Feds Seize Assets From Mt. Gox’s Dwolla Account, Accuse It Of Violating Money Transfer Regulations

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Bitcoin exchange service Mt. Gox is experiencing some issues with U.S. authorities. The Department of Homeland Security issued a seizure warrant to Dwolla for the money in Mt. Gox’s Dwolla account. Mt. Gox users can’t use Dwolla as a funding option anymore even though it was one of the most popular options. The Japanese startup failed to register in the U.S. as a money transmitting company — president and CEO Mark Karpeles now faces up to five years in prison.

Dwolla had no choice but to proceed with the request. IDG News obtained a copy of the warrant through the U.S. Immigration and Customs Enforcement (ICE), the investigation team of the Department of Homeland Security.

In order to accept funds in dollars, Mt. Gox opened a Wells Fargo business account for Mutum Sigillum LLC (Mt. Gox’s American subsidiary). The company had to complete a document that states whether it provides money services or not. The warrant reads: “That document was completed on May 20, 2011, and identified Mutum Sigillum LLC as a business not engaged in money services.”

In particular, Karpeles answered no to two important questions: “Do you deal in or exchange currency for your customer?” and “Does your business accept funds from customers and send the funds based on customers’ instructions (Money Transmitter)?” If the ICE feels the need to emphasize those questions, it means that the DHS probably believes that Mt. Gox is both a money transmitter and a currency exchange service.

Mt. Gox should have registered with FinCEN to limit fraudulent activity — it is a requirement for money services in the U.S. As Bitcoin is an independent and anonymous currency, many observers believe that it is used for money laundering and paying for illegal drugs. It could be the DHS’s main concern.

The exchange service is still working fine. So far, Mt. Gox wrote the following statement on its Facebook page:

Like many who have contacted us, 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. We take this information seriously. However, as of this time we have not been provided with a copy of the court order and/or warrant, and do not know its scope and/or the reasons for its issuance. MtGox is investigating and will provide further reports when additional information becomes known.