[JURIST] US Attorney General Eric Holder [official profile] on Tuesday expressed concern [official statement] before the US House of Representatives Judiciary Committee [official website] with respect to the proliferation of virtual currencies [CNBC backgrounder], which, he asserts, have created new avenues for money laundering, drug trafficking and other illegal activity. Holder noted that the US Department of Justice (DOJ) [official website] is working continually with financial regulators to better understand the methods by which criminals use virtual currency, such as bitcoin [corporate website], to conceal and transfer illicit funds anonymously. Holder warned that:

Those who favor virtual currencies solely for their ability to help mask drug trafficking or other illicit conduct should think twice; the Department is committed to innovating alongside this new technology in order to ensure our investigations are not impeded by any improvement in criminals’ ability to move funds anonymously. As virtual currency systems develop, it will be imperative to law enforcement interests that those systems comply with applicable anti-money laundering statutes and know-your-customer controls.

Virtual currencies, which exist only in electronic format, are generated and stored via computer and traded among holders for goods and services.

The creation and use of digital currencies has been a contentious issue across the globe. Earlier this year, Tokyo-based digital currency exchange Mt. Gox [corporate website, in Japanese] collapsed after announcing the loss of more than USD $500 million worth of bitcoins to hackers. The loss marked the impetus [WSJ report] for federal investigators to closely examine digital currencies, which remain largely unregulated by US and international banking and currency laws. The popularity of digital currencies stems from the fact that they can be transferred anonymously, unlike most hard currencies created by governments.