Anti-money laundering and know-your-customer compliance is easier for banking and financial institutions when they deal with virtual currency exchanges rather than cash, says the founder of what may be Hong Kong's first licensed Bitcoin exchange. Aurélien Menant, a former investment banker at Société Générale and now chief executive and founder of Gate Digital Services, said Bitcoin's traceability feature would help institutions with compliance and risk management."It is very similar to what they do now. If you applied the same AML, KYC and counter-terrorist financing [CTF] rules that banks now have, [Bitcoin transfers] are even more reliable than cash because there is record of the transaction and you can trace the internet protocol addresses of the two parties to the transfer," Menant said. Gate Digital Services is the parent company of Gatecoin, which aims to be Asia's first licensed digital currency exchange."You can really know where the money was, where it went and who was the final recipient of the funds. It is more traceable than cash," Menant said. "The only different thing so far, for banks, is that they will be dealing with people [who are] not in the same country as them, so they need to find alternative ways of identifying and certifying they are who they claim to be."His said financial institutions should handle Bitcoin in the same way that they would treat normal currency cash, adding that since Bitcoin was more reliable and traceable than cash, it should please regulators. "It is just like a bank account, although the registers are different. There is [for Bitcoin] a block chain register of all transactions, so you can see the IP addresses [of participants]," Menant said.Trading in virtual currencies is likely to be covered by Hong Kong's anti-money laundering (AML) laws.The use of virtual currencies and their potential AML risks was highlighted in May, when the US government closed Liberty Reserve, a digital currency exchange, and arrested several of its founders on money laundering charges.Sydney-based Technocash was forced to close its doors and put its business up for sale after banks cut off its accounts in the wake of the Liberty charges.While the use of Bitcoin and other related electronic currencies raises AML and customer due diligence issues, they may not necessarily be the same thing."AML is not an issue related to Bitcoin, but to a lack of KYC and transaction-monitoring policies, as we saw recently with Liberty Reserve, which was a regular money transmitter," Menant said."Liberty Reserve was not applying any AML and KYC procedures, it was transferring US dollars, and [it] was actually much closer to Western Union than to Bitcoin," he said. Although some see Bitcoin as an investment, Menant said that at its core it was a secure, traceable payment mechanism. "If exchanges were fully compliant with international AML standards, it would be safer and cleaner than cash." Menant said that the Liberty Reserve case had had a considerable impact on Bitcoin-related activities. "On one hand, and in a short-term perspective, it makes it harder