate a 

variety of federal crimes that may involve the use of virtual currencies and 

to support the prosecution of those who commit these crimes. Like 

traditional currencies, virtual currencies can facilitate a range of criminal 

activities, including fraud schemes and the sale of illicit goods and 

services, that may fall under the purview of federal law enforcement 

agencies.

Like SEC, CFTC 

would also have to make determinations about the capital treatment of 

virtual currencies if these entities held virtual currencies for their own 

account or an account of a customer.

The emergence of virtual currencies has had particular significance for 

financial crimes. According to DOJ officials, the main law enforcement 

interests with respect to virtual currencies are to (1) deter and prosecute 

criminals who use virtual currency systems to launder money (that is, 

move or hide money that either facilitates or is derived from criminal or 

terrorist activities); and (2) investigate and prosecute virtual currency 

services that themselves violate money transmission and money 

laundering laws.46

 45Futures commission merchants are entities that solicit or accept orders for the purchase 

or sale of a commodity for future delivery on or subject to the rules of any exchange and 

that accept payment from or extend credit to those whose orders are accepted.

A number of DOJ and DHS components, including the 

FBI, ICE-HSI, and Secret Service, investigate financial crimes as part of 

their broader responsibilities. In addition, DOJ’s Asset Forfeiture and 

Money Laundering Section prosecutes money laundering violations, and 

DOJ and DHS manage the seizure and forfeiture of assets that represent 

the proceeds of, or were used to facilitate, federal crimes. Key laws that 

may apply to the use of virtual currencies in financial crimes include BSA, 

46One example would be a centralized virtual currency system that allowed users to make 

untraceable funds transfers.

Departments of Homeland 

Security and Justice
Page 20 GAO-14-496 Virtual Currencies

as amended by Title III of the USA PATRIOT Act, and anti-moneylaundering statutes.47

Additionally, because virtual currencies operate over the Internet, they 

have implications for agency components that investigate and prosecute 

computer crimes (also called cybercrimes). For example, DOJ’s 

Computer Crime and Intellectual Property Section stated that virtual 

currencies can be attractive to entities that seek to facilitate or conduct 

computer crimes over the Internet, such as computer-based fraud and 

identity theft. The section’s responsibilities include improving legal 

processes for obtaining electronic evidence and working with other law 

enforcement agencies in improving the technological and operational 

means for gathering and analyzing electronic evidence. The FBI, Secret 

Service, and ICE-HSI also investigate computer crimes.

The emergence of virtual currencies presents challenges to federal 

agencies responsible for financial regulation, law enforcement, and 

consumer and investor protection. These challenges stem partly from 

certain characteristics of virtual currencies, such as the higher degree of 

anonymity they provide and the ease with which they can be sent across 

borders. In addition, the growing popularity of virtual currencies has 

highlighted both risks and benefits for agencies to consider in carrying out 

their responsibilities.

As previously noted, some virtual currency systems may provide a higher 

degree of anonymity than traditional payment systems because they do 

not require the disclosure of personally identifiable information (that is, 

information that can be used to locate or identify an individual, such as 

names or Social Security numbers) to transfer funds from one party to 

another. When transferring funds in the amount of $3,000 or more 

between the bank accounts of two individuals, the banks involved are 

required by FinCEN regulations to obtain and keep the names and other 

 47Pub. L. No. 91-508, 84 Stat. 1114 (codified as amended at 12 U.S.C. §§ 1829(b), 1951-

1959; 31 U.S.C. §§ 5311-5330); Pub. L. No. 107-56, tit. III, 115 Stat. 272, 296-342 

(International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001) 

(codified at 31 U.S.C. §§ 5301-5318A) (to prevent, detect, and prosecute international 

money laundering); see also Money Laundering Suppression Act of 1994, Pub. L. No. 

103-325, §§ 401-413, 108 Stat. 2160, 2243-2255 (codified at 31 U.S.C. § 5330 and 

scattered sections of U.S.C.) (requires money transmitting businesses to register with 

Treasury). 

Virtual Currencies Present 

Regulatory, Law 

Enforcement, and 

Consumer Protection 

Challenges

Greater Anonymity
Page 21 GAO-14-496 Virtual Currencies

information of the individuals, as well as information on the transaction 

itself.48 The customer identification information collected by the banks 

helps create a paper trail of financial transactions that law enforcement 

agencies can use to detect illegal activity, such as money laundering or 

terrorist financing, and to identify and apprehend criminals.49 However, in 

a transfer between two individuals using bitcoins (or a similar type of 

decentralized virtual currency) no personally identifiable information is 

necessarily disclosed either to the two individuals or a third-party 

intermediary.50

Because they operate over the Internet, virtual currencies can be used 

globally to make payments and funds transfers across borders. In 

addition, according to agency officials, many of the entities that exchange 

traditional currencies for virtual currencies (or vice versa) are located 

outside of the United States. If these exchangers have customers located 

in the United States, they must comply with BSA and anti-moneylaundering requirements. Due to the cross-jurisdictional nature of virtual 

As a result, virtual currencies may be attractive to parties 

seeking to protect personally identifiable information, maintain financial 

privacy, buy or sell illicit goods and services, or move or conceal money 

obtained by illegal means. Further, virtual currency exchangers or 

administrators may be used to facilitate money laundering if they do not 

collect identifying information from customers and retain other transaction 

information. For these reasons, law enforcement and federal financial 

regulatory agencies have indicated that virtual currencies can create 

challenges for agencies in detecting unlawful actions and the entities that 

carry them out. For example, the FBI has noted that because bitcoin does 

not have a centralized entity to monitor and report suspicious activity and 

process legal requests such as subpoenas, law enforcement agencies 

face difficulty in detecting suspicious transactions using bitcoins and 

identifying parties involved in these transactions.

 4831 C.F.R. § 1020.410.

49Financial institutions are also required to obtain customer information to satisfy “knowyour-customer” or “customer due diligence” identification programs as part of their antimoney laundering obligations, and financial institutions must subject certain bank 

accounts held by non-U.S. persons to enhanced due diligence procedures. See 31 U.S.C. 

§ 5318(i).

50However, in a virtual currency transfer between individuals through a third-party 

intermediary (such as a virtual currency exchange), personally identifiable information is 

required to be collected if the transaction is for $3,000 or more. This requirement became 

effective in 2011. We discuss this requirement in the next section of this report.

Cross-Jurisdictional Nature
Page 22 GAO-14-496 Virtual Currencies

currency systems, federal financial regulatory and law enforcement 

agencies face challenges in enforcing these requirements and 

investigating and prosecuting transnational crimes that may involve virtual 

currencies. For example, law enforcement may have to rely upon 

cooperation from international partners to conduct investigations, make 

arrests, and seize criminal assets. Additionally, violators, victims, and 

witnesses may reside outside of the United States, and relevant customer 

and transaction records may be held by entities in different jurisdictions, 

making it difficult for law enforcement and financial regulators to access 

them. Further, virtual currency exchangers or administrators may operate 

out of countries that have weak legal and regulatory regimes or that are 

less willing to cooperate with U.S. law enforcement.

Virtual currency industry stakeholders have noted that virtual currencies 

present both risks and benefits that federal agencies need to consider in 

regulating entities that may be associated with virtual-currency-related 

activities. As previously noted, the risks include the attractiveness of 

virtual currencies to those who may want to launder money or purchase 

illicit goods and services. Another emerging set of risks involves 

consumer and investor protection—in particular, whether consumers and 

investors understand the potential drawbacks of buying, holding, and 

using virtual currencies or investing in virtual-currency-based securities. 

Consumers may not be aware of certain characteristics and risks of 

virtual currencies, including the following:

• Lack of bank involvement. Virtual currency exchanges and wallet 

providers are not banks. If they go out of business, there may be no 

specific protections like deposit insurance to cover consumer losses.

