ABSTRACT
Virtual currency has attained an international transformative effect on shopping habits during recent years. Bitcoin as the most popular type of virtual currency is a virtual currency which can be transmitted directly from one user to another, with no need of banks for its operation, and cannot be controlled by any government. This freedom that the virtual currency provides and the difficulty of its control cause the problem of possibility of the committing the money laundering crime in virtual environment. In this article, the application, the legal conditions of Bitcoin as a type of virtual currency, the money laundering crime to be committed through Bitcoin and the legal regulations in this regard are analyzed.
1. INTRODUCTION
Internet, which has become indispensable, also affects the business life as its usage increases. For instance, the spread of electronic commerce provides the emergence of an economic integrity of digital media in itself. Further developing virtual economy owns its own currency called “virtual currency” at the end as well. The virtual currency is a unit of accounts stored in a technical device. Various technical devices are used in this regard. The first of these devices is chip card (concrete). Electronic cash is uploaded into the chips of this kind of cards. The cardholder shall make his payments in contracted merchants in the course of his daily shopping. This cash uploaded to the chip could also be used in internet through a proper card reader. The second of them is the money (virtual currencies) stored in the computer’s hard disk. These currencies shall be used for payments through internet1.
The third type with escalated popularity is digital crypto currencies. Nowadays, bitcoin is the most commonly used among these digital currencies which is obtained in the sense of a network topology and priced via the method of supply/demand without any dependence on countries, banks or any other institutions. In our study, we will explain the features of virtual currency on the basis of this system. Other than the Bitcoin, there are various virtual currencies around the world named Litecoin, Amazon Coin, Freicoin, Namecoin, Facebook Credits, Peercoin or Ripple.
2. DEFINITION OF BITCOIN AND VIRTUAL CURRENCY IN GENERAL
The virtual currencies undoubtedly appear as one of the most important economic developments of the last ten years. According to the definition provided in the second E-Money Directive numbered 2009/110/EC of the European Parliament, the virtual currency means; “electronically or magnetically stored monetary value as represented by a claim on the issuer which is issued on receipt of funds for the purpose of making payment transaction, and which is accepted by a real or legal person other than the electronic money issuer”. According to this definition, it is possible to understand the electronic money as the electronic appearance of the cash money. Thus, an approval of a bank or a third party is not required for the use of both2.
According to another opinion, the virtual currency is a system which allows the purchase of goods and services through the number transfer from a computer to another. These transactions performed electronically by means of transmission of funds from one side to another. Therefore the electronic money is a digital representation of money or, in a broader sense, currency3 . A collective and comprehensive definition based on these points, if necessary, would be that the virtual currency is a medium of exchange based on internet which is similar to the physical currencies but also diversely allows the transfer of ownership and instant transactions independent from the physical environment.
Bitcoin is a virtual currency which is completely an open source coded and suitable to exchange, to be used as a value measurement or a savings or investment tool without any affiliation to a central unit. Bitcoins are processed through internet. Currently, web-hosting service, books, games or all kinds of electronic items on online shopping sites could be purchased by using Bitcoin.
Bitcoin is qualified as cash in internet environment. In other words, they are digital money to be sent and taken through internet. From the consumer point of view, this currency could be used to purchase physical goods and services as the traditional currencies. Bitcoin holds all features of money. Bitcoin is quickly spread and valued by dint of its features of endurance, portability, rarity, divisibility and recognizability. Beside these features, it has an independent value from the physical features like gold or silver. Bitcoin does not have a value derived from its nature; rather the supply and demand conditions of the market determine its value. There is a predetermined limit and procedure to mine new Bitcoin. Generated Bitcoins could be exchanged with Dollar, Euro or other currencies.
3. HISTORICAL DEVELOPMENT OF THE USAGE OF BITCOIN IN THE WORLD
The virtual currency is the first implementation of a concept called “crypto currency” which was described for the first time in 1998 by Wei Dai on the cypherpunks mailing-list. Wei Dai has suggested the idea of a new form of money that uses cryptography to control its creation and transactions instead, rather than a central authority. Bitcoin system was established on 4th of January 2009 by “Satoshi Nakamoto”, as the nickname he used on internet, who could only be contacted via cyber world with no knowledge of his identity. The promotion of the system was conducted by this person through an e-mail. Then this unknown person who does not want to reveal himself has left the system. The system functions automatically since 2010.
