U.S. Freezes Account Linked to Bitcoin Exchange

Rhett Pardon

WASHINGTON — The U.S. Department of Homeland Security obtained a warrant Tuesday to seize an account tied to Mt. Gox, the exchange that says it handles 80 percent of all bitcoin trading.

The warrant alleges the Tokyo-based company and a divisional unit, Dwolla, an Iowa-based startup, were conducting transactions "as part of an unlicensed money service business."

The freezing of Dwolla funds comes after the Treasury Department issued guidelines in March, ruling firms issuing or exchanging online cash, including currencies not backed by a central bank, would be subject to the same money-laundering rules as traditional providers like Western Union Co.

U.S. officials accused Mt. Gox and U.S. subsidiary Mutum Sigillum LLC of failing to register Dwolla's account with the Treasury's Financial Crimes Enforcement Network.

The Treasury Department requires such companies to register as "money services businesses," and subjects them to a reporting for transactions of more than $10,000.

Some virtual currency exchanges have registered as money-transmission businesses since the agency issued the guidance, but Mt. Gox hasn't done so, according to a report.

U.S. officials seized the U.S. account of Dwolla because of jurisdictional issues since Mt. Gox is based in Tokyo.

On Thursday, a representative for U.S. Immigration and Customs Enforcement. declined comment on the seizure.

“In order not to compromise this ongoing investigation being conducted by ICE Homeland Security Investigations Baltimore, we cannot comment beyond the information in warrant, which was filed in the District of Maryland [on Tuesday],” said Nicole Navas, a spokeswoman for ICE.

Bitcoin is of big interest to the online adult entertainment industry, which is always looking for new forms of alternative payment solutions.

In fact, bitcoin was discussed in a seminar at XBIZ Summit today called "Bitcoin: The Next Big Thing," where panelists discussed the virtues of the virtual currency including an overview of the mechanics of accepting bitcoin and obtaining paper money in return.

Many in the adult industry say that bitcoin a natural fit and a perfect candidate for adoption because bitcoins are nearly as untraceable as cash, which makes them valuable to people who don’t want their purchases tracked by credit or debit cards.

But so far only a handful of adult companies are taking payments in Bitcoin from consumers because terms and conditions restrict transactions to softcore content.

MetArt, one of the largest online adult networks, just announced it would take it. Others, including BlueBlood.com LadyBoy.com and Meanclips.com, also are on board.

And there are several marketplace sites, such as BitMit, that resell some adult memberships.

For some mainstream bitcoin investors, the virtual currency has been a safe bet, particularly for two reasons: Cyprus and Japan.

During the banking crisis in Cyprus in March, bank depositors struggled to gain access to their accounts and heard threats of a withdrawal tax, prompting fears of bank runs around the world.

The Bank of Japan, meanwhile, launched its own bond-buying program and the yen has weakened dramatically as a result recently.

As of late, Bitcoin has taken wild swings, ranging between $125 and $98 over the past 10 days and rising as high as $230 in April. It was trading at about $112 Thursday on the Mt. Gox exchange.

View order to seize account