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Mt. Gox accused of violating US money transfer regulations

The bitcoin exchange's U.S. dollar account with Dwolla has been frozen

The seizure of funds of the largest bitcoin exchange, Mt. Gox, was triggered by an alleged failure of the company to comply with U.S. financial regulations, according to a federal court document.

The U.S. District Court in Maryland on Tuesday ordered the seizure of Mt. Gox's funds, which were in an account with Dwolla, a payments company that transferred money from U.S. citizens to Mt. Gox for buying and selling the virtual currency bitcoin.

A copy of the seizure order was provided on Wednesday by a spokeswoman for the U.S. Immigration and Customs Enforcement (ICE), the investigative arm of the Department of Homeland Security.

The warrant alleges that Mt. Gox failed to register as a "money transmitting business" in accordance with 18 U.S. Code 1960. Violators can be fined and sentenced up to five years in prison.

The warrant states that Mt. Gox owner Mark Karpeles answered negatively on a questionnaire when asked if its U.S. branch, called Mutum Sigillum LLC, exchanged currency or transmitted funds based on instructions to customers. Mt. Gox did not immediately respond to a request for comment.

The questionnaire was supplied by Wells Fargo when Mutum Sigillum opened an account with the bank on May 20, 2011, according to the warrant. Companies that transmit money are required to register with the Financial Crimes Enforcement Networks (FinCEN), part of the U.S. Treasury Department.

How bitcoin exchanges fall under U.S. federal and state law had been somewhat in question. But in March, FinCEN issued guidance specific to virtual currencies, stating that exchanges are required to register but users are exempt.

It remained unclear how that evolution in the way virtual currencies are viewed under the law would affect legal action against Mt. Gox. The ICE spokeswoman said its Homeland Security Investigations branch in Baltimore was continuing its investigation, and that the agency could not comment further.

Dwolla is payment services provider based in Des Moines, Iowa, which lets people send money for very low fees. Mt. Gox received funds from people interested in buying bitcoin into its Dwolla account. Mt. Gox then used Wells Fargo to transfer money to Sumitomo Mitsui Bank in Japan, according to the warrant. Dwolla is not mentioned as a target of the investigation.

An ICE informant created an account with both Dwolla and Mt. Gox, buying bitcoins and then exchanging them to U.S. dollars for deposit into a Dwolla account.

"The demonstrates that Mutum Sigillum LLC is engaged in a money transmitting business but is not registered as required with FinCEN," the warrant states.

Send news tips and comments to jeremy_kirk@idg.com. Follow me on Twitter: @jeremy_kirk


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