What is Bitcoin?
Bitcoin is a cryptocurrency invented in 2009 by a software developer allegedly named Satoshi Nakamoto with a goal to create “a new electronic cash system” that was “completely decentralized with no server or central authority.” The idea, apparently, was to produce a means of exchange, independent of any central authority that could be transferred electronically in a secure, verifiable and immutable way.
Regulatory response in Bangladesh
Bangladesh is one of only 6 countries in the world that are considered “hostile” to bitcoin. Bangladesh Bank issued its first “warning” against the use of Bitcoin in 2014. The warning included caution towards transacting in any artificial currency as this could involve unauthorized actions stated in Foreign Exchange Regulation Act, 1947 and the Money Laundering Prevention Act, 2012. The Central Bank expressly disapproved any transaction of cryptocurrencies by stating that these virtual currencies were not legal tender issued by any country and it does not depend on and is not approved by a central payment system, as such, people may be financially harmed by it.
The recent global popularity of bitcoin and other cryptocurrencies pushed Bangladesh Bank to issue another “Cautionary Notice” on its website on 24th December, 2017. While the recent notice reiterates the laws mentioned in the first notice, it added the Anti Terrorism Act 2009 as another law that use of bitcoin could violate. Moreover, citizens were asked to refrain from performing, assisting and advertising all kinds of transactions through the virtual currencies such as Bitcoin, Ethereum, Ripple and Litecoin to avoid financial and legal risks.
Is it banned?
The 2014 warning by Bangladesh Bank did not get much coverage in the local press but international press and bitcoin forums widely reported that Bangladesh has “banned” bitcoin and warned that bitcoin users may be jailed for upto 12 years.
However, from the two cautionary notices published by the central bank, it is evident that the regulator has fallen short of “banning” or “criminalizing” the use of bitcoin except in cases where it is used to commit an existing offence under the Foreign Exchange Regulation Act, Anti-Money Laundering Act and the Anti-Terrorism Act. It could be argued that the use of regular currency to commit crimes under the same Acts would be similarly punishable, and as such while bitcoin itself is not illegal, its use to commit crime is.
Bangladesh Bank’s declaration that it is not legal tender finds resonance with the regulatory response in most countries. However, it could be argued that bitcoin not being accepted or recognized as legal tender does not necessarily make it illegal. The legal basis of a “warning” published by the Bangladesh Bank is also questionable.
Foreign Exchange Regulation Act (FERA) and Anti-Money Laundering Act (AMLA)
The FERA and AMLA contain provisions for punishment and criminal liability, for trading, importing, and exporting currencies without authorization of the Bangladesh or if not performed through an authorised dealer, and for illegally laundering proceeds of crime or foreign currency. The definition of currency is given in Section 2(b) of the FERA, which includes:
Despite its name, bitcoin is not a coin, and also does not match any of the items listed in 2(b)(i). As for 2(b)(ii), there is a positive obligation upon Bangladesh Bank to make a statutory notification and declare that cryptocurrency or bitcoin is “currency” for it to be classified as such, but it has not done that till date. Thus, it appears that bitcoin or other virtual cryptocurrencies may not fall within the purview of the definition of “currency” under section 2(b) of the FERA. That being the case, criminal offences relating to trading foreign currency without authorization, arguably do not explicitly catch bitcoin or cryptocurrencies.
According to Section 2(s) of the AMLA, foreign currency means any foreign exchange defined under section 2(d) of FERA. However, similarly, the definition of foreign currency in AMLA is referred to foreign “currency”, which, as discussed earlier, apparently does not cover bitcoin and cyptocurrencies.
It would appear that in order to criminalise bitcoin under the FERA and AMLA, Bangladesh Bank would have to define it as a “currency” and issue a statutory notification accordingly. It is not clear, upon what basis, the “warnings” regarding legality of bitcoin have been issued so far.
The warnings also refer to the Anti-Terrorism Act which criminalises funding of terrorism, but the Act does not make any reference to bitcoin, cryptocurrency or any other currency whatsoever.
Despite Bangladesh Bank’s warnings discussed above, the Acts of Parliament which they apparently are based upon, fall short of criminalizing or even banning bitcoin or crytocurrency. However, the fact remains that Bangladeshi authorities are adamant to stop the use of bitcoin and are reportedly hunting bitcoin traders and miners. Although there are no verified reports of charges or convictions, there have been reports of arrests.
The reaction of the regulator to cryptocurrency seems not too different to when the new technology of e-hailing services were introduced. Within the first week of Uber’s launch in Bangladesh in 2016, the Bangladesh Road Transport Authority had published a circular, apparently banning the use of such services outright. Uber’s operation had continued, along with other local players in the market. With time in 2017, the authorities came up with guidelines to regulate e-hailing services.
Newspapers have reported that a committee will be formed within the month of June 2018 coordinating with various public and private bodies to find ways to regulate bitcoin in Bangladesh. In the wake of the global trend in the use of cryptocurrency, it is high time that Bangladesh comes up with a properly formulated regulatory response to bitcoin instead of going after users on an ad hoc basis. The concerns of the central bank regarding money laundering and crime financing are valid and are shared across the globe. In addition, tax evasion and amassing illegal wealth through corruption are other possible concerns of the regulators. However, cryptocurrency is hardly affected by political and geographical borders. As such, it is vital for the central bank and lawmakers to join the global discussion on regulating cryptocurrency immediately and participate in concerted efforts to ensure that the use of this new technology is only for the good of the society and economy.