51

• Stated limits on financial recourse. Some virtual currency wallet 

providers purport to disclaim responsibility for consumer losses 

associated with unauthorized wallet access. In contrast, credit and 

debit card networks state that consumers have no liability for 

fraudulent use of accounts.

• Volatile prices. The prices of virtual currencies can change quickly 

and dramatically (as shown previously in fig. 2).

Additionally, an SEC official told us that virtual-currency-based securities 

may be attracting individuals who are younger and less experienced than 

typical investors. The official expressed concern that younger investors 

 51We discuss examples of such losses in the next section of this report. 

Balancing Risks and Benefits
Page 23 GAO-14-496 Virtual Currencies

may lack the sophistication to properly assess the risks of such 

investments and the financial resources to recover from losses on the 

investments, including losses resulting from fraud schemes.

52

While virtual currencies present risks to consumers and investors, they 

also provide several potential benefits to consumers and business.

• Cost and speed. Decentralized virtual currency systems may, in some 

circumstances, provide lower transaction costs and be faster than 

traditional funds transfer systems because the transactions do not 

need to go through a third-party intermediary. The irrevocable feature 

of virtual currency payments may also contribute to lower transaction 

costs by eliminating the costs of consumer chargebacks.53

• Financial privacy. To the extent that bitcoin (or other virtual currency) 

addresses are not publicly associated with a specific individual, peerto-peer virtual currency transactions can provide a greater degree of 

financial privacy than transactions using traditional payment systems, 

because no personally identifiable information is exchanged.

Industry 

stakeholders have noted that cost and time savings may be especially 

significant for international remittances (personal funds immigrants 

send to their home countries), which sometimes involve sizeable fees 

and can take several days. In addition, industry stakeholders have 

indicated that the potentially lower costs of virtual currency 

transactions—for example, relative to credit and debit cards—may 

facilitate the use of micropayments (very small financial transactions) 

as a way of selling items such as online news articles, music, and 

smartphone applications.

54

• Access. Because virtual currencies can be accessed anywhere over 

the Internet, they are a potential way to provide basic financial 

services to populations without access to traditional financial 

 52The next section of this report discusses an example of a fraud scheme involving a 

virtual-currency-based security.

53A chargeback is a payment reversal initiated by a consumer due, for example, to 

nondelivery of a purchased product. 

54As previously noted, that privacy may be lost if a connection is established between a 

bitcoin address and its owner.
Page 24 GAO-14-496 Virtual Currencies

institutions, such as rural populations in developing countries.55

Federal agency officials have acknowledged the need to consider both 

the risks and benefits of virtual currencies in carrying out their 

responsibilities. For example, the Director of FinCEN has testified that the 

emergence of virtual currencies has prompted consideration of 

vulnerabilities that these currencies create in the financial system and 

how illicit actors will take advantage of them. However, she also noted

that innovation is an important part of the economy and that FinCEN 

needs to have regulation that mitigates concerns about illicit actors while 

minimizing regulatory burden. Similarly, the former Acting Assistant 

Attorney General for DOJ’s Criminal Division has testified that law 

enforcement needs to be vigilant about the criminal misuse of virtual 

currency systems while recognizing that there are many legitimate users 

of those services. Balancing concerns about the illicit use of virtual 

currencies against the potential benefits of these technological 

innovations will likely be an ongoing challenge for federal agencies.

However, the potential benefit hinges on access to the Internet, which 

these populations may not have, and may be offset by the lack of 

protections against losses noted previously.

Federal financial regulators and law enforcement agencies have taken a 

number of actions related to the emergence of virtual currencies, 

including providing regulatory guidance, assessing anti-money-laundering 

compliance, and investigating crimes and violations that have been 

facilitated by the use of virtual currencies. However, interagency working 

groups addressing virtual currencies have not focused on consumer 

protection and have generally not included CFPB.

 55Some industry observers have suggested that virtual currency system protocols may 

have applications beyond financial transactions. For example, just as the bitcoin protocol 

transfers and records ownership rights to currency, it could, in theory, be used to transfer 

and record ownership rights to stocks, among other things.

Agencies Have Taken 

Some Actions on 

Virtual Currencies, 

but Interagency 

Working Groups Have 

Not Focused on 

Consumer Risks
Page 25 GAO-14-496 Virtual Currencies

FinCEN has taken a number of actions in recent years to establish and 

clarify requirements for participants in virtual currency systems. For 

example, in July 2011, FinCEN finalized a rule that modified the 

definitions of certain money services businesses.56 Among other things, 

the rule states that persons who accept and transmit currency, funds, or 

“other value that substitutes for currency,” are considered to be money 

transmitters.57 Additionally, in March 2013, FinCEN issued guidance that 

clarified the applicability of BSA regulations to participants in certain 

virtual currency systems.58 The FinCEN guidance classified virtual 

currency exchangers and administrators as money services businesses 

and, more specifically, as money transmitters.59 The guidance also 

specified that virtual currency users are not money services businesses.60

As a result, the guidance clarified that virtual currency exchangers and 

administrators must follow requirements to register with FinCEN as 

money transmitters; institute risk assessment procedures and antimoney-laundering program control measures; and implement certain 

recordkeeping, reporting, and transaction monitoring requirements, 

unless an exception to these requirements applies.61

 56Bank Secrecy Act Regulations; Definitions and Other Regulations Relating to Money 

Services Businesses, 76 Fed. Reg. 43585 (July 21, 2011).

According to 

FinCEN officials, as of December 2013, approximately 40 virtual currency 

exchangers or administrators had registered with FinCEN.

5731 C.F.R. § 1010.100(ff)(5)(i)(A).

58FinCEN, Application of FinCEN’s Regulations to Persons Administering, Exchanging, or 

Using Virtual Currencies, FIN-2013-G001, March 18, 2013. This guidance addresses 

convertible virtual currency—that is, virtual currency which either has an equivalent value 

in real currency or acts as a substitute for real currency.

59According to FinCEN, virtual currency exchangers and administrators with U.S. 

customers must comply with BSA requirements, such as instituting anti-money-laundering 

controls, even if they are based outside of the United States.

60FinCEN’s guidance defines a virtual currency user as “a person who obtains convertible 

virtual currency and uses it to purchase real or virtual goods or services on the user’s own 

behalf.” Although a user is not considered to be a money transmitter, FinCEN warns that a 

user’s activities must still comply with other federal and state laws and regulations.

61Most states also regulate money services businesses and some have taken steps to 

address virtual currencies. For example, New York is developing licensing and regulatory 

requirements specific to virtual currency exchanges and Texas has issued a 

memorandum describing how current licensing requirements apply to virtual currency 

exchanges. FinCEN coordinates with its state counterparts to encourage application of 

FinCEN’s guidance on virtual currencies as part of this process.

FinCEN Has Issued Rules, 

Guidance, and 

Administrative Rulings 

Regarding Virtual 

Currencies
Page 26 GAO-14-496 Virtual Currencies

In 2014, in response to questions from industry stakeholders, FinCEN 

issued administrative rulings to clarify the types of participants to which 

the March 2013 guidance applies.62 In January 2014, FinCEN issued 

rulings stating that the way in which a virtual currency is obtained is not 

material, but the way in which a person or corporation uses the virtual 

currency is. As a result, the rulings specify that two kinds of users are not 

considered money transmitters subject to FinCEN’s regulations: miners 

who use and convert virtual currencies exclusively for their own purposes

and companies that invest in virtual currencies exclusively as an 

investment for their own account.63 However, the rulings specify that 

these two kinds of users may no longer be exempt from FinCEN’s money 

transmitter requirements if they conduct their activities as a business 

service for others. The rulings also note that transfers of virtual currencies 

from these types of users to third parties should be closely scrutinized 

because they may constitute money transmission. In April 2014, FinCEN 

issued another administrative ruling, which states that companies that 

rent computer systems for mining virtual currencies are not considered 

money transmitters subject to FinCEN’s regulations.64

FinCEN has also taken additional steps to help ensure that companies 

required to register as money services businesses under FinCEN’s March 

2013 virtual currency guidance have done so. According to FinCEN 

officials, FinCEN has responded to letters from companies seeking 

clarification about their requirements. Also, officials told us that FinCEN 

has proactively informed other companies that they should register as 

money services businesses.

