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Sterling Heights leaders are taking steps to safeguard seniors and other residents from fraud they say is tied to cryptocurrency kiosks in the city.
The Sterling Heights City Council will consider adopting an ordinance Tuesday for new licensing and operation regulations for virtual currency machines, including cryptocurrency kiosks and Bitcoin ATMs.
“We’re trying to protect our citizens the best we can by creating an ordinance that’ll regulate some of the ways that these scams occur,” said Andrew Satterfield, Sterling Heights chief of police.
Cryptocurrencies are digital currency that can be used for internet-based electronic payments or as a store of value, and they function independently of governments and central banks, according to Charles Schwab.
Sterling Heights’ ordinance requires two readings after it introduced at the City Council meeting Dec. 2. Satterfield said Sterling Heights likely would be only the second city in the state to pass cryptocurrency machine regulations, following Grosse Pointe Farms.
Satterfield said the city is investigating or has investigated 23 cases of fraud since Jan. 1. Residents have lost at least $542,000 in scams this year. He said the average age of the victim is 64 years old.
The ordinance would prevent new users of crypto machines from conducting a transaction of over $1,000 in any 24-hour period.
But CoinFlip, an operator of virtual currency kiosks that has three locations in Sterling Heights, said it is required to file a Suspicious Activity Report for any suspected suspicious transaction above $2,000 and comply with the “Travel Rule” for transactions above $3,000.
“Unfortunately, the proposed ordinance relies on a policy recommendation that creates a false sense of consumer protection,” said Jon Turke, director of government affairs for CoinFlip, in a letter to city officials.
Cryptocurrency scams
Satterfield explained how a scheme might work: a person might get a virus on their computer and a message tells them to call a phone number to fix their computer. The person calls the number, and “typically someone overseas” answers and asks them to take money to a cryptocurrency machine, he said. The individual then guides the local resident to a particular crypto machine.
The police chief said once the money is deposited, it’s “basically gone.”
“It’s really difficult to recover this,” he said.
Satterfield said there has been at least one instance of someone defrauding a Sterling Heights resident through an “online romance.”
“And then they start saying, ‘Oh, you know, I really am down on my luck. Could you send me some money?” he said. “And people have sent thousands and thousands of dollars to a person they’ve never met because they think there’s some type of relationship there.”
Under the new ordinance, Satterfield said the owner of the business and the owner of the machine will have to get a license. The ordinance allows the city to do yearly inspections of the machine and ensure the license is displayed on it. There also needs to be an employee on site when the machine is in operation.
Under the ordinance, the user of the machine has to have access to a customer service hotline, and the individual needs to have a photo ID. Daily logs of all transactions must be kept for 90 days, so the Police Department can do investigative work, Satterfield said. The machines must also display warnings about fraud.
Councilman Michael Radtke said he read about the city of Grosse Pointe Farms passing cryptocurrency regulations earlier this year.
“And I was like, ‘Oh, that’s an interesting idea. I wonder if we have a problem with this,'” he said.
Radtke said he asked the city attorney and the Sterling Heights Police Department to examine the issue, and they found that several instances of fraud have arisen from people being sent to cryptocurrency machines. Radtke then asked the city administration to prepare an ordinance to regulate them.
CoinFlip’s concerns
CoinFlip, a Chicago-based global digital currency platform, presented a letter to the Sterling Heights City Council earlier this month detailing its business, regulatory structure and internal compliance controls, said Amy Patti, CoinFlip’s senior director of communications. She said the company pays monthly rent to retailers to host its kiosks. Through 2024, it has paid its hosts in Michigan over $1 million.
In the letter to the City Council, Turke said the company is required to file a Currency Transaction Report for transactions above $10,000.
“The proposed new customer $1,000 transaction limit encourages stacking transactions across multiple kiosk operators, and limits companies’ Anti-Money Laundering efforts,” he said.
Turke said federal law requires it and other money service businesses to collect photo identification for transactions over $1,000.
“Requiring ID for all transactions is out of line with federal law and would put requirements on cryptocurrency kiosks that no other financial product has,” he said.
CoinFlip, however, believes a money transmitter license should be required for all virtual currency kiosk operators, Turke said. It also supports requiring clear disclosures regarding all fees and terms of service and requiring live customer service.
Statewide regulation
Satterfield said there needs to be statewide cryptocurrency regulation, and he noted that the city is writing to its state representatives about the issue.
Radtke said the problem requiries a statewide solution.
“I’m going to do what I can to protect the seniors in my community. But let’s be honest, this is not going to stop these scammers from sending them to an ATM in a different city” that doesn’t have any regulations, he said.
Turke said CoinFlip is working with legislators and other interest groups in Lansing to “ensure uniform, statewide regulations apply to all kiosk operators.”
“Differing regulations by municipality can create confusion for consumers, which is why we encourage Michigan to adopt statewide regulation for the crypto kiosk industry,” Patti said.
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