The centers to exchange Bitcoins with real currencies are present in the USA. In these centers, Bitcoins could be exchanged with real currencies such as Pound, Euro, and Yen. Along with the fluctuations, the value of one Bitcoin recently reached to 240 USD4. Variable value of Bitcoin’s recent value graphic is presented below5.
Nevertheless, the area of application of Bitcoin is prevalent in developing countries like Turkey; it is extensive in developing countries such as the USA, Canada, Japan, England, Germany or France. In such countries like Ireland or Japan, there is an increasing number of Bitcoin ATMs in order to fulfill the need of physical Bitcoins and extend the opportunities of transfer and shopping. This rapid development of Bitcoin ATMs has crucial importance for spread and promotion of virtual currency ecosystem. ATM numbers on the basis of continents is demonstrated in the graphic below6.
Another significant aspect to be mentioned at this point is whether Bitcoin amount is an alternative to the national currencies. It is known that Bitcoin is applied as an instrument of payment in some countries. For instance, it is observed that it is substituted the national currency in Argentina7. There has been a rise in use of Bitcoin after the economic crisis in Spain. However, despite all these examples it is hardly defendable that Bitcoin could replace the national currencies yet.
4. LEGAL REGULATIONS OF THE USAGE OF BITCOIN IN TURKEY AND IN THE WORLD
It is seen that many countries around the World tends to regulate the concept of virtual currency in general rather than regulating Bitcoin in particular. In this respect, Bitcoin needs to be interpreted within the scope of the general regulations regarding the virtual currency. Nevertheless, the proliferation of Bitcoin forces the decision makers to make at least some principle decisions in particular to Bitcoin.
Bitcoin is not described as illegal in numerous legal systems. In addition to this, most of the countries who adopt this view do not have a special regulation on many aspects as how to make the recognition, taxation or how to protect the users. Limited number of countries has special regulations on Bitcoin. For instance Germany has acknowledged Bitcoin as a financial instrument, some sort of special currency subject to the German banking principles instead of an e-money or a foreign currency and regulated its taxation in particular. However, in some countries (such as Argentina or Russia) foreign currencies are radically restricted or forbidden.
Some countries attempt to integrate Bitcoin into their legal system. For example Financial Crimes Enforcement Network (FinCEN), as an office of the U.S. Department of Treasury, recently has published a non-binding guide with regard to how to characterize certain activities including virtual currencies on the 20th of March 2013. In May 2014, the U.S. Securities and Exchange Commission has published a warning about the risks embodied in the application of Bitcoin8. In July 2014, New York Government Financial Services Office has offered the most comprehensive regulation until then9.
Electronic Money Institutions Directive (2009/110/EC) of European Union (“the Directive”) has been entered into force. All European countries have put into force this directive in their domestic law. The directive in question presents three criteria to define electronic money: (i) to be stored electronically (ii) to be exported in return to the funds accepted by the institution which exports the electronic Money and (iii) to be accepted as an instrument of payment by the real and legal persons other than the institution which exports electronic money. When an examination is held in this respect, despite its fulfillment of the first and the third criteria, Bitcoin certainly does not fit with the second criteria. One of the significant aspects of Bitcoin system to be considered is that the “mining” activity in which Money is generated without any monetary exchange. This activity is hardly considerable in the context of the Directive.
Another legal regulation containing the virtual currency subject is the Payment Services Directive (2007/64/EC). The directive in question regulates the rules with regard to the application of payment transactions by using electronic money, but does not refer to the subject of the monetization of electronic money. As a result, Bitcoin is clearly excluded from the scope of application of the Payment Services Directive.
In “Uniform Money Services Act” of the USA, the virtual currency is presented as an alternative payment mechanism. This Act aims at bringing the regulations of the states within the USA in conformity just like the Electronic Money Institutions Directive10. Nonetheless, the statute considers the virtual currency as an alternative payment mechanism rather than presenting any special treatment for it11.
When the Bitcoin system is evaluated from the stand point of Turkey, there is no legal regulation which acknowledges, approves or forbids the application of the Bitcoin system in our country. In other words, it can be said that there is a legal loophole on this subject. But, in the light of the principle of “the freedom of venture”, we may state that any act or activity which is not forbidden by law with its sanctions to be presented cannot be prevented or be subjected to any sanctions.
