From the U.S. Government Accountability Office, www.gao.gov Transcript for: Federal Government Challenges with Virtual Currencies Description: Audio interview by GAO staff with Lawrance Evans Jr.,Director, Financial Markets and Community Investment Related GAO Work: GAO-14-496: Virtual Currencies: Emerging Regulatory,Law Enforcement, and Consumer Protection Challenges Released: June 2014 [ Background Music ] [ Narrator: ] Welcome to GAO's Watchdog Report; your source for news andinformation from the U.S. Government Accountability Office. It's June2014. Virtual currencies such as Bitcoin have raised regulatory, lawenforcement, and consumer protection challenges for the federalgovernment. A team led by Lawrance Evans Jr., a director in GAO'sFinancial Markets and Community Investment team, recently looked atissues related to federal policy and interagency collaboration onvirtual currencies. GAO's Sarah Kaczmarek sat down with Lawrance to talkabout what they found. [ Sarah Kaczmarek: ] Virtual currencies seem to be growing inpopularity. What are some of the challenges the federal government faceshere? [ Lawrance Evans Jr.: ] Many of the challenges the government faces stempartly from particular characteristics of virtual currency. One is thehigh degree of anonymity. So transactions can occur without anyinformation about the identities of the party to the transaction. And attimes there are no central administrator to perfectly collect thatinformation if it exists. Why that's attractive to folks concerned aboutprivacy is also attractive for individuals looking to buy or sellillicit goods or launder money. At the same time it makes it moredifficult for law enforcement agencies looking to trace a money trailback to individuals or groups participating in illicit activity. Anotherissue is the cross-jurisdictional nature of virtual currency. That is,they can be used globally to make payments and transfer funds. And sothe U.S. government faces significant challenges in enforcing theiranti-money laundering regulation. It relies on cooperation withinternational partners. In some cases criminals may operate out ofcountries with weak legal or regulatory regimes, or they may beunwilling to cooperate with U.S. law enforcement. [ Sarah Kaczmarek: ] How are federal agencies responding to these typesof challenges? [ Lawrance Evans Jr.: ] Right. So in a number of different areas. Onearea is in offering additional guidance and clarification. So FinCEN,the Financial Crimes Enforcement Network, provided some clarification onwhich participants in a virtual currency financial transaction would besubject to anti-money laundering requirements. There’s also beensupervisory and enforcement actions. So several agencies work togetherto shut down an online marketplace that was geared toward illegal goodsand services where Bitcoin was the sole payment method. And so that siteallowed buyers to purchase controlled substances, fake passports,computer hacking services, and other types of illicit goods andservices. They shut that down, seized Bitcoins that were worth about $34million and indicted the alleged owner on multiple charges. In addition,there’ve been collaboration in information sharing activities, sothere’ve been working groups specifically designed to address theemergence of virtual currency. And agencies are also leveraging some oftheir existing interagency mechanisms to foster collaboration andimprove knowledge of the issues in this area. [ Sarah Kaczmarek: ] you mentioned interagency workgroups, and yourreport actually recommends that the Consumer Financial Protection Bureauparticipate in these types of working groups on virtual currencies. Whyis it important for potential virtual currency users that they beinvolved? [ Lawrance Evans Jr.: ] Very important question. Thus far, theinteragency efforts have had a law enforcement focus. And I think thatreflects the attractiveness of virtual currencies to illicit actors. Tothe extent that virtual currencies become more widely used, otherregulatory issues are bound to surface, namely the consumer financialprotection issues. So it's important to have the federal government'slead, Consumer Financial Protection Agency, the CFPB, at the table atsome of these interagency workforce meetings to offer its expertise andits knowledge as appropriate and learn more about these particularissues. [ Sarah Kaczmarek: ] Finally, for those considering making their nextpurchase in Bitcoin, what do you see as the bottom line of this report? [ Lawrance Evans Jr.: ] These existing virtual currency systems mayevolve or new ones may emerge and become more widely used than they arenow. And that's more likely to happen if they make good on the promiseof delivering faster, more secure, and more efficient payments. Untilthen, we are in the developmental stage. In this stage, we havevolatility in prices, theft from virtual wallets, and that requiresusers to give some thought to the decisions that they make in this area. [ Background Music ] [ Narrator: ] To learn more, visit GAO.gov, and be sure to tune in tothe next episode of GAO's Watchdog Report for more from thecongressional watchdog, the U.S. Government Accountability Office.