 62FinCEN, Application of FinCEN’s Regulations to Virtual Currency Mining Operations, 

FIN-2014-R001, January 30, 2014, and FinCEN, Application of FinCEN’s Regulations to 

Virtual Currency Software Development and Certain Investment Activity, FIN-2014-R002, 

January 30, 2014.

63For example, a company that purchases and sells virtual currencies whenever such 

purchases and sales make investment sense according to the company’s business plan is 

acting as a virtual currency user, not a virtual currency exchange. 

64FinCEN, Application of Money Services Business Regulations to the Rental of Computer 

Systems for Mining Virtual Currencies, FIN-2014-R007, April 29, 2014.
Page 27 GAO-14-496 Virtual Currencies

As part of their oversight activities, NCUA and SEC have addressed 

situations involving virtual currencies, and other federal financial 

regulators have had internal discussions regarding virtual currencies. 

NCUA has had two supervisory situations in which credit unions were 

involved with activity related to virtual currencies. These situations 

emerged after reviews of credit unions found that their anti-moneylaundering and antifraud measures needed to be revised in light of activity 

involving virtual currency exchanges.

• In 2013, NCUA issued a preliminary warning letter to a federal credit 

union that provided account services to money services businesses 

that also served as bitcoin exchanges. The warning letter was based 

on various conditions that NCUA determined could undermine the 

credit union’s stability. For example, the credit union did not have 

adequate anti-money-laundering controls in place for its money 

services business accounts. Further, the letter stated that the credit 

union should not have served money services businesses that were 

not part of the credit union’s strategic plan, and that serving these 

businesses was not consistent with the credit union’s charter, which 

called for serving the local community. The warning letter required the 

credit union to immediately cease all transactions with these money 

services business accounts and establish an appropriate BSA and 

anti-money-laundering infrastructure. As a result, the credit union 

ceased such activity and strengthened its BSA and anti-moneylaundering compliance program.

• In 2012, NCUA provided support to a state regulator’s review of a 

credit union’s commercial customer. The state regulator found that 

this commercial customer was a payment processor—that is, a 

payment network that allows any business or person to send, request, 

and accept money—that had customers that were bitcoin exchanges. 

According to NCUA, the state regulator worked with the credit union to 

ensure that its BSA compliance program was adequate to monitor and 

address the risks associated with payment processors that serve 

bitcoin exchanges. The state regulator also worked to ensure that the 

payment processor’s risk management practices included sufficient 

antifraud and anti-money-laundering measures. The payment 

processor subsequently suspended all accounts that served virtual 

currency exchanges.

In addition, SEC has taken enforcement action against an individual and 

entity that are alleged to have defrauded investors through a bitcoinSome Financial 

Regulators Have Taken 

Actions Concerning AntiMoney-Laundering and 

Securities Law 

Compliance
Page 28 GAO-14-496 Virtual Currencies

denominated Ponzi scheme.65

• In July 2013, SEC charged an individual and his company, Bitcoin 

Savings and Trust, with offering and selling securities in violation of 

the antifraud and registration provisions of securities laws.

The agency has also issued related 

investor alerts, has begun to review a registration statement from an 

entity that wants to offer virtual-currency-related securities, and is 

monitoring for potential securities law violations related to virtual 

currencies.

66

• SEC’s Office of Investor Education and Advocacy has issued two 

investor alerts on virtual currencies.

Specifically, SEC alleges that the founder and operator defrauded 

investors through a bitcoin-denominated Ponzi scheme. The founder 

and operator allegedly promised investors up to 7 percent weekly 

interest. However, he allegedly used bitcoins from new investors to 

make purported interest payments and cover investor withdrawals on 

outstanding trust investments, diverted investors’ bitcoins for day 

trading in his personal account on a bitcoin currency exchange, and 

exchanged investors’ bitcoins for U.S. dollars to pay for personal 

expenses. SEC also alleges that Bitcoin Savings and Trust raised at 

least 700,000 bitcoins in investor funds, which amounted to more than 

$4.5 million based on the average price of bitcoin in 2011 and 2012 

when the investments were offered and sold. This case was still 

unresolved as of April 14, 2014.

67 The first alert, issued in July 

2013, warned about fraudulent investment schemes that may involve 

bitcoin and other virtual currencies.

68

 65A Ponzi scheme is a type of investment fraud that involves the payment of purported 

returns to existing investors from funds contributed by new investors.

The second alert, issued in May 

66Securities and Exchange Commission v. Shavers, No. 413-CV-416 (E.D. Texas Aug. 6, 

2013).

67In addition, in March 2014, the Financial Industry Regulatory Authority, a self-regulatory 

organization for the securities industry, issued an investor alert about the risks of buying, 

using, and speculating in virtual currencies and the potential for related scams. See 

http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/FraudsAndScams/P456458. 

Also, in April 2014, the North American Securities Administrators Association issued an 

investor advisory on virtual currencies, related investment risks, and the types of 

investments that might involve virtual currencies. See 

http://www.nasaa.org/30631/informed-investor-advisory-virtual-currency.

68http://www.investor.gov/news-alerts/investor-alerts/investor-alert-ponzi-schemes-usingvirtual-currencies.
Page 29 GAO-14-496 Virtual Currencies

2014, addressed fraud and other investment risks related to virtual 

currencies.

69

• SEC staff have begun to review a registration statement from a 

company that wants to conduct a public offering of virtual-currencyrelated securities and has received notice of a company offering a 

private virtual-currency-related security, relying upon an exemption 

from registration. In July 2013, the Winklevoss Bitcoin Trust filed a 

registration statement for an initial public offering of its securities. The 

Trust is structured similarly to an exchange-traded fund and will hold 

bitcoins as its only assets.70 The Trust filed amended registration 

statements in October 2013 and February 2014, but the registration 

statement remains pending as of April 14, 2014, meaning that the 

Trust is not yet permitted to sell its securities in a public offering. Also, 

in October 2013, Bitcoin Investment Trust, a bitcoin-denominated 

pooled investment fund affiliated with SecondMarket, Inc. and 

available only to accredited investors, filed a notice with SEC 

indicating that it had sold securities in an exempt offering in reliance 

on Rule 506(c) of the Securities Act.71 Rule 506(c) allows an issuer to 

raise an unlimited amount of money, but imposes restrictions on who 

can invest in the offering and requires the issuer to take reasonable 

steps to verify that those investing are accredited investors.72

• SEC staff are also monitoring the Internet and other sources, such as 

referrals from other agencies, for potential securities law violations 

involving bitcoin and other virtual currencies.

 69http://www.investor.gov/news-alerts/investor-alerts/investor-alert-bitcoin-other-virtualcurrency-related-investments.

70Exchange-traded funds are commonly structured as open-end investment companies 

and offer investors a proportionate share in a pool of stocks, bonds, and other assets.

71Rule 506(c) is one of the exemptive rules under Regulation D that allow some 

businesses to offer and sell their securities without having to register the offer and sale of 

securities with SEC. Regulation D is designed to (1) simplify the previously existing rules 

and regulations, (2) eliminate any unnecessary restrictions that those rules and 

regulations place on small business issuers, and (3) achieve uniformity between state and 

federal exemptions to facilitate capital formation consistent with protecting investors.