The evaluation of the applicability of the regulations under our legislation has importance. As is known, “the Law on the Settlement of Payment and Security Systems, Payment Services and the Electronic Money Institutions” (“the Law”) numbered 6493 entered into force by the publication on the official gazette numbered 28690 and dated 06.27.2013. The target of this Law is to regulate the principles and procedures regarding the settlement of payment and security systems, payment services, payment institutions and electronic money institutions. According to the Article 3 of the Law, the electronic money is “a monetary value issued in return to the funds approved by the institutions which issue electronic money, stored electronically, used in order to make the payment transactions defined under this Law and accepted as an instrument of payment by the legal and real persons aside from the institution which issues electronic money as well”; as for electronic monetary institution is “the legal person authorized to issue electronic money under this Law”.
The regulations regarding the institutions which issue electronic money fall into the following articles of the Article 18 of the Law. Thereunder the Article 18 of the Law, these institutions shall solely be established as a joint stock company, possess minimum five million Turkish Lira of capital paid in cash and free from all kinds of collusion, conduct its activities through the banks defined in the Banking Law numbered 5411 and fulfill all the other conditions described under the Article.
The principles with regard to the supervision of these institutions are regulated under the Article 21. According to this, Banking Regulation and Supervision Agency (“BRSA”) shall be authorized to conduct an inspection on the center, branch, representative of the electronic money institution or other outsider institutions provided services to them. The institution is obliged to hold at disposal for inspection and present, even if they are confidential, all kinds of information and documents and books that BRSA may request during these inspections.
According to the Paragraph 3 of the Article 26, it is stated that “the procedures of principles regarding the cooperation of the domestic or international institution to be made about the supervision, information sharing or other matters shall be determined by means of receiving opinions of relevant parties by the Bank for the system operators, by the Council for the electronic money institutions.”
Despite the the explanations made regarding the content of the Law, our opinion is that the Law in question cannot be applicable to the Bitcoin system. That is to say, according to the press release of the BRSA dated 11. 25.2013 and numbered 2013/32, it is stated that Bitcoin, known as a virtual currency which is not issued by an official or private institution and not provided a guarantee for its exchange, is not considered as an electronic money in respect of its structure and function under the scope of the Law and therefore its supervision or inspection does not appear as possible within the framework of the relevant Law. On the other hand, BRSA has warned the citizens about Bitcoin and other similar virtual currencies in the mentioned release. According to the BRSA, “…Bitcoin is open for risks such as having a fluctuant market value, being stolen from digital wallets, being lost or being illegally used beyond the knowledge of its owners along with the risks originated from the operational mistakes due to the irrevocability of the transactions taken or the abuse of the malicious sellers”.
Beside this release, pursuant to the above mentioned articles, it is acknowledged that the electronic money institutions should be established as a joint stock company with a high value capital, subject to independent audit and conduct its activities through banks indicated by the Law numbered 5411, and also the electronic money could solely be issued by the authorized institutions. Due to the fact that the Bitcoin is not under the management of a person or an institution, the provisions of the Law numbered 6493 does not apply to Bitcoin system12.
As a result, it would not be wrong to claim that the future of Bitcoin for our country will be determined in the future. In other words, Bitcoin system may not be acknowl edged by being subject to legal sanctions or else may be granted exemption with a new regulation by the government of the Republic of Turkey. However, as aforementioned, in terms of the current situation, since there is no prohibitory regulation in Turkey, the application of Bitcoin is allowed and no legal sanctions may be imposed for these actions. In this case, Bitcoin or similar virtual currencies should be subject to international agreements, regulated under the domestic laws of the nations and, in this way, all the money transactions need to be made under the supervision of the government as the owner of the community power13.
5. PROBLEM OF MONEY LAUNDERING AND BITCOIN
The money laundering is to block or to complicate to find the source of the value of the asset by creating a false impression that it is acquired legally while in reality, it has been illegally acquired through using some methods of disguise14. The money laundering, or as its legal definition, the act of laundering the value of the assets derived from a crime, is regulated under the Article 282 of the Turkish Criminal Code numbered 5237. In order to commit money laundering, there must be a value of asset derived from a crime (black money) in question. By means of being subject to certain transactions by placing into the financial system, removal of the trace of the crime as the source of this value of asset and presenting a legal money appearance constitutes the “laundering” period. Bitcoin system is commonly used due to the fact that it is difficult to chase it during the laundering period and the accessibility of operation that it provides.
