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Federal Agents Seize A Portion Of MtGox Bitcoin Exchange Funds

Max 'Beast from the East' Smolaks covers open source, public sector, startups and technology of the future at TechWeekEurope. If you find him looking lost on the streets of London, feed him coffee and sugar.

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US department of Homeland Security says Tokyo-based MtGox broke US laws

MtGox, the largest Bitcoin exchange in the world, has had some of its funds confiscated by the US Department of Homeland Security (DHS) which claims the Tokyo-based business has violated US laws governing currency exchange and transfer.

On Tuesday, e-commerce company Dwolla, which handles some Bitcoin transactions in the US, told customers it would no longer transfer funds to MtGox accounts, after receiving a seizure warrant from a federal court. According to the warrant, the exchange was transmitting money without a licence, a crime which could result in a fine or even a prison term.

The loss of these funds is not the only problem for MtGox – earlier this month, it was sued by CoinLab, US-based exchange which claimed MtGox failed to transfer ownership of its US assets as per November agreement, and demanded $75 million (£48m) in damages.

Interestingly enough, the news had little impact on the Bitcoin price, with virtual currency continuing to trade around $115 mark.

The bigger they are

MtGox was established in 2010 as Magic: The Gathering Online Exchange – a platform for trading collectible game cards, but its focus soon shifted to transactions in alternative online currency. It turns out that both the company and its subsidiary Mutum Sigillum, created specifically for business purposes, have been under investigation by the DHS for a while.

mtgoxDwolla has provided one of the easiest ways for US residents to buy bitcoins on MtGox, routing the money through Mutum Sigillum, even though the company doesn’t endorse the virtual currency.

The DHS agents established that the accounts used by the US business have been opened by Mark Karpeles, the president and CEO of MtGox. The problem is, in 2011 Karpeles signed a document which stated he and Mutum Sigillum were “not engaged in money services”.

According to the warrant published by Ars Technica, in his initial Money Services Business application Karpeles answered “no” when asked whether he and his company would exchange currency for its customers. He also said he would not transfer money according to customer instructions.

As a cherry on top, the company failed to register with FinCEN (Financial Crimes Enforcement Network), part of the Department of the US Treasury that collects and analyses information about financial transactions in order to combat money laundering and other financial crimes.

Another interesting fact: CoinLab, the company which was supposed to take over the Mt. Gox business in the US and is now suing it, had previously stated that it is fully compliant with US law and registered with FinCEN.

After receiving the warrant, Dwolla transferred the funds belonging to Mutum Sigillum to the authorities and stopped all interaction with the currency exchange. The exact amount wasn’t specified; however MtGox doesn’t seem all that worried.

“MtGox has read on the Internet that the United States Department of Homeland Security had a court order and/or warrant issued from the United States District Court in Maryland which it served upon the Dwolla mobile payment service with respect to accounts used for trading with MtGox.

“However, as of this time MtGox has not been provided with a copy of the court order and/or warrant and does not know its scope and/or the reasons for its issuance. MtGox is investigating and will provide further reports when additional information becomes known,” said the company in a statement on its website.

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