7217 C.F.R. § 230.506(c). Accredited investors include, among others, individuals whose 

net worth is more than $1 million (not including the value of their primary residence) or 

whose individual income exceeds at least $200,000 for the most recent 2 years (or joint 

income with a spouse exceeding $300,000 for those years) and a reasonable expectation 

of the same income level in the current year. It also includes certain types of entities, such 

as insurance companies, banks, and corporations with assets exceeding $5 million. 17 

C.F.R. § 230.501(a).
Page 30 GAO-14-496 Virtual Currencies

Further, all of the federal financial regulatory agencies we interviewed 

have had internal discussions on how virtual currencies work and what 

implications the emergence of virtual currencies might have for their 

responsibilities. While agencies generally told us that their conversations 

have been informal and ad hoc, some efforts have been more organized:

• In 2013, the Federal Reserve took several steps to share information 

on virtual currencies among the Board of Governors and the 12 

Federal Reserve Banks. Among other things, the Board of Governors’

BSA and anti-money-laundering specialist conference included a 

session focused on FinCEN’s virtual currency guidance and recent 

law enforcement actions. The Board of Governors also circulated 

general information about virtual currencies within the Federal 

Reserve System to use in answering questions from media and the 

public about virtual currencies and federal financial regulatory actions 

to date.

• In 2013, SEC formed an internal Digital Currency Working Group, 

which aims to foster information sharing internally and externally. 

According to SEC, the working group consists of approximately 50 

members from among SEC’s divisions and offices.

• In 2012, FinCEN held three internal information-sharing events on 

virtual currencies. These events covered issues including how virtual 

currencies compare to traditional currencies and risks related to 

emerging payment systems such as virtual currencies.

Law enforcement agencies have taken actions against parties involved in 

the illicit use of virtual currencies to facilitate crimes. These parties have 

included administrators and users of centralized virtual currency systems 

designed to facilitate money laundering or other crimes, parties who have 

used virtual currencies to buy or sell illicit goods and services online, and 

virtual currency exchanges and online payment processors operating 

without the proper licenses.

• In 2013 and 2014, law enforcement agencies took actions against Silk 

Road, a black market website that allegedly accepted bitcoin as the 

sole payment method for the purchase of illegal goods and services. 

The website contained over 13,000 listings for controlled substances 

as well as listings for malicious software programs, pirated media 

content, fake passports, and computer hacking services (see fig.3). 

The FBI; Drug Enforcement Administration (DEA); IRS; ICE-HSI; the 

Bureau of Alcohol, Tobacco, Firearms, and Explosives; the Secret 

Service; the U.S. Marshals Service; and Treasury’s Office of Foreign 

Assets Control investigated the case together, along with officials from 

Law Enforcement 

Agencies Have Taken 

Actions against Parties 

Alleged to Have Used 

Virtual Currencies to 

Facilitate Crimes
Page 31 GAO-14-496 Virtual Currencies

New York as well as Australia, Iceland, Ireland, and France. In 

September and October 2013, law enforcement shut down the Silk 

Road website and seized approximately 174,000 bitcoins, which the 

FBI reported were worth approximately $34 million at the time of 

seizure.73 In February 2014, DOJ indicted Silk Road’s alleged owner 

and operator on charges including narcotics conspiracy, engaging in a 

continuing criminal enterprise, conspiracy to commit computer 

hacking, and money laundering conspiracy.

• In May 2013, law enforcement agencies seized the accounts of a 

U.S.-based subsidiary of Mt. Gox, a now-defunct Tokyo-based virtual 

currency exchange with users from multiple countries including the 

United States, on the basis that the subsidiary was operating as an 

unlicensed money services business. The seizure included U.S. bank 

accounts of Mt. Gox that were held by a private bank and Dwolla, an 

online payment processor that allegedly allowed users to buy and sell 

bitcoins on Mt. Gox. According to ICE-HSI, Mt. Gox had moved funds 

into numerous online black markets, the bulk of which were 

associated with the illicit purchase of drugs, firearms, and child 

pornography. At the direction of the U.S. Attorney’s office, ICE-HSI 

ordered Dwolla to stop all payments to Mt. Gox and seized $5.1 

million from the Mt. Gox subsidiary’s U.S. accounts.

• Also in May 2013, law enforcement agencies shut down Liberty 

Reserve, a centralized virtual currency system that was allegedly 

designed and frequently used to facilitate money laundering and had 

its own virtual currency. Secret Service, ICE-HSI, and IRS 

investigated the case together, along with officials from 16 other 

countries. To shut down the site, FinCEN identified Liberty Reserve as 

a financial institution of primary money laundering concern under 

section 311 of the USA PATRIOT Act, effectively cutting it off from the 

U.S. financial system.74

 73As of March 31, 2014, these bitcoins were worth about $80 million, according to bitcoin 

prices from 

DOJ then charged Liberty Reserve with 

operating an unlicensed money transmission business and with 

money laundering for facilitating the movement of more than $6 billion 

https://www.coindesk.com. 

7431 U.S.C. § 5318A. Section 311 of the USA PATRIOT Act grants the Secretary of the 

Treasury the authority, upon finding that reasonable grounds exist for concluding that a 

foreign jurisdiction, institution, class of transaction, or type of account is of “primary money 

laundering concern,” to require domestic financial institutions and financial agencies to 

take certain “special measures” to address the primary money laundering concern.
Page 32 GAO-14-496 Virtual Currencies

in illicit proceeds.75 As of April 2014, this investigation had produced 

$40 million in seizures and had resulted in the arrests of five 

individuals.

• In April 2013, law enforcement agencies filed a civil asset forfeiture 

complaint against Tcash Ads Inc., an online payment processor that 

allegedly enabled users to make purchases anonymously from virtual 

currency exchanges, with operating an unlicensed money services 

business. Additionally, law enforcement agencies seized the bank 

accounts of Tcash Ads Inc. The Secret Service worked on the case 

with FinCEN and DOJ’s Asset Forfeiture and Money Laundering 

Section.

• From October 2010 through November 2012, law enforcement 

agencies convicted three organizers of a worldwide conspiracy to use 

a network of virus-controlled computers that deployed e-mail spam 

designed to manipulate stock prices. The organizers paid the 

spammers $1.4 million for their illegal services via the centralized 

virtual currency e-Gold and wire transfers. Charges included 

conspiring to further securities fraud using spam, conspiring to 

transmit spam through unauthorized access to computers, and four 

counts of transmission of spam by unauthorized computers.

 75This case is being prosecuted jointly by the DOJ Criminal Division’s Asset Forfeiture and 

Money Laundering Section and the U.S. Attorney’s Office for the Southern District of New 

York.
Page 33 GAO-14-496 Virtual Currencies

Figure 3: Screen Shot of the Silk Road Website

Law enforcement agencies have also taken other actions to help support 

investigations involving the illicit use of virtual currencies, including the 

following examples.

• The FBI has produced numerous criminal intelligence products 

addressing virtual currencies. These intelligence products have 

generally focused on cases involving the illicit use of virtual 

currencies, ways in which virtual currencies have been or could be 

used to facilitate crimes, and the related challenges for law 

enforcement. The FBI shares these products with foreign, state, and 

local law enforcement partners as appropriate.

• Through standing bilateral agreements governing the exchange of law 

enforcement information, ICE-HSI is arranging meetings with various 

international partners to exchange intelligence and garner operational 

support on virtual currency issues.
Page 34 GAO-14-496 Virtual Currencies

• ICE-HSI also developed the Illicit Digital Economy Program, which 

aims to target the use of virtual currencies for money-laundering 

purposes by defining and organizing the primary facets of the digital 

economy, building internal capacity, training and developing agents 

and analysts, engaging other agencies, and promoting public-private 

partnerships.

Federal agency efforts to collaborate on virtual currency issues have 

involved creating a working group specifically focused on virtual currency, 

leveraging existing interagency mechanisms, and sharing information 

through informal interagency channels. For example, in 2012, the FBI 

formed the Virtual Currency Emerging Threats Working Group (VCET), 

an interagency working group that includes other DOJ components, 

FinCEN, ICE-HSI, SEC, Secret Service, Treasury, and other relevant 

federal partners. The purpose of VCET is to leverage members’ expertise 

to address new virtual currency trends, address potential implications for 

law enforcement and the U.S. intelligence community, and mitigate the 

cross-programmatic threats arising from illicit actors’ use of virtual 

currency systems. The VCET meets about once every 3 months.

