WASHINGTON — Many in the digital currency arena are still buzzing about the Financial Crimes Enforcement Network's March guidance on virtual currencies, arguing it was too broad and could be used to target legitimate businesses that are unclear on the regulations.

In an interview this week, Jennifer Shasky Calvery, the director of Fincen, said the guidance was an effort to provide rules of the road for digital currencies and their exchanges, as well as the banks that interact with them. She said the government was not trying to squash the development of digital currencies, but made it clear they must follow proper anti-money laundering procedures like other financial institutions. Following is an edited transcript of the interview:

Do digital currencies pose a threat to the U.S., given their money laundering potential?

Calvery: Digital currencies are just a financial service and those who deal in them are a financial institution. Any financial institution and any financial service could potentially pose an AML threat. It depends on whether folks have the controls in place to deal with those money laundering threats and that they are meeting their AML reporting obligations.

That's a very broad question and there's no easy answer to that.

What I do think, though, is that digital currencies are exciting because of the innovation around it. I think it shows the great innovation that's going on in the financial services industry these days, whether it's a digital currency or whether it's using other types of technology to improve and extend financial services to those that are unbanked or to make things more efficient or to be able to do things in a different way that has a customer base. That innovation is a great thing. But the fact is that being a financial institution comes with certain responsibilities.

I actually heard the CEO of a bank say recently that there is a reason that financial institutions have to obtain licenses and to register. And that's because it is a great bestowal of trust to the bankers, to the financial service providers, to be able to be part of the U.S. financial system, to be able to be part of the global financial system. And that trust and that privilege come with obligations. Those obligations are to make sure you are putting the AML controls in place such that the type of criminal actors that showed up in that Liberty Reserve case are not able to operate with impunity in the U.S. financial system.

Was there something about Liberty Reserve that was unique or are the problems observed there present in other digital currency systems as well?

I think that action was against one financial institution and one type of financial service. That's what a criminal case is, that's what a regulatory action is. It goes against a particular violator. I would be hesitant ever to paint a broad brush because of one criminal action against an entire industry. I don't think that's fair to an industry in any situation, let alone this one.

So just because Fincen went after Liberty Reserve doesn't mean the government will go after other digital currency providers or exchanges?

Fincen has been out front in issuing our guidance to make it clear that we see virtual currency as a type of money services business. It's as part of the financial framework as any other type of financial institution and it has the same obligations as those financial institutions, the same obligations as any money services business out there. For those that choose to act outside of those obligations and outside of the law, they are going to have to account for that.

There is a history where Fincen said MSBs were a heightened risk and banks acted accordingly. Are digital currencies a heightened risk in the same way or are they like any other MSB?

I think banks need to make their own risk assessment as to their clients as to what their risk tolerance is and what risk they see any particular client might pose and make an assessment accordingly. That's their obligation and that's what we expect them to do.

Is there anything intrinsically risky about being a digital currency provider? Obviously, many of them have a way to anonymize payments between individuals.

Undersecretary [David] Cohen was pretty outspoken yesterday in saying that exchange providers that comply with the law have nothing to fear from Treasury.

Let's talk about Fincen's guidance. Some feel that it's overly broad. Do you feel that's accurate?

We stand by the guidance.

One of the examples critics give is that the guidance is directed at "businesses." Their concern is that this definition is unclear. What is the definition of "business" in this context? Is it anyone that sells a digital currency?

I think we have a lot of definitions in the laws and the regulations to help someone figure out what that means. There's plenty of statute — regulatory and common law — on what makes a business, including in the financial services area. I'm not worried about clarity with regard to that definition.

But there's a debate over this. I just talked with someone who said experts disagree on this issue. Should Fincen be more specific?

It's a common theme we hear from industry on being more specific, being more prescriptive and then other times don't be specific, go with a risk-based approach. I think there's always going to be people who think the balance isn't quite right on any particular action. We're comfortable with the guidance as it stands.

Did you consider putting the guidance out for comment?

We didn't consider it.

Is there a reason why not? Some have said Fincen could have used more input on the guidance and that they didn't hear from enough outside sources before crafting it.

The guidance is an interpretation of our MSB rule on which — it's been around for quite a while — in which we went through the whole comment period. So this is more of a technical guidance on something that already exists.

This was an adaptation of the MSB rule?

One of the things about the financial services industry these days… there is great innovation going on. There is great innovation going on in the technology sector first of all, which is having an effect on the financial services sector as we see all the new payment systems and so forth that are coming out. One of the things that I think was well done in the crafting of the MSB rule was to craft that in a way that it was going to be able to live past three years later, that it was written for the future, that it was written with the idea in mind that the financial services industry, particularly in the MSB arena, is seeing a great time of evolution. We needed a rule that was going to grow with the industry and I think that's been a real success story of that MSB rule.

The complaint about the MSB rule was that it resulted in a chilling effect, with many banks dropping their relationships with MSBs. That's the same kind of fear that a lot of people in the digital currency space have now. Many fear banks will cut off legitimate actors because they are worried about their risk. Is that a concern?

I would take exception to the beginning of that clause that the MSB rule caused the chilling effect and caused banks to de-risk themselves from operating in the MSB arena.

I don't think that was necessarily the rule itself that led to that. I'm not going to speculate on what might have, but I've never heard it that it was the rule that caused this, if indeed there was such widespread de-risking.

Now are we worried that the fact there's been criminal enforcement, as well as regulatory, action against the biggest money launderer in U.S. history is going to lead banks now to do now overly aggressive [things] and de-risk … all virtual currencies? I'm not particularly worried. I do think we have obligation to take down the biggest U.S. money laundering [outfit] in U.S. history, that $6 billion money laundering operation.

If that ends up creating a broad-brush reaction that's inappropriate, that is something that would be, first of all, unanticipated. Secondly, that's something that would be addressed in the national conversation on the developing financial services industry in the weeks, months and years to come.

Sounds like you are saying, just because we went after Liberty Reserve, it doesn't mean we are going after all digital currencies. It was trying to appeal to a particular set of actors that were doing illegal things.

That is absolutely right.

Overall, how far do you feel an exchange needs to go to comply with the guidance? Do they have to know every customer that they're working with, or is there some threshold? How far should banks go in assuring themselves an exchange is operating appropriately?

Every financial institution needs to be concerned about its reputation and to go out of its way to show it is an institution that is operating with transparency and integrity within the bounds of the law.

Institutions that operate in that manner are going to be, not only not worried about action from the U.S. Treasury Department, but could be the kind of clients that others are going to want to associate themselves with, whether it's customers who want to use those services, whether it's banks that might want to help bank those services. Folks are going to want to be involved with those financial institutions that are of great integrity, innovation and transparency.

You do see it as an innovation; this isn't something you want to cut off.

I think innovation in financial services industry holds out great promise on so many levels for commerce and for social reasons like providing services to the unbanked. But like any financial services, it comes with an obligation and those obligations to protect the U.S. financial system from money laundering need to be taken seriously.