December 4, 2015

Mexico City

Bitcoin
Regulation & Compliance
Around the World
@JuanLlanos

Bitcoin Regulated Before Born

anonymity
transmission of money or value
cash or monetar y equivalent
value that substitutes for currency
2015 Juan Llanos

Agenda
1.
2.
3.
4.

Regulation today
Compliance
Enforcement
Regulation tomorrow

2015 Juan Llanos

Agenda
1. Regulation today
2. Compliance
3. Enforcement
4. Regulation tomorrow

2015 Juan Llanos

Risk Management 101

L
O
S
S

VALUE
PROPERTY
POWER

NEGLIGENCE
IMPRUDENCE
MALPRACTICE
ABUSE
2015 Juan Llanos

 2015 Juan Llanos

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 2015 Juan Llanos

Agenda
1.
2.
3.
4.

Regulation today
Compliance
Enforcement
Regulation tomorrow

2015 Juan Llanos

R E G I S T R AT I O N
LICENSING

2015 Juan Llanos

ACTIVITY-BASED
CUSTOMER JURISDICTION

2015 Juan Llanos

FORM
S U B S TA N C E

2015 Juan Llanos

1
2
2015 Juan Llanos

substance
Letter-spirit continuum focus on spirit (underlying purpose
Form-substance continuum

and values) facilitates compliance without compromising

performance

Holistic risk management leverage tech for

everything

Engineers, not lawyers (sorry, guys)

2015 Juan Llanos

 T h e Va l u e o f a N e c e s s a r y E v i l
C O M P E T I T I V E A DVA N TAG E e x c e p t i o n a l
compliance attracts favorable reviews from
regulators and bankers.

R E P U TAT I O N h i g h c o m p l i a n c e a n d i n t e r n a l
controls standards raise the eligibility of the
company for partnerships

S H A R E H O L D E R VA LU E a s p o t l e s s

compliance record reduces the discount a potential

acquiror is likely to apply to the valuation
2015 Juan Llanos

Agenda
1.
2.
3.
4.

Regulation today
Compliance
Enforcement
Regulation tomorrow

2015 Juan Llanos

Regulator y & Enforcement A t t i t u d e s

conser vative vs. progressive
restrictive vs. expansive
misguided vs. enlightened
formal vs. substantial
aggressive vs. permissive
2015 Juan Llanos

Regulator y / Law Enforcement Milestones

2 013
2013-03-18
2013-05-13
2013-05-13
2013-05-28
2013-06-22
2013-06-23
2013-07-22
2013-08-12
2013-10-01
2013-10-26
2013-12-12

FinCEN Issues Guidance on Virtual Currency

CFTC vows to consider Bitcoin regulation
DHS freezes Dwolla accounts
Liberty Reserve is indicted for $ laundering
FAT F R e p o r t o n N e w P a y m e n t M e t h o d s
Bitcoin Foundation receives C&D letter from CA
S E C c h a r g e s Te x a s m a n f o r B T C P o n z i s c h e m e
NY subpoenas Bitcoin firms
Lawsky: So Be It if transparency dooms Bitcoin
FBI Silk Road Bitcoin bust
FinCEN shuts down Casascius operation
2015 Juan Llanos

Regulator y / Law Enforcement Milestones

2014-01-27
2014-01-27
2014-01-31
2014-02-07
2014-02-07
2014-02-24
2014-02-26
2014-03-25
2014-04-08
2014-04-29
2014-05-05
2014-06-06
2014-06-30
2014-07-14
2014-07-17
2014-09-23
2014-10-27

Charlie Shrem arrested, indicted 3 months later

B i l i c e n s e h e a r i n g s a r e h e l d i n N e w Yo r k
F i n C E N d e c l a r e s m i n e r s & i n v e s t o r s n o t M Ts
2 014
Florida targets local bitcoin exchangers
Mt Gox halts withdrawals
Mt Gox shuts down, files for bankruptcy 4 days later
Senator Manchin (R-WV) calls for Bitcoin ban
IRS says Bitcoin and VC to be taxed as property
US Attorney General keeping eye on bitcoin
F i n C E N d e c l a r e s c l o u d m i n i n g & e s c r o w n o t M Ts
U S g o v e r n m e n t t o s t u d y B i t c o i n s t e r r o r i s t t h r e a t
European Central Bank calls for institutional controls
FinCEN examines risks of digital currencies
NYS issues Bitlicense proposal
European Banking Authority examines BTC risks
US government shuts down Butterfly Labs
F i n C E N r u l e s p a y m e n t p r o c e s s o r s & b r o k e r s a r e M Ts

