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Canada implements world’s first national Bitcoin law

Canada implements world’s first national Bitcoin law

ew Bitcoin Law

By Christine Duhaime, B.A., J.D., Financial Crime and Certified Anti-Money Laundering Specialist

At the end of this week, the Parliament of Canada approved what is likely the world’s first national Bitcoin law, and certainly the world’s first treatment in law of Bitcoin under national anti-money laundering law.

Late Thursday, Canada’s Governor General gave Royal Assent to Bill C-31, An Act to Implement Certain Provisions of the Budget Tabled in Parliament on February 11, 2014 and Other Measures (“Bill C-31“). Bill C-31 amends Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act, S.C. 2000, c. 17 (“PCMLTFA“) to legislate over Bitcoin as a matter of anti-money laundering law.

Five Key Changes

The five most important aspects of Bill C-31 as they relate to Bitcoin are as follows:

Regulates Bitcoin as MSB – Bitcoin dealing, more specifically referred to as “dealing in virtual currencies” in Bill C-31, will be subject to the record keeping, verification procedures, suspicious transaction reporting and registration requirements under the PCMLTFA as a money services business.
Does not define “dealing in virtual currencies” – The phrase “dealing in virtual currencies” was left undefined and it is not known what the defined term will encompass in terms of business activities once defined by regulation.
Registration with FINTRAC – Bitcoin dealers will be required to register with FINTRAC and if successfully registered, to implement a complete anti-money laundering compliance regime.
Captures foreign Bitcoin companies targeting Canada – Bill C-31 extends to: (a) entities that have a place of business in Canada; and (b) entities that have a place of business outside Canada but who direct services at persons or entities in Canada. Bitcoin businesses in Canada, however, that provide services to persons or entities outside of Canada are exempt from Bill C-31 for those external services.
Prohibits banks from opening accounts for Bitcoin entities if unregistered – Under Bill C-31, banks will be prohibited from opening and maintaining correspondent banking relationships with Bitcoin dealers that are not registered with FINTRAC. This is an extremely important aspect of Bill C-31 and Bitcoin businesses should ensure they understand what a correspondent banking relationship is and how it can affect the provisions of banking services to them.
When the new law is brought into force, what the changes mean for Bitcoin businesses internationally that target Canadians, or Canadian Bitcoin businesses, is that they will be required to obtain specialized AML legal advice. Canadian economic sanctions, the counter-terrorist financing regime and new Canadian politically exposed person regime in the Bitcoin legal environment is exceedingly complex and most regulators around the world openly admit they struggle with enforcing these aspects of AML law in Bitcoin. The former two (sanctions and terrorist financing) have always applied to Bitcoin entities worldwide.

Canada approving a national Bitcoin law as a matter of anti-money laundering law should not be discounted. It is important not only because it may be the first Bitcoin national law but also because most countries may now follow suit because of their membership in the Financial Action Task Force, which as a matter of policy, sets anti-money laundering guidelines that member countries follow.

Under Canadian law, the fact that legislation received Royal Assent does not make it in force – Parliament determines the date when laws are “in force.” See “Next Steps” below for what the next steps in the legislative process involve in Canada.

You can read the new Bitcoin law here. You can read the Royal Assent here. You can read Canada’s PCMLTFA here. The new Bitcoin law is part of Canada’s 2014 budget implementation which specifically included the regulation of Bitcoin – see here for the article in the Financial Post on that issue. You can read the original statement in the federal budget that Canada intended to address what it called “emerging risks including virtual currencies such as Bitcoin” here.



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This entry was posted on June 23, 2014 by and tagged .

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