Federal agencies have also begun to discuss virtual currency issues in 

existing interagency working groups that address broader topics such as 

money laundering, electronic crimes, and the digital economy, as follows:

• The BSA Advisory Group—which is chaired by FinCEN and includes 

the prudential banking regulators, Treasury, federal and state law 

enforcement and regulatory agencies, and industry representatives—

has addressed virtual currency issues in a number of ways. In May 

2013, FinCEN provided a briefing on bitcoin, and in December 2013 

three stakeholders from the virtual currency industry gave 

presentations on their business models and regulatory challenges. In 

addition, the BSA Advisory Group invited a representative of the 

virtual currency industry to join the group in 2014.

• The Federal Financial Institutions Examination Council (FFIEC) Bank 

Secrecy Act/Anti-Money-Laundering Working Group—which is 

currently chaired by OCC and includes the prudential banking 

regulators and CFPB—is in the process of revising the current (2010) 

Interagency Working 

Groups Have Begun to 

Address Virtual 

Currencies, but Have Not 

Emphasized Consumer 

Risks or Generally 

Included CFPB
Page 35 GAO-14-496 Virtual Currencies

FFIEC BSA/Anti-Money Laundering Examination Manual.76 The 

revisions related to virtual currencies may include information on 

FinCEN’s March 2013 guidance and regulatory expectations that 

depository institutions should undertake a risk assessment with a 

particular focus on the money laundering risks posed by new products 

and services.

• The Secret Service-sponsored Electronic Crimes Task Forces (ECTF) 

includes 35 Secret Service field offices; federal law enforcement 

agencies such as ICE-HSI; and members of the private sector, 

academia, and state and local law enforcement.77 This group’s 

mission is to prevent, detect, and investigate electronic crimes, 

including those involving virtual currency. This group has conducted 

computer forensics and other investigative activity on various virtual 

currencies and made arrests of individuals who have used virtual 

currencies as part of their criminal activities. This group has also held 

quarterly meetings on virtual currencies to discuss legal and 

regulatory issues and trends in crimes involving virtual currencies.

• The Digital Economy Task Force was established in 2013 by 

Thomson Reuters (a multinational media and information firm) and the 

International Centre for Missing & Exploited Children.78

 76FFIEC is a formal interagency body empowered to prescribe uniform principles, 

standards, and report forms for the federal examination of financial institutions by the 

Federal Reserve, FDIC, NCUA, OCC, and CFPB, and to make recommendations to 

promote uniformity in the supervision of financial institutions. 

This task force 

includes members from both the public and private sectors. Task 

force members from the federal government include representatives 

from the FBI, ICE-HSI, Secret Service, the Department of State, and 

the United States Agency for International Development. This group 

published a report in March 2014 on the benefits and challenges of 

77The Secret Service was mandated by the USA PATRIOT Act to establish a nationwide 

network of Electronic Crimes Task Forces. Pub. L. 107-56, § 105, 115 Stat 272, 277 

(2001) (codified at 18 U.S.C. § 3056 note). The goal of the network is to bring together 

federal, state, and local law enforcement, as well as prosecutors, private industry, and 

academia to prevent, detect, and investigate various forms of electronic crime. 

78The International Centre for Missing & Exploited Children is a nonprofit corporation that 

leads a movement to protect children from sexual exploitation and abduction. The Centre 

is involved in virtual currency issues because of connections between digital technologies 

that facilitate anonymity and commercial child pornography, sexual exploitation, and sex 

trafficking.
Page 36 GAO-14-496 Virtual Currencies

the digital economy.79

A number of other existing interagency working groups have discussed or 

addressed virtual currency issues to some extent. See appendix II for 

more information on these groups.

Among other things, the report recommended 

continuing private and public research into the digital economy and 

illegal activities, investing in law enforcement training, rethinking 

investigative techniques, fostering cooperation between agencies, and 

promoting a national and global dialogue on policy related to virtual 

currencies.

Federal agencies have also started to collaborate outside of these 

working groups to help improve their knowledge of issues related to the 

emergence of virtual currencies and share pertinent information with 

various agencies.

• FinCEN and SEC have hosted meetings with industry representatives 

and consultants to discuss how virtual currency systems such as 

bitcoin and Ripple work and what legal, regulatory, technology, and 

law enforcement issues they present. These agencies have invited 

officials from other federal agencies to these sessions.

• FinCEN consulted with financial regulators and law enforcement 

agencies as it was formulating its March 2013 guidance on virtual 

currencies. These agencies included CFPB, CFTC, DEA, FBI, ICEHSI, IRS, the prudential banking regulators, SEC, and the Secret 

Service.

• SEC notified CFTC of its review of the Winklevoss Bitcoin Trust 

registration statement.

• FinCEN issued a Networking Bulletin on cryptocurrencies in March 

2013 to provide details to law enforcement agencies and assist them 

in following money moving between virtual currency channels and the 

traditional U.S. financial system. Among other things, the bulletin 

addressed the role of entities that facilitate the purchase and 

exchange of virtual currencies and the types of records these entities 

maintain that could be useful to investigative officials. Also, the 

Networking Bulletin elicited information from its recipients, which in 

turn helped FinCEN issue additional analytical products of a tactical 

nature to inform law enforcement operations. FinCEN has also shared 

 79Digital Economy Task Force, The Digital Economy: Potential, Perils, and Promises

(March 2014).
Page 37 GAO-14-496 Virtual Currencies

this information with several regulatory and foreign financial 

intelligence unit partners.

• CFPB officials said they had recently conferred on virtual currency 

issues with a number of domestic and international regulators, 

including the Federal Reserve Bank of San Francisco, the Federal 

Trade Commission, NCUA, OCC, Treasury, New York State’s 

Department of Financial Services, and the European Banking 

Authority. In addition, the officials said they had met with industry 

participants on these issues and conferred with interested academic 

and consumer group stakeholders, as well as law firms, 

consultancies, and industry associations.

Although there are numerous interagency collaborative efforts that have 

addressed virtual currency issues in some manner, interagency working 

groups have not focused on consumer protection issues. Rather, as 

previously discussed, these efforts have focused on BSA and anti-moneylaundering controls and investigations of crimes in which virtual 

currencies have been used. In addition, CFPB’s involvement in 

interagency working groups that address virtual currencies has been 

limited. GAO’s key practices on collaboration state that it is important to 

include relevant participants in interagency collaborative efforts in order to 

ensure, among other things, that these participants contribute knowledge, 

skills, and abilities to the outcomes of the effort.80 In addition, these key 

practices state that once an interagency group has been established, it is 

important to reach out to potential participants who may have a shared 

interest in order to ensure that opportunities for achieving outcomes are 

not missed.81 CFPB might be a relevant participant in a broader set of 

collaborative efforts on virtual currencies because virtual currency 

systems provide a new way of making financial transactions, and CFPB’s 

responsibilities include ensuring that consumers have timely and 

understandable information to make responsible decisions about financial 

transactions.82

 80GAO, Managing for Results: Key Considerations for Implementing Interagency 

Collaborative Mechanisms, 

Further, CFPB’s strategic goals include helping consumers 

GAO-12-1022 (Washington, D.C.: Sept. 27, 2012).

81GAO, Managing for Results: Implementation Approaches Used to Enhance 

Collaboration in Interagency Groups, GAO-14-220 (Washington, D.C.: Feb. 14, 2014).

