Justice Department worried about criminals using bitcoin, Eric Holder tells Congress

By Aruna Viswanatha

WASHINGTON (Reuters) - The Justice Department will have to be creative in order to make sure criminals do not use virtual currencies such as Bitcoin to secretly move funds, Attorney General Eric Holder said on Tuesday.

The scrutiny at the highest levels of the Justice Department comes at a time when investors have flocked to the currencies but recent incidents have called into question their long-term viability.

Enthusiasts point to the ability to move funds cheaply, but the recent failure of Mt. Gox, a Tokyo-based exchange that filed for bankruptcy after losing an estimated $650 million worth of customer bitcoins, has raised doubts about their use.

"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," Holder told the House Judiciary Committee.

The use of electronic currencies has captured the attention of regulators who have been unsure how to react to their growing use instead of government-issued money.

Federal prosecutors have warned that the currencies are vulnerable to use for money laundering, and have charged the operators of several Bitcoin exchanges over their alleged roles in helping drug traffickers and other criminals move funds.

Agencies ranging from the New York bank regulator to the Commodity Futures Trading Commission have been studying electronic currencies to determine whether and how they should be regulated. [ID:nL2N0M824O] Holder said the Justice Department is working with regulators on the issue.

"Virtual currencies can pose challenges for law enforcement given the appeal they have among those seeking to conceal illegal activity," Holder told the House panel. "This potential must be closely considered."

(Reporting by Aruna Viswanatha; Editing by Phil Berlowitz)