The money (black money) which is the subject to the money laundering operation refers to cash money in principle. It is unlikely that the electronic money is revenue of a crime. Because, the money acquired from the actions considered as a crime is mostly in cash and it is certain that the production of drugs shall not be carried out through the payment with electronic money to the seller on the streets in a near future15. However, the contemporary data transmission will definitely create new areas of illegal activities whose costs could be paid by means of anonymous electronic denominations. To pay the costs of these kinds of proposals which constitute a crime, the electronic money is especially as appropriate tool due to its anonymity16.
In order to understand the act of laundering the assets as a profit of crime through Bitcoin, primarily understanding the process and stages of the money laundering would be beneficial. The process of the money laundering consists of three stages;
Placement means the entry of the profit of the crime into the financial system. This stage is formed through the act of identification of the illegal funds into the financial system by means of creating activities on accounts of a virtual world or services of acquisition.
Layering is subject to transactions in order to remove the traces of the money placed into the financial system. It is formed in a way of transfer and distribution of the illegal funds into the financial system. While this appears possible in ordinary financial systems via the management of complex activities including multiple actors such as banks or companies, it seems quite easy to make a virtual money transfer in the virtual world by means of a range of unknown transactions.
Integration is one of the most critical stages. After the real source of the money is successfully concealed, it is being retrieved by creating an impression as it is acquired through a commercial activity having a determinable source in due form17. And this mostly happens through the establishment of legal companies by using the black money. The money presented as an income of these companies is considered as money acquired through a legal economic activity by the financial audit institutions and banks18.
Whereas it is necessary for a bank to be a broker in order to transfer money in our modern economy, virtual currencies remove the brokers and make the money transfer possible directly from one user to another. This case draws attention as a serious advantage of the money laundering.
According to the reports of legal sources and secret services beside the great number of research, Bitcoin is used for the purpose of money laundering in high levels19. In 2012, The Economist attributed the reason of the popu larity of Bitcoin to its “suspicious role on electronic commerce”. And again it is known that FBI recently closed a Bitcoin company specialized in drug traffic down. Game platforms and digital communities provide many opportunities for money laundering as well. Indeed, the transformation of real currencies to virtual credits by means of mentioned channels without being stuck with any supervision mechanism becomes possible.
While the use of virtual currency and the inability to control the financial flow of the cyber field make the money laundering operations extremely efficient, it also makes the action hard to prove. Also being a non-regulated area makes it even harder to struggle with the phenomena of the cyber laundering.
The Law on the Prevention of Laundering the Crime Revenues numbered 5549 regulates the aspect of notification of the suspicious conditions and implementing identification of the institutions which operates on many fields notably the banks. Due to the fact that there is no regulation on electronic money institutions in our country and there is no established institution in this regard, the virtual currency is not subject to the law numbered 5549. In case of a new legal regulation regarding the electronic money institutions is made, the electronic money institutions shall be subject to the law numbered 554920.
6. CONCLUSION
The virtual currencies are means of exchange based on internet which are similar to the physical currencies but enable the transfer of ownership and instant transactions without any dependency on the physical environment and being stuck with boundaries. Putting aside the fact that the use of virtual currency is not so common nowadays due to the reasons mentioned above, it becomes a more preferred currency day by day. Although the use of virtual currency reaches impressive numbers in last 10 years, the future of the virtual currencies depends on consumers’ recognition of them as an instrument of payment21.
One of the biggest obstacles before the virtual currencies nowadays is the absence of a proper legal framework in terms of the transactions made via virtual currencies. A proper legal ground in the sense of an instrument of payment is composed of specific laws and contracts regulating the rights and obligations of the parties along with the legal framework regulations. The system of payment by the virtual money is deprived of a clear specific legal framework and also definitions regulating the rights and obligations of the parties as well.
