Switzerland: Bitcoin-based report to encourage digital currencies regulations

Friday 27 June 2014 13:26 CET | News

Switzerland’s Federal Council, the nation’s seven-member executive branch, has issued a new report on digital currencies arguing about regulating digital currencies under the terms of the existing Law for a number of business models, reports.

Bitcoin Association Switzerland (BAS), the local Bitcoin trade association, was similarly positive in its review of the government’s analysis, stating that Bitcoin can be regulated without adding new provisions to the existing Law.

The report also hints that Bitcoin is not susceptible to VAT in payment transactions. Moreover, the report admits that, via Bitcoin, customers can pay and get paid for exchange of services.

However, certain acts, such as the Federal Act on Banks and Savings Banks, the Federal Act on Stock Exchanges and the Securities Trading and the Federal Act on Combating Money Laundering and the Financing of Terrorism in the Financial Sector, should apply for businesses conducting bitcoin transactions that are considered deposits, the report says.

The report explains that transactions should be considered deposits whenever Bitcoin dealers get credit balances in fiat currencies on the dealer’s account for the purpose of future transactions of official currencies or if a dealer is willing to accept Bitcoin payments from a customer who does not have the required Bitcoin amount for the respective payment without the dealer’s intervention.

In the event that such a company went bankrupt, the report argues, Bitcoins would be considered bankruptcy assets on an equal level as credit balances accepted in money.

When looking at Bitcoin’s applications to the existing Swiss criminal code, the Federal Council believes that Bitcoin exchange operators are subjected to criminal activity for money laundering. Since digital currencies also qualify as property, the report noted that certain penalties for the misappropriation, fraud and unlawful use of financial assets may also apply in such instances.

The Anti-Money Laundering Act primarily applies to ‘financial intermediaries’, a term that the report deems to refer to Bitcoin businesses that require a banking licence. Still, the AML regulations may apply to Bitcoin businesses that fall outside this definition, extending to trading activities covered by the law.

Bitcoin businesses governed by the law must, in turn, conduct actions of security against money laundering activities. This includes filing reports with the Money Laundering Reporting Office Switzerland (MROS) if they believe individuals are laundering money or otherwise operating with criminal intent.

Individual Bitcoin users who pay for goods and services in Bitcoins should not be subject to any AML laws, the report suggests. Professional Bitcoin traders, by comparison, should conduct some verification depending on the size of the transaction, even in some instances when they do not maintain a business relationship.

In relation to Bitcoin ATMs, the Financial Council indicated that Bitcoin exchange machines are not performing currency exchange, but rather money transmission, as it would be possible for the cash deposited in one machine to be withdrawn at another location.

As a foreign currency, the Federal Council deems Bitcoin irrelevant in this respect, at present, although it admits the crypto-currency’s money-like features that, in turn, make current regulations applicable in their exchange. In other words, Bitcoin has value which is harnessed to purchase goods by people and, as such, Switzerland suggests that Bitcoin should be treated as a foreign currency.

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Keywords: Switzerland, Bitcoin, digital currencies, crypto-currency, regulation, fiat currency, financial transactions, law
Categories: Payments & Commerce
Countries: World
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