The letter said: "Your entity is not, at this time, engaged as a money services business in Canada as per the Proceeds of Crime (Money Laundering) and Terrorist Financing and its associated Regulations.
"In fact, your entity doesn’t provide the services of remitting and/or transferring funds for the sake of the service. The transfer of funds is simply a corollary of your actual service of buying and selling virtual currency. Therefore, you do not have to register your entity with us."
This is how I interpretted it originally ... basically bitcoin exchanges facilitate the buying/selling of virtual currency ... much like a commodity exchange ... if people want to use those assets to transfer value that is a corollary (and not something the exchange has any control over). Basically, the laws surrounding "lawful money" do not apply to virtual currencies.
That whole FinCen 'guideline' sounds like a hand-wavy fix-up because they just wanted to back fit a prosecution on to Gox's Dwolla account.
The FINTRAC position is essentially the same as that of the US regulator FinCen. The key difference is that the Canadian exchanges are limiting themselves to the trading of BTC for fiat while MTGox is not. Take a look at this from
https://mtgox.com/terms_of_service:
PLATFORM TRANSACTION PROCESS FOR BITCOIN TRANSFER TRANSACTIONS
Members may at any time transfer any amount of Bitcoins to any other Members as well as any other Bitcoin users even if they are not Members (the “Transferee”).
Bitcoin Transfer Transactions may be initiated at any time from the following page:
https://mtgox.com/index.html. Transferees shall be identified by their bitcoin address.
Members shall be solely responsible for ensuring that any transfer of Bitcoins to a Transferee shall be a valid and legal transaction not infringing any laws including money-laundering laws and regulations.
Mt. Gox’s responsibility shall be limited to using reasonable technical efforts to ensure the receipt of the Bitcoins transferred. When conducting Bitcoin Transfer Transactions with a Bitcoin user who is not a Member, Mt. Gox’s responsibility shall be further limited to ensuring the transfer of the necessary technical data to the Bitcoin peer-to-peer network.
No Commission of any kind will be charged by Mt. Gox for Bitcoin Transfer Transactions.
PLATFORM TRANSACTION PROCESS FOR CURRENCY TRANSFER TRANSACTIONS
Members may at any time transfer any amount of currencies held on their Account to any other Members (the “Transferee”). Transfers to third parties who are not Members is not possible.
Currency Transfer Transactions may be initiated at any time from the following page:
https://mtgox.com/index.html. Transferees shall be identified by their Account name.
Members shall be solely responsible for ensuring that any transfer of currencies to a Transferee shall be a valid and legal transaction not infringing any laws including money-laundering laws and regulations.
Mt. Gox’s responsibility shall be limited to using reasonable technical efforts to ensure the receipt of the currencies transferred.
No Commission of any kind will be charged by Mt. Gox for Currency Transfer Transactions, except when the Account of the Transferee is set up in a currency different than the currency transferred (in which case the 2.5% Commission shall automatically apply).
If this is not a red flag in front of the US regulators and clearly indicates a money transfer business as opposed to an exchange business, I do not know what is. If a Canadian Bitcoin exchange tried that same I would not be surprised if the Canadian regulators were all over them also. The issue here is not that there is a material difference between United States and Canadian regulations in this case, there infact is not, but rather than the Canadian Bitcoin exchanges are not also engaging in the transfer of money, like PayPal, e-gold etc on the side.
