The U.S. is applying money-laundering rules to “virtual currencies,” amid growing concern that new forms of cash bought on the Internet are being used to fund illicit activities.
The move means that firms that issue or exchange the increasingly popular online cash will now be regulated in a similar manner as traditional money-order providers such as Western Union Co. WU +1.21% They would have new bookkeeping requirements and mandatory reporting for transactions of more than $10,000.
The rising popularity of virtual currencies, while no more than a drop in the bucket of global liquidity, is being fueled by Internet merchants, as well as users’ concerns about privacy, jitters about traditional currencies in Europe and the age-old need to move money for illicit purposes.
The arm of the Treasury Department that fights money laundering said Monday that the standard federal banking rules aimed at suspicious dollar transfers also apply to firms that issue or exchange money that isn’t linked to any government and exists only online.
One of the fastest-growing alternative cash products is Bitcoin, an online currency launched in 2009 that isn’t backed by a central bank or controlled by a central administrator. Currency units, known as “bitcoins” and consisting of a series of numbers, are created automatically on a set schedule and traded anonymously between digital addresses or “wallets.” Certain exchange firms buy or sell bitcoins for legal tender at a rate that fluctuates with the market.