Canadian House finance committee wants the government to dramatically change the way it regulates cryptocurrencies to prevent their use in money laundering.
A cryptocurrency like Bitcoin is a form of electronic cash that’s become increasingly popular for making secure online transactions. Cryptocurrencies are attractive to money launderers because they’re generally anonymous and difficult to trace.
The committee is recommending how the government should regulate cryptocurrencies as part of its review of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), which at least one parliamentary committee is required to undertake every five years. The committee held 18 meetings for the purpose of the review, which it started in February. More than 70 expert witnesses from the field of finance contributed to it.
The committee recommended three significant ways the government should monitor cryptocurrencies.
First, it said exchanges when cryptocurrency is converted from fiat currency should be regulated. (Fiat currency is legal tender, such as the Canadian dollar.) In so doing, the entity conducting the exchange is considered a money-service business. In Canada, such businesses must follow strict financial-reporting guidelines in compliance with the PCMLTFA. The committee’s suggestion aligns with the department of Finance’s proposed amendments to the PCMLTFA, which were published in the Canada Gazette in June.
Second, the committee recommends that cryptocurrency exchanges require a licence, something other jurisdictions such as New York state have already done. In the witness-testimonials part of the report, the committee cites suggestions by financial adviser IJW & Co. and law firm Durand Morisseau LLP, both of which submitted a hefty 56-page joint brief.
“They further explained that in the absence of some degree of regulatory oversight, cryptocurrency transactions may be used by parties to swiftly move large amounts of wealth across borders, and that regulating (exchanges of fiat currencies for cryptocurrencies) would address the (anti-money-laundering) concerns of the cryptocurrency space,” says the report.
The committee’s final recommendation is that government should regulate crypto-wallets, which hold cryptocurrencies, so suspicious purchases can be traced more easily and police can track hacking or financial crime.
While the suggested changes are a small part of the committee’s review of the PCMLTFA, the government is required to table a response to the committee’s recommendations in the House of Commons within 120 days.