82CFPB (via the Office of Financial Education) is responsible for educating and 

empowering consumers to make better-informed financial decisions. Pub. L. No. 111-203,

§ 1013(d), 124 Stat. 1376, 1970 (2010).
Page 38 GAO-14-496 Virtual Currencies

understand the costs, risks, and tradeoffs of financial decisions and 

surfacing financial trends and emergent risks relevant to consumers.

Although interagency working groups addressing virtual currencies have 

not focused on consumer protection issues, recent events have 

highlighted the risks individuals face in buying and holding these 

currencies. For example, notable examples of bitcoin thefts by computer 

hackers have occurred in the past few years, including the theft of more 

than 35,000 bitcoins from a virtual wallet provider in April 2013 and 

24,000 bitcoins from a bitcoin exchange in September 2012.83 More 

recently, in February 2014, Mt. Gox filed for bankruptcy, stating that a 

security breach resulted in the loss of 850,000 bitcoins, the vast majority 

of which belonged to its customers. These bitcoins were worth more than 

$460 million when Mt. Gox filed for bankruptcy.84

Certain parties have taken actions to inform consumers about the 

potential risks associated with virtual currencies, but these actions have 

occurred outside of federal interagency efforts and have not included 

CFPB. In April 2014, the Conference of State Bank Supervisors and the 

North American Securities Administrators Association issued joint model 

consumer guidance to assist state regulatory agencies in educating 

consumers about virtual currencies and the risks of purchasing, 

exchanging, and investing in virtual currencies.

Mt. Gox subsequently 

reported that it had found 200,000 of these bitcoins in an unused virtual 

wallet.

85 Additionally, from 

February through April 2014, a number of states issued consumer alerts 

about virtual currencies.

86

 83Congressional Research Service, Bitcoin: Questions, Answers, and Analysis of Legal 

Issues (Washington, D.C.: Dec. 20, 2013).

On the international front, the European 

84Data from Coindesk.com. These bitcoins were worth approximately $390 million as of 

March 31, 2014. https://www.coindesk.com.

85For the Conference of State Bank Supervisors and the North American Securities 

Administrators Association joint model consumer guidance, see 

http://www.csbs.org/legislative/testimony/Documents/ModelConsumerGuidance--

Virtual%20Currencies.pdf.

86These states include Alabama, California, Florida, Hawaii, Maryland, Massachusetts, 

Nevada, Washington, and Wisconsin.
Page 39 GAO-14-496 Virtual Currencies

Banking Authority issued a warning to consumers in December 2013 

about the risks involved in buying or holding virtual currencies.

87

Federal interagency working groups addressing virtual currency issues 

have not focused on consumer protection, and CFPB has generally not 

participated in these groups, for a number of potential reasons. For 

example, the extent to which individuals using virtual currencies are 

speculative investors or ordinary consumers is unclear, and CFPB has 

received few consumer complaints about these currencies.88 In addition, 

incidents involving the use of virtual currencies for illicit purposes have 

made money laundering and other law enforcement issues primary 

concerns, and existing interagency working groups are primarily 

composed of agencies that share responsibilities for these matters. 

However, emerging consumer risks indicate that interagency collaborative 

efforts may need to place greater emphasis on consumer protection 

issues in order to address the full range of challenges posed by virtual 

currencies. Additionally, without CFPB’s participation, interagency 

working groups are not fully leveraging the expertise of the lead 

consumer financial protection agency, and CFPB may not be receiving 

information that it could use to assess the risks that virtual currencies 

pose to consumers.

Bitcoin and other virtual currencies are technological innovations that 

provide users with certain benefits but also pose a number of risks. 

Because virtual currencies touch on the responsibilities of multiple federal 

agencies, addressing these risks will require effective interagency 

collaboration. Thus far, interagency efforts have had a law enforcement 

focus, reflecting the attractiveness of virtual currencies to those who may 

want to launder money or purchase black market items. If virtual 

currencies become more widely used, other types of regulatory and 

enforcement issues may come to the forefront. For example, recent 

events suggest that consumer protection is an emerging risk, as 

 87European Banking Authority, Warning to Consumers on Virtual Currencies, 

EBA/WRG/2013/01, Dec. 12, 2013. See http://www.eba.europa.eu/-/eba-warnsconsumers-on-virtual-currencies.

88CFPB’s complaint intake system is not specifically geared towards virtual currency 

complaints. However, in February 2014, CFPB ran a query of its Consumer Complaint 

Database to determine the number of complaints that had mentioned virtual currency or 

bitcoin and found that only 14 out of about 290,000 complaints met that condition.

Conclusions
Page 40 GAO-14-496 Virtual Currencies

evidenced by the loss or theft of bitcoins from exchanges and virtual 

wallet providers and consumer warnings issued by nonfederal and nonU.S. entities. However, federal interagency working groups addressing 

virtual currencies have thus far not emphasized consumer-protection 

issues, and participation by the federal government’s lead consumer 

financial protection agency, CFPB, has been limited. Therefore, these 

efforts may not be consistent with key practices that can benefit 

interagency collaboration, such as including all relevant participants to 

ensure that their knowledge, skills, and abilities contribute to the 

outcomes of the effort. As a result, future interagency efforts may not be 

in a position to address consumer risks associated with virtual currencies 

in the most timely and effective manner.

To help ensure that federal interagency collaboration on virtual currencies 

addresses emerging consumer protection issues, we recommend that the 

Director of CFPB (1) identify which interagency working groups could help 

CFPB maintain awareness of these issues or would benefit from CFPB’s 

participation; and (2) decide, in coordination with the agencies already 

participating in these efforts, which ones CFPB should participate in.

We provided a draft of this report to CFPB, CFTC, DOJ, DHS, FDIC, the 

Federal Reserve, NCUA, OCC, SEC, and Treasury for review and 

comment. CFPB and NCUA provided written comments, which are 

reprinted in appendixes III and IV. In addition, CFPB, CFTC, DHS, DOJ, 

the Federal Reserve, NCUA, OCC, SEC, and Treasury provided technical 

comments, which we incorporated into the report where appropriate.

In its letter, CFPB concurred with our recommendation to identify and 

participate in pertinent interagency working groups addressing virtual 

currencies. CFPB stated that, to date, these groups have primarily 

focused on BSA concerns, anti-money-laundering controls, and the 

investigation of crimes involving virtual currencies. CFPB said that, as a 

result, its participation in these working groups has been limited. CFPB 

also stated that as consumer protection concerns have increased in 

recent months, its own work on virtual currencies and the work of other 

financial regulators in this area could benefit from a collaborative 

approach. 

In its letter, NCUA said that the report provides a clear discussion of the 

risks related to virtual currencies as well as a survey of current efforts in 

the regulatory community to address the related policy issues. NCUA also 

Recommendation for 

Executive Action

Agency Comments
Page 41 GAO-14-496 Virtual Currencies

expressed support for increasing emphasis on consumer protection 

issues pertaining to virtual currencies.

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies of this report to CFPB, 

CFTC, DOJ, DHS, FDIC, the Federal Reserve, NCUA, OCC, SEC, 

Treasury, interested congressional committees and members, and others. 

This report will also be available at no charge on our website at 

http://www.gao.gov.

If you or your staff have any questions concerning this report, please 

contact me at (202) 512-8678 or evansl@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. GAO staff who made major contributions to 

this report are listed in appendix V.

Lawrance L. Evans, Jr.

Director, Financial Markets and Community Investment
Appendix I: How Bitcoins Enter into 

Circulation and Are Used in Transactions

Page 42 GAO-14-496 Virtual Currencies

This appendix shows how bitcoins enter into circulation through “mining,”

how transactions are conducted, and how miners verify transactions (see 

fig. 4).

Figure 4: How Bitcoins Enter into Circulation and Are Used in Transactions

Appendix I: How Bitcoins Enter into 

Circulation and Are Used in Transactions
Appendix II: Interagency Working Groups that 

Have Addressed Virtual Currency Issues

Page 43 GAO-14-496 Virtual Currencies

In this appendix, we present some of the interagency working groups 

(including task forces and other interagency collaborative bodies) that 

have discussed virtual currency issues, and in some cases, taken specific 

actions. This list is based on information we obtained from the federal 

financial regulatory and law enforcement agencies we met with and is not 

intended to be an exhaustive list.