2015 Juan Llanos

Regulator y / Law Enforcement Milestones

2015-02-13
2015-03-26
2015-05-05
2015-05-05
2015-06-03
2015-07-22
2015-08-14
2015-09-24
2015-09-29
2015-10-21
2015-10-22
2015-10-28
2015-11-12
2015-12-01

Quebec Mandates Licensing of Bitcoin Services

Isle of Man Introduces Bitcoin Regulation
FinCEN Fines Ripple Labs for BSA Violations
Ross Ulbricht Sentenced to Life in Prison
2 015
NYS Releases Final Bitlicense
Aussie Securities Regulator Stops Bitcoin IPO
F i n C E N R u l e s A s s e t - B a c k e d To k e n C o s a r e M Ts
C F T C R e a c h e s S e t t l e m e n t w i t h Te r a E x c h a n g e
Mexico Extends Payment Restrictions to Bitcoin
FAT F Wa r n s B i t c o i n C o u l d F u e l Te r r o r i s m
B i t c o i n E x e m p t f r o m VAT i n E u r o p e
Russia Plans to Ban Bitcoin-to-Fiat Conversions
Wa s h i n g t o n S t a t e I s s u e s C o n s u m e r Wa r n i n g
S E C C h a r g e s G AW M i n e r s C E O w i t h S e c t s F r a u d

2015 Juan Llanos

Agenda
1.
2.
3.
4.

Regulation today
Compliance
Enforcement
Regulation tomorrow

2015 Juan Llanos

RETHINK
REDEFINE
REINVENT
2015 Juan Llanos

identity
money

sovereignty
property

PA R A D I G M S
questioned
security
governance

law
regulation
2015 Juan Llanos

TODAY

AML/CFT

- national security and crime deterrence are top public policy

priorities
- unintended consequence selective inclusion facilitates fiscal
surveillance but creates financial exclusion of underprivileged
- stick over carrot (heavy hand)
- Anonymity is anathema

TOMORROW

- carrot over stick (lighter hand)

- measure proportion and results
- layered, zero-knowledge, identity systems could meet both law
enforcement and civil liberties goals
2015 Juan Llanos

TODAY

IDENTITY

- Countries have the monopoly over a persons identity (mostly, for

fiscal reasons)
- Not all countries have reliable identification systems
- Government-issued IDs are not necessarily effective in deterring
crime/unmistakably identifying humans

TOMORROW

- Alternative identity systems that transcend borders and facilitate

identification of previously disenfranchised persons
- Identity systems that balance both transparency and privacy (ID3/
Windhover Principles)
2015 Juan Llanos

P R I VA C Y
TODAY

- Radical transparency jeopardizes privacy

- Slowly being eroded via tax compliance regulations, elimination of
secrecy havens, digitization of money

TOMORROW

- Leverage zero-knowledge proof technology tokenization

(Windhover Principles)
- Privacy without anonymity = pseudonymity (first payment; then,
identity)
2015 Juan Llanos

SECURITY
TODAY

- role-based access control

- Digital tokens are bearer instruments: lose the key, lose the asset
forever
- Information security risks increase with digitization
- Network-centric

TOMORROW

- customer-centric custody and security (via multi-signature escrow)

- Device/Machine-centric
2015 Juan Llanos

 2015 Juan Llanos

Algorithmic Regulation*
A successful algorithmic regulation system has the following characteristics:

1.Desired outcome
2.Real-time measurement
3.Adaptive algorithms
4.Deeper analysis
* Tim OReilly, Open Data & Algorithmic Regulation (in Beyond Transparency)

2015 Juan Llanos

INNOVATE
IMPLEMENT
INFLUENCE
2015 Juan Llanos

Proof that I n f l u e n c e Wo r k s
Non-Bank Financial Institutions, including telcos, are obtaining
favorable regulatory treatment world-wide and competing head
on with established depositaries.

Hugo Cuevas-Mohr

2015 Juan Llanos

Regulator y & Enforcement A t t i t u d e s

conser vative vs. progressive
restrictive vs. expansive
misguided vs. enlight ened
formal vs. substantial
aggressive vs. permissive
2015 Juan Llanos

Responsible
Evolution

INNOVATE
& Reinvent the World

IMPLEMENT

INFLUENCE

Mandatory Rules

Public Policy

2015 Juan Llanos

Forget the negative attacks on governments or

banks. Its a war that cannot be won and
making such powerful enemies does Bitcoin no
favours. The tech and the companies operating
it need to focus on making the transition to
bitcoin irresistible and inevitable.
Dominic Frisby
2015 Juan Llanos

Thank You

@JuanLlanos