Our compliance team makes sure we respect the authority (authoritah!) of governments and regulators
Bitcoin and cryptocurrency have a lot of misconceptions surrounding them. Many people are unsure if they are legal or safe to use. These concerns are even more relevant for businesses that are thinking about accepting Bitcoin and other blockchain payments.
That's why we interviewed BitPay's compliance team about what they do to make sure our services are legal and compliant with relevant regulations.
What are the goals of the compliance team?
Our main goal is to grow BitPay soundly, in terms of compliance, strategically, financially and reputationally.
Compliance is a relatively new profession that has become increasingly defined, empowered, and impactful in the past two decades. Within the compliance team, our main goal is to grow BitPay soundly, in terms of compliance, strategically, financially and reputationally.
In order to do this, we have built a strong risk and compliance framework that tackles the main risks our business is facing. By making use of new technologies such as machine learning and integrating innovative third-party compliance tools, we stay "in-control" and are flexible enough to deal with new emerging risks in a fast-changing environment.
What is KYC and why is it important?
The reason we identify and verify businesses before signing them up is because we want to make sure we keep criminals off our platform.
KYC stands for Know Your Customer and it is one of the most important pillars of our Compliance Program. Prior to signing up up a new business to our platform, we want to make sure that we have identified and verified their business. The reason for this is not because the regulators tell us to do so, but because we want to make sure we keep criminals off our platform.
What is AML and why is it important?
AML stands for Anti-Money Laundering. What is understood under this term in the financial compliance world is generally a set of procedures and controls which companies adopt in order to prevent, detect and report suspicious practices which aim to introduce illegally obtained funds back in the financial system.
Financial institutions, like BitPay, are often referred to as the "gatekeepers" because of their regulatory obligation to have solid AML policies and procedures. However, what many people might not understand is that AML has much larger social and ethical implications than mere financial compliance.
AML compliance is much more than just a regulatory obligation for BitPay. It's also an ethical and moral obligation along with being simply a sustainable business practice.
The amount of money generated by criminal activity is staggering and that money is used to fund even more crimes. For specific details, Alastair Gray's TED talk explains the connection between fake goods and terrorist financing & money laundering:
Therefore, AML compliance is much more than just a regulatory obligation for BitPay. It's also an ethical and moral obligation along with being simply a sustainable business practice.
How has the compliance team changed and grown at BitPay?
BitPay's compliance team has been ever evolving but one thing has always been constant - the dedication each team member has for his or her work. Compliance is not the most fun job for most people, but it is for us. If you speak to any of our team members about what we do and why we do it, you will immediately see the spark and feel the enthusiasm with which we speak about our job.
We are constantly bouncing off ideas of one another and seeking new ways to stay sharp and expand our knowledge in and outside the field. We ask questions (a lot of questions) whenever something does not feel or seem right - that's what helps us grow and develop superhero-like spider senses.
What does the day-to-day work of the compliance team look like?
It's never the same. Each of the team members have different responsibilities and therefore tasks he or she needs to complete to make sure BitPay stays in business for a long time.
While Kayla, Nikola and Adriana are more focused on the daily time-sensitive tasks, Liya and Jeremie work on longer term compliance progress and maintenance of our company. Daily tasks include transaction monitoring, where we find out more about the source of funds for certain transactions about a given threshold or we have controls in place assessing the first transaction done by a merchant.
We also answer to law enforcement requests for further information. Conducting Enhanced Due Diligence on business models bearing higher potential risk is also part of our job. Getting through a lengthy process of obtaining licenses is another important role the compliance team has.
Furthermore, drafting policies, implementing procedures and representing the company on professional conferences is inherently connected with the financial technology (fintech) industry and thus with compliance department too. Maintaining trustworthy relationship with our banking partners and introducing our company to new banks is essential for enabling the company to expand the portfolio of fiat settlement options.
What are the biggest challenges the compliance team faces?
Interpreting and applying the various rules and regulatory requirements that face a company can be challenging, especially when the current legislation did not account for the existence of cryptocurrencies when it was drafted. Therefore, it is important to keep up with the ever-changing legal climate.
Another challenge our department faces is helping traditional banking institutions understanding blockchain technology and proving to them that we have a thorough compliance program with advanced procedures in place. Most of the time, these institutions are surprised by the progressive approach of our department towards traditional compliance concepts adjusted for the technology we work with.
Interpreting and applying the various rules and regulatory requirements that face a company can be challenging, especially when the current legislation did not account for the existence of cryptocurrencies when it was drafted.
Assessing business models and their legality as well as compliance with internal policies based on our risk appetite are some of the most important roles compliance has. If the review of a risky business model is not conducted properly or our policies and procedures are not correctly drafted and implemented, the legal consequences may also end up involving BitPay. That is the reason why the role of compliance department is crucial for the functioning of our company.
What do you think is the biggest misconception about cryptocurrency?
The biggest misconception is that cryptocurrencies, specifically Bitcoin and Bitcoin Cash, are totally anonymous and untraceable from an AML perspective. By using companies such as Chainalysis and Elliptic, many blockchains have comprehensive transaction details to remove the layer of "anonymity" that companies perceive as a threat. Using BitPay to accept blockchain payments should provide our clients a degree of comfort by having a strong AML/ATF compliance program.
The biggest misconception is that cryptocurrencies, specifically Bitcoin and Bitcoin Cash, are totally anonymous and untraceable
Interested in accepting blockchain payments? Visit bitpay.com to learn more. For more regulatory details, visit our licenses page.
In 2018, we added support for four additional cryptocurrency settlement options for BitPay merchants. In addition to Bitcoin (BTC), BitPay merchants can receive settlements in Bitcoin Cash (BCH) and three stablecoins (GUSD, USDC, and PAX).