Table 1: Interagency Working Groups that Have Addressed Virtual Currency Issues, as of April 2014

Working group Participating agencies Mission and goals

Ways in which group addressed virtual 

currencies

Bank Secrecy Act 

Advisory Group 

(BSAAG)

FinCEN (lead); CFTC; DEA; 

DOJ Criminal Division; FBI; 

FDIC; Federal Reserve; ICEHSI; IRS; NCUA; OCC; Office 

of National Drug Control 

Policy; SEC; Secret Service; 

and U.S. Postal Service; as 

well as representatives of 

financial institutions; trade 

groups; self-regulatory 

organizations; and state 

regulatory agencies.

This public-private group 

serves as a means by which 

the Secretary of the 

Treasury receives advice on 

the manner in which 

reporting requirements in 

BSA should be modified to 

enhance the ability of law 

enforcement agencies to use 

the information. It also 

informs private sector 

representatives of law 

enforcement’s uses of BSA 

reports provided by financial 

institutions.

Meetings have covered issues related to 

virtual currencies:

• The May 2013 meeting included a 

briefing on the bitcoin virtual currency 

system.

• The December 2013 meeting included a 

panel of virtual currency industry 

representatives who discussed business 

models and regulatory compliance 

challenges.

• In April 2014, a meeting of the BSAAG 

Illicit Finance Committee included a 

presentation on vulnerabilities and 

challenges related to virtual currencies, 

as well as opportunities to enhance 

collective anti-money-laundering efforts 

and information sharing.

In addition, BSAAG invited a representative of 

the virtual currency industry to join the group 

in 2014.

Digital Economy Task 

Force

Thomson Reuters and the 

International Centre for 

Missing & Exploited Children 

(lead); FBI; ICE-HSI; Secret 

Service; Department of State; 

and United States Agency for 

International Development 

(USAID); as well as members 

of the private sector and 

academia.

This group’s mission is to 

educate the public, work 

collaboratively across 

stakeholder groups, and 

balance the convenience of 

the digital currencies with 

controls to combat illegal 

activity. 

Created in September 2013, this task force 

has formed working groups on such issues as 

safeguarding human rights; regulation; 

interagency coordination; and law 

enforcement. In March 2014, the task force 

published a report on the benefits and 

challenges of the digital economy.a Among 

other things, the report recommended private 

and public sector efforts to continue research 

into the digital economy and illegal activities; 

investing in law enforcement training; 

rethinking investigative techniques; fostering 

cooperation between agencies; and 

promoting a national and global dialogue on 

policy.

Appendix II: Interagency Working Groups 

that Have Addressed Virtual Currency Issues
Appendix II: Interagency Working Groups that 

Have Addressed Virtual Currency Issues

Page 44 GAO-14-496 Virtual Currencies

Working group Participating agencies Mission and goals

Ways in which group addressed virtual 

currencies

Electronic Crimes Task 

Forces (ECTF) and 

Working Groups

35 Secret Service field offices 

(lead) and federal law 

enforcement agencies such 

as ICE-HSI, as well as 

members of the private 

sector, academia, and state 

and local law enforcement.

The mission of these groups 

is to prevent, detect, and 

investigate various forms of 

electronic crime, including 

potential terrorist attacks 

against critical infrastructure 

and financial payment 

systems. 

ECTFs address issues concerning virtual

currencies as one of a variety of subjects 

related to the investigations into electronic 

crime. Specifically, ECTFs have:

• conducted computer forensics and other 

investigative activity concerning various 

virtual currencies;

• made arrests of individuals who have 

used virtual currencies as part of their 

criminal activities; and

• discussed virtual currencies at quarterly 

meetings, covering topics such as types 

of virtual currencies and related legal and 

regulatory issues, trends in criminal uses, 

and methods for conducting 

investigations.

Federal Financial 

Institutions 

Examination Council 

(FFIEC) BSA/AntiMoney-Laundering

Working Groupb

OCC (rotating chair), CFPB; 

FDIC; Federal Reserve; 

NCUA; and the State Liaison 

Committee are voting 

members.c 

FFIEC prescribes uniform 

principles, standards, and 

report forms for the federal 

examination of financial 

institutions by the prudential 

banking regulators—FDIC, 

Federal Reserve, NCUA, 

and OCC—and makes 

recommendations to 

promote uniformity in the 

supervision of financial

institutions.

Within this context, the 

FFIEC BSA/Anti-MoneyLaundering Working Group’s 

mission is to enhance 

coordination of BSA/antimoney-laundering training, 

guidance, and policy.

The BSA/Anti-Money-Laundering Working 

Group is leading the revision of the current 

(2010) FFIEC BSA/Anti-Money Laundering 

Examination Manual. Revisions related to 

virtual currencies may include information on 

FinCEN’s March 2013 guidance; a brief note 

describing Internet-based electronic cash, 

which includes virtual currency; and 

regulatory expectations that banks should 

undertake a risk assessment with a particular 

focus on the money-laundering risks posed 

by new products, services, and technologies.
Appendix II: Interagency Working Groups that 

Have Addressed Virtual Currency Issues

Page 45 GAO-14-496 Virtual Currencies

Working group Participating agencies Mission and goals

Ways in which group addressed virtual 

currencies

Financial Action Task 

Force (FATF)

FATF is an international 

intergovernmental 

organization with 36 member 

countries, including the U.S. 

Treasury as the lead agency 

of the U.S. delegation. Other 

U.S. delegation participants 

include DOJ’s Asset 

Forfeiture and Money 

Laundering Section; DHS 

(including ICE-HSI); SEC; 

IRS; and the Department of 

State.

This group sets standards 

and promotes effective 

implementation of legal, 

regulatory, and operational 

measures for combating 

money laundering, and the 

financing of terrorism and 

proliferation.

• In February 2014, FATF developed a 

discussion paper on virtual currencies, 

which described virtual currency 

systems, participants, and some of the 

major virtual currencies such as bitcoin, 

and proposed a common set of terms 

and conceptual framework for analyzing 

virtual currencies. The paper also 

discussed the potential legitimate uses of 

virtual currencies, the risks these 

currencies may pose, and the different 

regulatory approaches countries are 

taking to address virtual currencies. The 

U.S. delegation prepared the paper 

together with delegations from Australia, 

Canada, Russia, and the United 

Kingdom. As of April 2014, the 

discussion paper was not yet public.

• In March 2014, FATF included a 

discussion of virtual currencies as part of 

the Private Sector Consultative Forum, 

which included experts on virtual 

currencies. The group discussed how 

virtual currencies and their exchangers 

operate; the associated money 

laundering and terrorist financing risks; 

what measures countries and financial 

institutions are taking to assess and 

mitigate those risks; and what regulatory 

approaches are currently being taken.
Appendix II: Interagency Working Groups that 

Have Addressed Virtual Currency Issues

Page 46 GAO-14-496 Virtual Currencies

Working group Participating agencies Mission and goals

Ways in which group addressed virtual 

currencies

Interagency Bank 

Fraud Enforcement 

Working Group 

DOJ (Criminal Division lead, 

as well as the Asset 

Forfeiture and Money 

Laundering Section, 

Executive Office for U.S. 

Attorneys, Executive Office 

for U.S. Trustees, and FBI); 

CFPB; CFTC; Department of 

Housing and Urban 

Development; DHS (ICE-HSI 

and Secret Service); ExportImport Bank; Farm Credit 

Administration; FDIC; Federal 

Housing Finance Agency; 

Federal Reserve; IRS; NCUA; 

OCC; SEC; Treasury (Bureau 

of Public Debt, FinCEN, 

Office of Inspector General, 

Office of General Counsel, 

Office of Critical Infrastructure 

Protection, Office of Financial 

Stability, and Special 

Inspector General for the 

Troubled Asset Relief 

Program); U.S. Postal 

Inspection Service; and the 

District of Columbia 

Department of Insurance,

Securities, and Banking.

