The US is applying money-laundering rules to virtual currencies, amid growing concern that online cash is being used to fund illicit activities.
The move means that companies that issue or exchange online money will now be regulated according to standard federal banking rules. This entails new bookkeeping requirements and mandatory reporting for transactions of more than $10,000, reports the Wall Street Journal.
According to the US Treasury Department, the rising popularity of virtual currencies is largely due to encouragement from internet merchants, but is also partly fuelled by the need to move money for illicit purposes.
One of the fast-growing companies having to adhere to the new rules is Bitcoin, the online currency launched in 2009. Currency units, known as "bitcoins", are created automatically and traded anonymously between digital addresses or mobile/online wallets.
A report by the Federal Bureau of Investigation last year fuelled concerns over the potential misuse of bitcoins, as it found at least one online service took bitcoins as payment for illegal drugs.
"I think it’s inevitable that just like you have US dollars used by thieves and criminals, it’s sadly inevitable you will have criminals use a virtual currency. We want to work with authorities," said Jeff Garzik, a Bitcoin developer.
But the hard-to-trace attributes of web money has law enforcement, regulators and financial institutions worried. With pressure on the US Treasury’s Financial Crimes Enforcement Network, this week’s new regulations seem a timely move.