Turkey: Bitcoin: An Innovation Or Tool For Overriding Regulations?

"Virtual currencies continue to hit the headlines and are enjoying increasing popularity" wrote the European Banking Authority in the warning they published for consumers on 12 December 2013. In its announcement, the European Banking Authority also indicates that a virtual currency is often defined as a form of unregulated digital money that is not issued or guaranteed by a Central Bank and that can act as means of payment.

Virtual currency transactions do not involve an intermediary bank and lack supervision of governmental authorities on the transactions paid by using virtual currencies. Since 2009, the virtual currency, "Bitcoin", is widely discussed in many jurisdictions as well as in Turkey. The applicable legislation in Turkey does not govern the "Bitcoin" and in particular the Banking Regulatory and Supervision Agency, ("BRSA"), which is the banking regulatory authority for Turkey warns the public on the losses that can be incurred due to such an unregulated virtual product and clarifies the fact that Bitcoin does not qualify as "electronic money" which is recently regulated by the banking legislation in Turkey.

Several sources define Bitcoin as a network-based, virtual currency which is traded online and exchanged into lawful currencies such as USD, Euro, Turkish Lira, etc. It can be used for purchasing goods and services online and a liberal type of money remittance, without being subject to the supervisory of any governmental bodies. The need to comply with the know-your-customer principles is also not able to be enforced through Bitcoin. While this nature of Bitcoin can be considered a liberal way of trading and transferring funds, it is also criticized as such nature of Bitcoin allows the purchase of illegal goods and services and illegal money remittances. Although Bitcoin itself also accepts liability for illegal purposes, Bitcoin users are also at risk of losing the amounts stored in their Bitcoin accounts, or so called "wallets".

Regulatory authorities of several countries have announced their views on Bitcoin through the internet. China, and Russia are among the countries which have the most strict position against Bitcoin, while authorities of many countries do not yet have a clear position against this new virtual currency. China's Central Bank has banned financial institutions from conducting transactions through Bitcoin. Similarly, the Central Bank of Russia announced that accepting Bitcoin may provide grounds for criminal investigations. On the other hand, authorities of most countries warn their citizens about the risks of Bitcoin without banning trading of Bitcoin. Further, the European Banking Authority warned virtual currencies users about the risks, highlighting that virtual currencies are unregulated and are not guaranteed by any Central Banks. The Monetary Authority of Singapore has taken an innovative position by enacting rules that have supervisory authority over Bitcoin transactions to monitor compliance for anti-money-laundering purposes. They still warn users of Bitcoin that the new rules do not validate the transactions through Bitcoin but only monitor these transactions.

All over the world, and especially on Bitcoin, there are continuous discussions on virtual currencies. The Law on Payment and Security Settlement Systems, Payment Services and Electronic Money Institutions ("Law No.6493") entered into force in Turkey on 27 June 2013. The complimentary legislation to the Law No.6493 also very recently entered into force at the end of June 2014. Among other issues, the Law No.6493 regulates issuance of electronic currency. The Law No.6493 defines electronic currency as "monetary value issued on receipt of funds, stored electronically, used for the purpose of making payment transactions and accepted as a payment instrument by natural and legal persons other than the electronic money issuer". Taking this definition into consideration, electronic money can only be issued by an "electronic money issuer institution" which is to be licensed and scrutinized by the BRSA, the regulatory authority for the banks in Turkey. Such institutions must, among others, meet the following features: (i) be founded in the form of a joint-stock company; (ii) have shareholders that meet the pre-requisites and qualifications required for shareholders of banks, (iii) have shares in the share capital of the institution in a registered form; and (iv) the minimum paid up share capital must be TRY 5,000,000. Having said that, Bitcoin would obviously not qualify as electronic currency in Turkey.

Law No.6493 further imposes several civil and criminal sanctions against unlicensed real persons and legal entities carrying out activities within the scope of the Law No.6493 without being properly licensed. Within this framework, the BRSA, on 25 November 2013, announced on its official website (the "BRSA Announcement") that it recognizes Bitcoin as "a virtual money unit" that is not issued by any official or private institution. The BRSA announcement also highlighted that there is no guaranty of recourse and that Bitcoin is not electronic money regulated under the Law No.6493. It also warned that it is possible to purchase illegal services and goods by Bitcoin due to the lack of any registration requirements and/or compliance obligations to the know-your-customer principles. The applicable legislation, on the other hand, does not ban or prevent the use of Bitcoin.

Under Turkish foreign exchange legislation, it is allowed to import into Turkey Turkish Lira and foreign currencies from abroad. It is also allowed to export Turkish Lira and foreign currencies from Turkey to abroad, provided that the transfer is made through a licensed bank in Turkey. Save for certain exceptions, banks are obliged to notify transfers from Turkey to abroad exceeding USD 50,000 to the Central Bank of the Republic of Turkey ("Central Bank"). Bitcoin seems to be overriding these rules as the money transfers through Bitcoin are neither realized through banks, nor being notified to the Central Bank. To date, the Central Bank has not made any official announcements regarding any virtual currencies, including Bitcoin; however, very recently issued by the end of June 2014, new regulations regarding monitoring the payment systems and institutions which are regulated by the Law No. 6493.

While some regulators take a more stringent administration against Bitcoin and other virtual currencies, most countries, including Turkey, for now only warn their citizens about risks of trading virtual currencies and purchasing though them. It seems like most countries have not set their position against virtual currencies, and most of them neither ban it nor explicitly allow Bitcoin use. One of the obvious reasons for this is due to the unanimous nature of Bitcoin. As there are no legal or real persons registered as issuers of Bitcoin, it is practically impossible to apply criminal or civil sanctions against the issuers of Bitcoin. As all transactions are carried out online, it is also practically hard to prevent transactions through Bitcoin. These facts illustrate that the speed of technology is very rapidly changing compared to the speed at which new regulations are enacted to govern this new innovative technology all over the World, including Turkey. In any case, one should be careful about the risks and the current legislation governing Bitcoins and other decentralized forms of electronic currencies, do not seem very welcomed by the regulators.

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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