Three men were arrested by the Metropolitan Police Department (MPD)'s cybercrime division on Nov. 3 on suspicion of defrauding the digital currency trading service Bitcoin -- the first such arrest in Japan, according to the MPD.

The MPD arrested 33-year-old Ryota Fujii of Ome, Tokyo; 30-year-old Hirotsugu Ebihara of Yokohama's Tsurumi Ward; and 38-year-old Tadao Yamanaka, of no fixed address; on allegations including using computers for fraud. The allegations include that in January they used other people's credit card information to buy bitcoins valued at about 900,000 yen. According to the cybercrime division, Yamanaka has denied the allegations while the two other men have admitted to them.

The operator of a Tokyo bitcoin exchange that traded the coins in question had sought help from the MPD in April this year.

In order to trade bitcoins, a user must set up an account at a bitcoin exchange. Some of these exchanges require users to identify themselves when setting up accounts by doing things like sending in a photo of their driver's license.

According to the cybercrime division, the three allegedly attached their photos to fake driver's licenses and set up accounts in other people's names. Using other people's credit card information that they had illicitly obtained, they bought bitcoins, exchanged them for yen and then withdrew the cash. In total they may have illegally obtained several million yen worth of bitcoins, investigators say.

Fujii is alleged to have created multiple fake accounts at U.S. bitcoin exchanges, and to have engaged in money laundering by sending the bitcoins between the accounts before having someone else withdraw the bitcoins as cash.

It has been noted that bitcoin exchanges' identity checks are often sloppy. Even when pictures like driver's license photos or headshots have to be sent in, unclear photos or photos taken from the side can sometimes be enough to set up an account. An insider source with one exchange says, "We hardly ever check the authenticity of the photos. I can't deny that the check has become just a formality."

Due to the growth of the Bitcoin market, changes to the Payment Services Act are set to go into effect within a year of their passage through the Diet this past May. The new act will require bitcoin exchanges to confirm the identities of their users by both having them send in things like photocopies of their driver's licenses, and also through measures like sending mail to check that the users live where they say they do. The Financial Services Agency says these measures "will be effective in preventing criminal use" of bitcoin exchanges.

National Institute of Informatics associate professor and Bitcoin expert Hitoshi Okada says, "It is important to come up with ID checks that are matched to the unique characteristics of internet trading, such as making users send in videos of themselves taken from multiple angles, not just confirming through the post, which is costly."