Australia: Bitcoin to be subject to registration and reporting regulations

Last Updated: 13 December 2017
Article by Tal Williams and Lucy Williams

The cryptocurrency revolution is well under way. The new form of currency has begun to revolutionise financial transactions in ways that society is still starting to grasp. While still being a volatile currency, its value rose from US$1,000 at the beginning of the year to nearly US$16,000 per coin as of December 2017. More and more people are getting on board with this new cryptocurrency and, as recently as November 2017, several Australian home owners have even begun accepting Bitcoin payment for their property. There appears to be no limits to the use and growth of cryptocurrency. But cryptocurrencies still remain outside the scope of the regulated financial system. That is, until now – sort of.

In a significant step towards the acceptance of cryptocurrency as a mainstream means of conducting financial transactions, the Australian government has recently introduced into parliament a bill aimed at regulating the activities of digital currency exchange service providers. The provisions of this bill, titled the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017, apply to situations in which cryptocurrency is converted into money. The Bill targets the 'entry' and 'exit' points of the system, leaving internal transfers between users unaffected.

The bill, in particular, requires that digital currency exchange providers:

  • Enrol and register on the Digital Currency Exchange Register;
  • Perform due diligence and identify and verify customer identities;
  • Report any suspicious matters exceeding a physical currency of $10,000 to Australian Transaction Reports and Analytics Centre ('AUSTRAC');
  • Adopt and maintain a program to mitigate and manage terrorism financing and money laundering risks; and
  • Keep certain transactions, customer identifications and details of the program adopted for the mitigation and managing of terrorism financing and money laundering risks for a period of at least seven (7) years.

In addition, it will be a criminal offence for digital currency exchange services to conduct business without an AUSTRAC registration. Failure to adhere to this requirement could result in up to 2 years imprisonment and/or 500 penalty units for a first offence. For repeated offences, the penalties significantly increase. Corporations and individuals may face civil penalty provisions of up to $2.1 million and $420,000 respectively.

Prior to the introduction of this bill, and as the law currently stands, the Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2006 (Cth) only applies to 'e-currency' which must be backed by a physical thing. It did not cover convertible digital currencies. This means that cryptocurrencies, such as Bitcoin, which are backed by a cryptographic algorithm, are not covered. While this, on one hand, benefits the currency, making it more efficient and faster than other currencies, it also gives rise to several key risks, especially when it comes to money laundering and terrorism financing. These risks include, but are not limited to, greater anonymity, limited transparency and decentralisation.

If passed, this Bill will tackle some of these risks and will extend Australia's existing money laundering and counter terrorism regime to all digital currency exchange services. This will ultimately close the regulatory gap, reduce the risks associated with cryptocurrency and will bring Australia in line with measures adopted by the United States, Canada and the European Union.

It is thought the bill will pass sometime in 2018.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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