Now we're happy to share a new improvement: merchants can receive their BitPay settlements in up to five of these cryptocurrencies at once, in addition to their supported local currency.
Here's a glimpse of the new settlements page merchants can see when they log into their BitPay accounts:
BitPay is always working to improve everyday payments with cryptocurrency. Since we launched Amazon.com and Mercado Livre gift card purchases in the BitPay app, they've become quite popular with our users. Our app empowers people to use their cryptocurrency to shop with businesses that don’t accept Bitcoin (yet!).
Now we're excited to announce five more ways for you to use your crypto to get digital gift cards for your favorite shops without ever leaving our app.
Don’t feel like driving? Uber to where you need to go. Just want to stay home, binge Netflix, and eat a Big Mac from McDonalds (no judgement! That example came from experience!)? Uber Eats has you covered. If you're feeling more adventurous, catch a flight with the Delta gift cards from the app. Worried about where to stay once you land? Book a hotel with Hotels.com. Want to buy apps, games, music, books, or movies for your journey? You can load funds for one of the world's most popular app stores.
So that’s what you can buy with your cryptocurrency, without even leaving the BitPay app. Cryptocurrency is going place. And with these gift cards, it can take you places… literally.
We have learned from a Copay GitHub issue report that a third-party NodeJS package used by the Copay and BitPay apps had been modified to load malicious code which could be used to capture users' private keys. Currently we have only confirmed that the malicious code was deployed on versions 5.0.2 through 5.1.0 of our Copay and BitPay apps. However, the BitPay app was not vulnerable to the malicious code. We are still investigating whether this code vulnerability was ever exploited against Copay users.
Our team is continuing to investigate this issue and the extent of the vulnerability. In the meantime, if you are using any Copay version from 5.0.2 to 5.1.0, you should not run or open the app. A security update version (5.2.0) has been released and will be available for all Copay and BitPay wallet users in the app stores momentarily.
Users should assume that private keys on affected wallets may have been compromised, so they should move funds to new wallets (v5.2.0) immediately. Users should not attempt to move funds to new wallets by importing affected wallets' twelve word backup phrases (which correspond to potentially compromised private keys). Users should first update their affected wallets (5.0.2-5.1.0) and then send all funds from affected wallets to a brand new wallet on version 5.2.0, using the Send Max feature to initiate transactions of all funds.
Today, BitPay introduced a new stable coin settlement option: Paxos Standard (PAX). Paxos Standards joins Gemini Dollars (GUSD) or Circle’s Dollar Coin (USDC) as settlement options for BitPay merchants.
Since we are now settling with three stablecoins, we wanted to take more time to explain why we are using these stablecoins. In short, technology like this is why BitPay exists. As our CEO, Stephen Pair, said in a recent press release a few weeks ago,
The introduction of the USDC and GUSD stablecoin offers BitPay customers a new alternative to holding Bitcoin and Bitcoin Cash by offering a stablecoin option.
The long answer needs more explanation. What are stablecoins? How do they benefit businesses? Does it matter to anyone else?
What are Stablecoins?
The three stablecoins BitPay supports are ERC-20 tokens that are pegged to a more stable asset, namely the US Dollar. An ERC-20 token is a smart contract following the ERC-20 standard. A feature of the ERC-20 standard is the ability to launch unique tokens on the Ethereum network.
One PAX, GUSD, or USDC are each worth $1.00 USD, and are fully redeemable for $1.00 USD through the Paxos, Gemini, and Circle platforms, respectively. Paxos Standard is issued by the financial firm Paxos which operates under the direct supervision and regulatory authority of the NYDFS and is subject to the New York Banking Law and other applicable U.S. laws and regulations. Gemini, the issuer of the Gemini Dollar, “operates under the direct supervision and regulatory authority of the New York State Department of Financial Services and is subject to the New York Banking Law and other applicable U.S. laws and regulations.” 1 Circle, the issuer of the Dollar Coin, is “registered with FINCEN as a Money Services Business in the United States”2 and was the first company to be awarded New York’s Bitlicense in 2016.
The Benefits of Stablecoins
BitPay settles to merchants in the USA, EU, and a handful of other countries via ACH, SEPA, and bank wires, depending on the location. These methods are stable, but take 1-2 business days. Regardless of how promptly BitPay initiates the settlement, both BitPay and the merchant are at the mercy of weekends and bank holidays and anything else that can slow bank transfers or wires.
For other merchants around the world, we cannot settle to them with a bank wire often because of poor banking structures or the difficulty to create banking relationships in that country or region. In these cases, we need to settle to them with Bitcoin and Bitcoin Cash, which are quick but also subject to price volatility. The price of Bitcoin and Bitcoin Cash is always changing, which adds risks to merchants who receive it as settlement until they can exchange it for fiat currency.
Stablecoins provide the speed of cryptocurrency with the stability of the United States Dollar. This allows our merchants in the US and EU to receive settlement in less than an hour. It also allows merchants around the world to receive settlement that will remain stable and pegged to an internationally accepted currency.
Why Stablecoins Matter
We believe stablecoins could become a large part of the banking system of the future. The Gemini Dollar, Circle’s Dollar Coin, and the Paxos Standard all offer the benefits of blockchain technology through the Ethereum network while providing the stability and trust of the US Dollar. And all three are just beginning to grow and expand. Soon they will empower businesses across the globe to receive payment that is fast and stable.
In 2011, BitPay saw the potential for Bitcoin to revolutionize the financial industry. Seven years later, we still believe in blockchain technology’s ability to change the financial industry, and we still are working to make that future a reality today.
Check out our blog post explaining how BitPay merchants can receive settlement with stablecoins.