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Mt. Gox, OKPAY Play Regulatory Catch-up

Op-ed - Mt. Gox

In an apparent bid to keep pace with the regulatory restrictions surrounding Bitcoin, Mt. Gox released a statement on 30 May announcing their customers must now have their identities verified if they wish to withdraw or deposit “currency,” with the announcement differentiating “currency” from bitcoin. Users of the Tokyo, Japan based exchange may continue to make bitcoin deposits and withdrawals without having their identity linked with their account.

In the same vein, ecommerce payment processor OKPAY announced an end to its vacation from bitcoin and reintroduced the cryptocurrency into its payment ecosystem, albeit with more severe restrictions than had previously been in place. As of this writing, the date stamp on the announcement page had not been updated from their previous release announcing their suspension of bitcoin, leading to potential confusion as to when they had announced what. Citing unspecified “risks and dangers,” and alluding to Anti Money Laundering (AML) laws, OKPAY now disallows transfers from any exchange service dealing in bitcoin. Bitcoin service is now restricted only to verified users who have submitted proof of identity.

Mt. Gox had announced OKPAY’s separation (pdf) from the exchange on 28 May, and OKPAY appears to have finalized a divorce for the two services. Following on the heels of the internationally coordinated shutdown of alternative online currency provider Liberty Reserve for failing to meet AML restrictions related to “Know Your Customer” laws, among other issues, the timing of Mt. Gox’s new rules may indicate an attempt to stay one step ahead of a similar fate. Mt. Gox’s 30 May announcement referenced evolving regulations and AML rules as a background for the new account restrictions. Mt. Gox recently ran afoul of FinCEN requirements through subsidiary company Mutum Sigillum LLC for failing to appropriately register as a money services business, resulting in a court-ordered freeze of Mutum Sigillum’s financial accounts.

OKPAY’s reintroduction statement implies that by specifically excluding any new business from bitcoin exchanges, they may have been worried that any business with Mt. Gox’s unverified customers would subject them to the same legal hammer swung by law enforcement at its counterparts in the financial payment world. These developments indicate an understanding in the ecurrency community that business dealing in cryptocurrency specifically, and online payments in general, will either rapidly adapt to regulatory structure or face grinding legal headaches at best, and potential fines and incarceration at worst.