VANCOUVER—Police have called Bitcoin ATMs “an ideal money-laundering vehicle,” and Vancouver’s mayor has even suggested a ban, but experts and businesses say federal regulation is what’s really needed to rein in a currently unregulated sector.
Unlike other money-service businesses such as automatic teller machines (ATMs) and payday loan companies like Money Mart, cryptocurrency ATMs are not covered by federal anti-money-laundering regulations.
“Vancouver definitely has connections to, unfortunately, digital currencies being used for nefarious purposes,” said Christine Duhaime, a Vancouver lawyer who advises companies on how to avert financial crime and money laundering.
“But on the other side, it also (includes) legitimate businesses where they’re trying to get regulations to operate more legitimately.”
The Vancouver Police Department warned in 2018 and again in February 2019 that both cryptocurrency and cryptocurrency ATMs are being used to commit fraud and would be ideal tools to launder the proceeds of crime.
There are more than 60 cryptocurrency ATMs scattered around Metro Vancouver, according to the website CoinATMRadar.com. They can be found in coffee shops, convenience stores and shopping malls.
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The machines allow people who have cryptocurrency accounts to convert that digital currency into cash. While Bitcoin is the most well-known cryptocurrency, there are other types, such as Ethereum.
In January, city council passed a motion that suggested a bylaw to “regulate the use and operation of cryptocurrency ATMs, including the requirement for a business licence, requirement for signage to advertise common frauds, requirement for identifications to be used to verify the sender and receiver of funds and requirement of security features.”
Mayor Kennedy Stewart went further at a May 28 council meeting, suggesting the city may try to ban the machines altogether. Currently, city staff are researching the issue and will report back in the fourth quarter of 2019, said Alvin Singh, the mayor’s director of communications.
In a February 2019 report — prepared as a proposed resolution to the Canadian Association of Police Conference — VPD Sgt. Alvin Shum wrote that the force saw a 350 per cent increase in cryptocurrency files in 2017 compared with 2016. The police are currently on track to receive 840 reports this year, which would be a 300 per cent increase compared to 2018.
In his report, Shum also warned that if an organized crime group were to purchase a Bitcoin ATM, it would be a very effective money-laundering tool. The machines cost just a few thousand dollars, Shum wrote, and then the criminal group could “put all their cash through that one ATM … as many times as required and either profit from or eliminate the transaction fee.”
The resolution called for federal anti-money-laundering regulations to be extended to cover the cryptocurrency sector.
B.C.’s local and provincial governments are paying closer attention to money-laundering vulnerabilities following the release of several government-commissioned reports that showed the province’s casino, real estate and luxury car sectors all have issues with dirty money.
The province recently announced it would hold a money-laundering inquiry. City councils in Vancouver and Richmond — which both have large casinos and booming real-estate sectors — have passed motions in support of an inquiry and have pledged to take action on the problem.
Several recent scams in Canada have involved cryptocurrency ATMs. In 2018, Toronto and Vancouver police warned the public after fraudsters convinced several people they owed money to the Canada Revenue Agency and got them to pay through cryptocurrency ATMs.
In March 2019, Calgary police sought four suspects who police alleged had defrauded a cryptocurrency company of nearly $200,000 by withdrawing money from ATMs and then remotely cancelling the transactions before the company could process the withdrawal.
Many of the cryptocurrency ATMs in Canada have limits on the amount of money that can be transacted per day, or the amount that can be transacted without an identification check. But the amounts vary. Some machines require a cellphone number and text verification for transactions over $1,000, while for others it’s $3,000, according to CoinATMRadar.com. A few machines advertise no limits at all.
Duhaime said the various limits some ATM operators had put in place only represent the operators’ level of risk tolerance, rather than an effective way to prevent money laundering and fraud.
Drew Glover operates more than 15 Bitcoin ATMs in the Vancouver area under the company BitNational. He scoffed at the idea that his company’s machines could be used for money laundering, saying $200 is the average transaction at his ATMs.
Glover said he limits transactions to $3,000 for people selling cryptocurrency to get cash and $9,000 for people buying cryptocurrency. They must also provide their cellphone number before the transaction can proceed.
Still, he said, for the sake of legitimacy he desperately wants the industry to be regulated by the same federal rules that are in place for other money service businesses.
“I message Fintrac (Canada’s anti-money-laundering agency) once a quarter asking if I can comply, and they tell me there are no regulations for cryptocurrency,” Glover said.
Dave Bradley, the owner of Bitcoin brokerage BitcoinBrains.com, has operated several Bitcoin ATMs in Calgary. Like Glover, Bradley said he voluntarily put in place the same kinds of identification checks and transaction limits that are in place at other federally regulated money service businesses.
That included a $1,000 daily limit for a cash transaction without identification. For transactions higher than that, customers had to show photo ID to the Bitcoin ATM’s camera, which would compare the user’s face to the photo ID using facial recognition, Bradley said.
Bitcoin ATMs are useful to a lot of people who may have transaction limits on their bank accounts and need to find a way to easily move larger amounts of money, Bradley said. He used the example of one of his own business banking accounts, which limits bill payments to $500 a day.
The idea that municipalities would have any sort of role to play in regulating cryptocurrency is “absurd,” Bradley said: That’s a job best left to federal legislation, and after years of discussion and consultation with the fintech industry, federal regulations that govern money service businesses are expected to be changed soon to encompass cryptocurrency businesses.
“The new regulation will define what businesses dealing in the space are required to do to monitor and prevent those sort of activities,” Bradley said.
Correction - June 6, 2019: This article was edited from a previous version that mistakenly said operators are charged a fee to be listed on website CoinATMRadar.com
