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WASHINGTON—U.S. officials dealt a blow to the fledgling digital currency called Bitcoin, freezing an account tied to the largest Bitcoin exchange just months after regulators warned such entities should follow traditional anti-money laundering rules.

U.S. officials dealt a blow to the fledgling digital currency called Bitcoin, freezing an account that is tied to the largest Bitcoin exchange just months after regulators warned that such entities should follow traditional rules on money laundering. Jeffrey Sparshott joins digits. Photo: Getty Images.

The Department of Homeland Security obtained a warrant Tuesday to seize an account tied to Mt. Gox, a Tokyo-based exchange that says it handles 80% of all Bitcoin trading. The warrant alleges the company and a subsidiary were conducting transactions "as part of an unlicensed money service business."

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The scrutiny comes after the Treasury Department ruled in March that 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. WU -0.34%

The Treasury unit that fights money laundering requires such companies to register as "money services businesses," and subjects them to a variety of rules and reporting for transactions of more than $10,000. The Commodity Futures Trading Commission also is considering whether to regulate so-called virtual currencies.

U.S. authorities accused Mt. Gox and its U.S. subsidiary, Mutum Sigillum LLC, which held the account, of failing to register with the Treasury's Financial Crimes Enforcement Network, or FinCen. The account was held at the online-payments firm Dwolla, according to the warrant.

A number of firms have registered as money-transmission businesses since the agency issued the guidance, but Mt. Gox hasn't done so, according to a FinCen list. The agency doesn't have authority to take on Mt. Gox directly because it is based in Tokyo, but has fired a shot across the exchange's bow by going after its U.S. subsidiary.

The DHS action appears to be the first salvo in government efforts to make sure companies comply with anti-money-laundering rules, said Jon Matonis, a director of the Bitcoin Foundation, an industry-backed group that works to promote the digital cash.

Nicole Navas, a spokeswoman for DHS's Immigration and Customs Enforcement arm, said the account seizure was the first such move "involving virtual currency in the agency's history."

Dwolla, based in Des Moines, Iowa, said it had informed users. "We appreciate the sensitivity and frustration caused by the situation," but the company considers the matter between Mt. Gox and the DHS, said a spokesman.

Mt. Gox couldn't be reached for comment. A statement on its website said the company had "read on the Internet" about the warrant.

The rising popularity of virtual currencies is being fueled by Internet merchants, as well as users' concerns about privacy, jitters about traditional currencies in Europe and efforts to move money for illicit purposes.

Bitcoin has been on a wild ride since March, ranging between $125 and $98 over the past 10 days and rising as high as $230 in April. It was trading at about $112 Wednesday on the Mt. Gox exchange.

source:http://online.wsj.com/news/articles/SB10001424127887323582904578485391717441224