Budget implementation bill would require digital currency businesses to play by FinTRAC rules

In the 2014 federal budget, the Canadian government made unequivocal its concern that virtual currencies, specifically Bitcoin, are an emerging risk that threatens “Canada’s international leadership in the fight against money laundering and terrorist financing”. The Government promised to introduce anti-money laundering and anti-terrorist financing regulations for virtual currencies and to provide FinTRAC up to $10.5 million over five years to implement these changes. Making good on that promise, the budget implementation bill, Bill C-31, introduced on Friday March 28, 2014, includes important amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the “Act”) that would subject digital currency to the application of the Act. Like other money service businesses and foreign exchanges, once enacted, these changes would require certain virtual currency businesses to comply with record keeping, verification of identity, reporting of suspicious transactions and registration requirements under the Act. Other amendments to the Act attempt to deter businesses from operating outside of Canada for the purpose of avoiding the Act’s compliance regime. Under the proposed changes, reporting, KYC (“know your customer”) and licensing requirements would also apply to money service businesses that do not have a place of business in Canada but that provide services, which include dealing in virtual currencies, foreign exchange dealing, remitting or transmitting funds, and issuing or redeeming money orders, to persons or entities in Canada. A new provision would prohibit certain Canadian financial service providers, including money service businesses, businesses dealing with virtual currencies, and securities dealers, from having a banking relationship with any money service business that does not have a place of business in Canada unless those...