The virtual currency system does not content itself with being deprived of the legal definitions and regulations but also holds a set of difficulties due to its nature. For instance, the determination of the status of parties of a legal relationship and implementation of the court decisions or criminal sanctions on them reflects another difficulty. If the governments or central banks desire to control the virtual currency system, they would face serious difficulties. When taking into consideration the special case of Bitcoin which is peer-to-peer transaction based and no dependence on a center, Bitcoin does not have its own server and for this reason even if the authorities find it necessary there is no server that they can shut down.
As a result, in contrast to the traditional payment mechanism, the virtual currency systems are not regulated yet. The legal gaps around the virtual currency systems constitute an obstacle for the public authorities to the extent that they are used by criminals, swindlers or money launderers.
BIBLIOGRAPHY
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FOOTNOTE
1 Oruç Hami Şener, “Ecash Sisteminde Üretilen Elektronik Paranın (Nakdi) Para Kavramı Bakımından Değerlendirilmesi”, Dokuz Eylül Üniversitesi Hukuk Fakültesi Dergisi 9 (2007), 456.
2 Mehmet Sıddık Yurtçiçek, Hukuki Açıdan Elektronik Para, (İstanbul: Seçkin, 2013), 123.
3 Mark Ishman ve Quincy Maquet, “A Consumer’s Analysis of the Electronic Currency System and the Legal Ramifications For a Transaction Gone Away”, John Marshall Law School Review 6/3 (1999), 35.
4 Sanal para birimlerine dair bilgiler http://coinmarketcap.com/ adresinden takip edilebilmektedir.
5 A. Buğra Ferah, “Bitcoin’in değeri sosyal etkileşimle paralel artıyor,” Webrazzi, 29.11.2013, erişim: 25.02.2014, http://webrazzi.com/2013/11/29/ bitcoinin-degeri-sosyal-etkilesimle-paralel-artiyoranaliz/.
6 Cointurk, erişim: 26.02.2014, http://coin-turk. com/bitcoin-atm-sayisi-290i-asti-sirada-suudiarabistan-var/.
7 Vedat Özdani, “22 soruda Bitcoin ve Litecoin nedir, ne değildir?,”, T24, 07.12.2013, erişim: 26 Şubat 2015, http://t24.com.tr/yazarlar/vedat-ozdan/22-sorudabitcoin-ve-litecoin-nedir-ne-degildir,7987.
8 Michael Bobelian, “SEC Warns Investors To Beware Of Bitcoin,” Forbes, 09.05.2014, erişim 25.02.2014, http://www.forbes.com/sites/ michaelbobelian/2014/05/09/sec-warns-investorsto-beware-of-bitcoin/.
9 Michael Bobelian, “New York’s Financial Regulator, Benjamin Lawsky, Maintains Lead On Bitcoin Regulation,” Forbes, 25.07.2014, erişim 24.02.2014, http://www.forbes.com/sites/ michaelbobelian/2014/07/25/new-yorks-financialregulator-benjamin-lawsky-maintains-lead-onbitcoin-regulation/.
10 Yurtçiçek, Hukuki Açıdan Elektronik Para, 205.
11 Malte Krueger, Innovation and Regulation The Case of E-Money Regulation in the EU, 18.
12 Şen, “Bitcoin: Elektronik Para.”.
13 Şen, “Bitcoin: Elektronik Para.”.
14 Erich Rebscher ve Werner Vahlenkamp, Organisierte Kriminalitaet in der BRD, (BKA: Forschungsreihe, 1988), 112, 170.
15 Herbert Schimansky Hermann, Josef Bunte Hans ve Jürgen Lwowski, Bankrecht-Handbuch, (München: Verlag, 2011), 42.
16 Leyla Keser Berber, İnternet Üzerinde Yapılan İşlemlerde Elektronik Para ve Dijital İmza, (Ankara: Yetkin, 2002), 108.
17 Jürg-Beat Ackermann, Geldwaescherei - MoneyLaundering, (Zürich, 1992), 33.
18 Keser Berber, İnternet Üzerinde Yapılan İşlemlerde Elektronik Para ve Dijital İmza, 108.
19 Vedat Özdani, “22 soruda Bitcoin ve Litecoin nedir, ne değildir”.
20 Yurtçiçek, Hukuki Açıdan Elektronik Para, 211.
21 http://coinmarketcap.com/ adresinden günlük olarak sanal para kullanımı ve değerleri izlenebilmektedir.