This group’s mission is to 

share information on 

significant trends, 

developments, and other 

issues in financial institution 

fraud and, as appropriate, 

identify and carry out 

projects of common interest 

to the working group’s

members.

The working group has occasionally 

discussed virtual currencies in the past year. 

Discussions to date have aimed to educate 

and inform members about virtual currencies. 

Planned activities include a presentation on 

the IRS notice addressing the status of virtual 

currencies under federal tax law.

Within the Interagency Bank Fraud Working 

Group, the Payments Fraud Working Group 

has also addressed virtual currencies. The 

June 2013 meeting included presentations on 

e-Gold, the Liberty Reserve indictment, and 

FinCEN’s guidance on how BSA regulations 

apply to participants in certain virtual currency 

systems.
Appendix II: Interagency Working Groups that 

Have Addressed Virtual Currency Issues

Page 47 GAO-14-496 Virtual Currencies

Working group Participating agencies Mission and goals

Ways in which group addressed virtual 

currencies

International 

Organized Crime 

Intelligence and 

Operations Center 

(IOC-2)

DOJ (lead, including the 

Bureau of Alcohol, Firearms 

and Explosives; Criminal 

Division, DEA, and FBI); DHS 

(ICE-HSI and Secret Service); 

IRS-Criminal Investigation; 

Department of Labor (Office 

of Inspector General); 

Department of State (Bureau 

of Diplomatic Security); and 

U.S. Postal Inspection 

Service.

This group’s mission is to 

significantly disrupt and 

dismantle transnational 

criminal organizations 

posing the greatest threat to 

the United States. The group 

does so by (1) deconflicting 

and analyzing transnational 

organized crime information 

and intelligence; (2)

disseminating information 

and intelligence to support 

law enforcement operations,

investigations, prosecutions, 

and forfeiture proceedings; 

and (3) coordinating

jurisdictional and 

multiagency operations, 

investigations and 

prosecutions.

IOC-2 supports member-agency 

investigations of both virtual currency 

administrators that are suspected of violating 

U.S. law and individuals who are suspected 

of using virtual currencies to commit crimes. 

Specifically, IOC-2 assists its member 

agencies by:

• sharing investigative details that will 

serve to deconflict current investigative 

and prosecutorial targets;

• identifying current trends in the illicit use 

of virtual currencies;

• sharing best practices in developing 

investigative and prosecutorial strategies;

• discussing investigative challenges and 

solutions;

• identifying tools, points of contact, and 

other areas of interest that offer 

assistance and serve as force multipliers 

in supporting virtual currency 

investigations and prosecutions; and

• creating cross-agency relationships for 

future cooperation and coordination on 

virtual currency issues, investigations, 

and prosecutions.
Appendix II: Interagency Working Groups that 

Have Addressed Virtual Currency Issues

Page 48 GAO-14-496 Virtual Currencies

Working group Participating agencies Mission and goals

Ways in which group addressed virtual 

currencies

Terrorist Finance 

Working Group’s New 

Payments Systems Ad 

Hoc Working Group

Department of State (lead, 

including the Bureaus of 

Economic and Business 

Affairs, Counterterrorism, and 

International Narcotics and 

Law Enforcement Affairs); 

Department of Defense; DOJ 

(Asset Forfeiture and Money 

Laundering Section; Criminal 

Division; DEA; FBI; National 

Security Division; and Office 

of Overseas Prosecutorial 

Development, Assistance and 

Training); FDIC; Federal 

Trade Commission; ICE-HSI; 

IRS-Criminal Investigation; 

Treasury (FinCEN, Office of 

Terrorism and Financial 

Intelligence, and Office of 

Technical Assistance), and 

USAID.

The larger working group’s 

mission is to coordinate 

counter-terrorism-financing 

and anti-money-laundering 

training and technical 

assistance programs to 

countries deemed most 

vulnerable to terrorist 

financing.

Within this context, the New 

Payments Ad Hoc Working 

Group’s mission is two-fold: 

(1) to help ensure that 

foreign partners providing 

assistance and capacity 

building have a baseline 

understanding of new 

payment systems and the 

counter-terrorism-financing 

and anti-money-laundering 

risks and vulnerabilities that 

they may pose, and (2) to 

collaborate with other federal 

agencies and appropriate 

public and private sector 

entities to develop training 

and technical assistance 

programs in line with 

international standards set 

by groups such as FATF.

The New Payments Ad Hoc Working Group, 

which formed in 2013 and meets every two to 

three months, has addressed the use of 

virtual currencies at several meetings. Topics 

have included:

• briefings on virtual currencies, how they 

operate, and risks;

• the set of common virtual currency 

vocabulary terms proposed in the FATF’s 

discussion paper on virtual currencies;

• trainings that ad hoc working group 

participants plan to offer through 2015 on 

counter-terrorism-financing and antimoney-laundering risks associated with 

virtual currencies.

• workshops that the Department of State, 

USAID, and other ad hoc working group 

participants offered in 2013 and 2014 on 

new payment systems—including virtual 

currencies—to foreign partners in the 

East Africa, Southeast Asia, Latin 

America, and the Caribbean.

• the ways in which other interagency 

collaborative groups—such as the 

Egmont Group, which is composed of 

FinCEN and financial intelligence units 

from other countries—are addressing 

virtual currencies.

Virtual Currencies 

Emerging Threats 

Working Group

DOJ (FBI lead and other DOJ 

components); FinCEN; ICEHSI; SEC; Treasury; Secret 

Service; and other relevant 

federal partners.

To address the illicit use of 

virtual currencies. 

This group leverages members’ expertise to 

address new virtual currency trends, address

potential implications for law enforcement and 

the U.S. intelligence community, and mitigate 

the cross-programmatic threats arising from 

illicit actors’ use of virtual currency systems.

Source: GAO analysis of agency interviews and documents, as well as websites of interagency collaborative efforts.

a

Digital Economy Task Force, The Digital Economy: Potential, Perils, and Promises (Mar. 2014).

b

FDIC, the Federal Reserve, and NCUA told us that the FFIEC Taskforce on Supervision, and the 

Taskforce’s Information Technology Subgroup, have also discussed virtual currencies.

c

The FFIEC State Liaison Committee includes representatives from the Conference of State Bank 

Supervisors, the American Council of State Savings Supervisors, and the National Association of 

State Credit Union Supervisors. Other FFIEC BSA/Anti-Money-Laundering Working Group non-voting 

members include CFTC; FinCEN; IRS; SEC; Treasury’s Office of Foreign Assets Control; and

Treasury’s Office of Terrorist Financing and Financial Crimes.
Appendix III: Comments from the Consumer 

Financial Protection Bureau

Page 49 GAO-14-496 Virtual Currencies

Appendix III: Comments from the Consumer 

Financial Protection Bureau
Appendix IV: Comments from the National 

Credit Union Administration

Page 50 GAO-14-496 Virtual Currencies

Appendix IV: Comments from the National 

Credit Union Administration
Appendix V: GAO Contact and Staff 

Acknowledgments

Page 51 GAO-14-496 Virtual Currencies

Lawrance L. Evans, Jr. (202) 512-8678 or evansl@gao.gov.

In addition to the contact named above, Steve Westley (Assistant 

Director), Bethany Benitez, Chloe Brown, Anna Chung, Tonita Gillich, 

José R. Peña, and Robert Pollard made key contributions to this report. 

Also contributing to this report were Jennifer Schwartz, Jena Sinkfield, 

Ardith Spence, Andrew Stavisky, and Sarah Veale.

Appendix V: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(250765)
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