Commonwealth Report Urges Member Countries To Foster Awareness Of Virtual Currencies

A new report released by the Commonwealth of Nations calls for clearer legislation for virtual currencies such as bitcoin. The report explores the benefits, outlines the risks and makes recommendations to help countries respond to and regulate the technology. It marks the first step to improve legislative and regulatory frameworks in the Commonwealth to protect the legitimate use of virtual currencies and prevent cybercrime.

“Recognising the rapid expansion of virtual currencies and the need to combat cybercrime, the Commonwealth formed a specialist working group to help its members upgrade laws to harness the benefits and counter risks. This report constitutes the group’s initial findings and aims to provide an informative and useful resource to help lawmakers, police, financial regulators and tax authorities”, said Katalaina Sapolu, Director of Rule of Law at the Commonwealth Secretariat.

The report noted that despite being unregulated or under-regulated, virtual currencies are widely used in Commonwealth countries. They offer a cost-effective, fast and accessible alternative to settling financial payments.

However, since the technology enables users to make transactions anonymously from anywhere in the world, virtual currencies are vulnerable to criminal exploitation such as trade in drugs and weapons, money laundering and financing terrorism. The report noted that governments are struggling to develop legislations to keep up with the changing technology.

Also, the lack of clarity around consumer protection and no provision to refund a fraudulent or disputed transaction puts virtual currency users at risk. Moreover, losing login credentials or getting hacked means access to the user’s ‘wallet’ or account can be lost irretrievably or stolen.

It further said that blockchain technology that underpins virtual currencies offers individuals and organisations an alternative to the banking system. It can be a cheaper and faster way to trade goods, make payments and send and receive money.

The report urges member countries to promote awareness of virtual currencies within their jurisdictions and the potential risks involved. It recommends financial regulators and central banks to take actions to confirm the applicability of existing legislation, and calls for more funding and training to be provided for law enforcement. It also suggests tax authorities clarify tax regimes applicable to virtual currencies and adapt or extend them as necessary.

The members of the Commonwealth Working Group on Virtual Currencies, chaired by Colin Nicholls QC, include Australia, Barbados, Kenya, Nigeria, Singapore, Tonga, the Commonwealth Telecommunications Organisation, World Bank, INTERPOL and the United Nations Office on Drugs and Crime. The IMF also commented on the report, according to the press release. The US Government was an observer of the Working Group, represented by the Federal Bureau of Investigation and US Department of Justice.