IBS Journal May 2015


Interview: Erik Wilgenhof Plante, itBit


Can the virtual currency world move on from the fraud-related early years to become a regulated, mainstream part of the financial services sector? IBS spoke to Erik Wilgenhof Plante, chief compliance officer at bitcoin exchange, itBit, about the challenges.


The world of virtual currencies makes many people nervous. The headlines made by the likes of Silk Road and the collapsed MtGox exchange are part of the problem, so too the anonymity and the jargon (such as ‘dark wallets’, ‘darknets’ and ‘mixers’). As a paper last year by the Financial Action Task Force (FATF) commented, there are two nar- ratives around virtual currencies. First, that they are the wave of the future for payments. Second, that they ‘provide a powerful new tool for criminals, terror- ist financiers and other sanctions evad- ers to move and store illicit funds, out of reach of law enforcement and other authorities’. There is currently no regulation, with the authorities understandably rushing to catch up in such a fast mov- ing area. There is also a lack of move- ment of people and expertise from the financial sector to the virtual currency one. An exception is Erik Wilgenhof Plante, chief compliance office at bit- coin exchange, itBit. He had a year at Paypal as a senior compliance manager before joining the exchange in Singa- pore and was previously in risk and compliance at the likes of DZ Privat- bank, ABN Amro and Commerzbank. He is also a founding board member of the Singapore chapter of the Associa- tion of Certified Anti-Money Launder- ing Specialists (ACAMS). There are seven people in Plante’s


compliance team (three in New York, four in Singapore) out of a total itBit


headcount of 35. It seems that people only tend to hear the bad news about bitcoin, he feels, and these are the sto- ries that stick in the memory. ‘Of course, people are trying to misuse bitcoin but just in the same way that they try to misuse cash.’ In the early days, there was a lot of fraud, he concedes. ‘Silk Road was the eBay of criminals.’ The hidden website allowed users to buy and sell illegal drugs, weapons, stolen identity information and other unlaw- ful goods and services. The US Justice Department seized the website and almost 174,000 bitcoins worth more than $33.6 million in September 2013. In the early years, says Plante,


‘there were a lot of enthusiastic people who had no idea how to run a financial institution. They tended to be techies, programmers, who had absolutely no idea how to make a secure environ- ment and keep the bad guys out.’ It was difficult to attract people from the con- servative world of financial services into what was perceived as a much more risky sector. This is changing, says Plante, although he’d like to see a lot more people make the transition. Plante believes MtGox was a prime


example, starting out as a gaming site, transforming into a bitcoin platform at a time when the value of bitcoin was low, and then suddenly finding it had huge assets when the value of bitcoin exploded. MtGox blamed hackers for the loss of millions of dollars-worth of bitcoins.


The challenge for itBit and other


exchanges is to reassure the market and regulators that things have moved on. Plante uses the phrase ‘bitcoin 2.0’. ‘We are trying to operate like a real financial institution, with the same con- trols in place and the same compliance measures.’ However, as he points out, this is purely voluntary at present. The total lack of regulation is perhaps no surprise. Regulators do not move quickly and Plante draws comparison with the mainstream financial sector, which has been in place for hundreds of years but where he feels only since the financial crisis has there been a seri- ous look at what compliance is needed. Plante’s team undertakes full Know


Your Customer (KYC) checks when anyone is onboarded, seeking a copy of their passport or other document ID and proof of their residence. In an online world, this clearly cannot be done face-to-face but the exchange uses technology that can spot whether a passport has been doctored. This KYC is a large portion of the team’s day-to- day work. Once on board, the team also looks


at user behavior, seeking to identify unusual patterns. An investor, for instance, will tend to hold large quan- tities of bitcoins and will then buy and sell at certain moments, much the same as on any other commodity exchange. This will be different for oth- er profiles of users. The exchange has applied for a


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© IBS Intelligence 2015


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