On May 15, the Department of Homeland Security seized a digital bank account used by “MtGox,” the world’s largest exchange, where people buy and sell bitcoins. DHS alleged, and a judge agreed, that there is “probable cause”that MtGox is an “unlicensed money service business.”If proven, the penalty for operating such a business is a fine and up to 5 years in jail.

Reached by FoxNews.com about whether MtGox has taken steps to comply with U.S. regulations, CEO Mark Karpeles responded that, “Unfortunately we cannot make any official statement at this time.”

The MtGox incident was a wake-up call for many bitcoin businesses.

“The seizure was kind of the moment where people realized, this is really serious stuff,”said Patrick Murck, general counsel of The Bitcoin Foundation, which represents exchanges and users.

But can they navigate regulations successfully? What would a bitcoin exchange have to do to be legal?

There are currently none that have a seal of approval from the U.S. government, but a few come closer than others. One exchange that touts its regulatory compliance is “CampBX,” which is the fourth-largest U.S. dollar/bitcoin exchange and is based in Alpharetta, Georgia.

“We were the first bitcoin exchange to register here in Georgia, and we talked to the state Department of Banking and Finance to make sure we were above-board before we launched the business,”CEO Keyur Mithawala told FoxNews.com.

“I used to work for Cox Communications and Equifax, so I had a good corporate career — there was no need to jeopardize it by doing something that’s illegal,”he explained.

Mithawala estimates that between 60 and 75 percent of his company’s expenses are for regulatory compliance. CampBX requires users to submit a government-issued ID and a utility bill before joining, he said.

“When someone submits their documents to us, their name then goes through three government databases that list suspected terrorists and financial criminals. Once the application clears all three databases, that’s when we clear their account,” Mithawala said.

So far, he said, he knows of just “six or seven”out of thousands of applicants who had failed that check.

Federal regulations then require that every purchase or sale of bitcoins on the site be reported to the government agency known as the “Financial Crimes Enforcement Network” (FinCEN).

“You submit all transactions every quarter,”Mithawala said. “And there are a couple other reports you are also required to file. If you detect any suspicious activity, you are required to file a Suspicious Activity Report, and then there is also a Large Transactions Report.”

Mithawala said that he had seen some suspicious activity on the site in the last couple weeks and that it would be reported.

As additional safeguards, CampBX keeps track of users’ IP addresses and has a 31-day waiting period before a user’s first bank wire deposit to the site clears.

CampBX is currently awaiting approval from federal regulators. The FinCEN website lists CampBX, under its formal legal name “Bulbul Investments,”as having filed an “initial registration.”

“It’s an application in progress … I’m confident we will get a positive decision, because we have the right policies in place,” he said.

Others have also applied for licenses, including San Francisco bitcoin seller “Coinbase,”which offers a simple interface and is backed by more than $5 million in venture capital funding.

Regulatory compliance does not end with the federal rules, and each state has its own license requirements. Mithawala says that his site is in compliance with Georgia state regulations but that his company is currently reviewing the laws in others, which it also needs to comply with when users are from outside of Georgia.

“We’re going to run into a lot of lawyer hours this year,”Mithawala said.

State regulations can be the most onerous.

“I really believe in complying and keeping track of bad guys,” said Peter Vessenes, CEO of a start-up called CoinLab, which is attempting to get full regulatory approval before launch. “But with all the different state rules we put in so much more time and energy … than we should have to.”

Despite the regulations, technology experts say that they will not prevent people from anonymously using bitcoins for illicit things like buying drugs online. The real-world analogy is cash; the government can tell when it is dispensed by banks, and to whom, but it loses track once it is dispensed.

“Bad people are going to do bad things. Right now the people who do the most bad things do it with cash,” Murck of the Bitcoin Foundation said.

The author of the story can be reached at maxim.lott@foxnews.com or on twitter at @maximlott