Topic: AML/KYC: the legacy financial system's strategy for strangling bitcoin (Read 2939 times)

AML/KYC are originally desired by the government officials for fighting criminals, but unfortunately they don't understand how money works, so it was utilized by the banks as a tool to monitor the financial activities of almost everyone, so the government eventually become monitored by the banks instead 

Since there is no transparency in the bank's own system, the banks become the biggest money launderer, and a few cases of multi-billion-dollar money laundering cases from large banks are just tip of the iceberg

There isn't.  The rules are exactly the same as any other money transmitter and there is no $1K threshold for money transmitters. 

It's a mess right now...

I found a great document on property rights that I find applicable to Bitcoin, It's a good read. Bitcoin is property; unlike the USD there is no co-ownership with the Fed and it has it's own set of rules outlined in the Constitution along with other types of property.

http://object.cato.org/sites/cato.org/files/serials/files/cato-handbook-policymakers/2009/9/hb111-34.pdf

Wait I thought you said

There is no $1K threshold.

Virtual Currency Exchangers are classified (dubiously but that is another story) as money transmitters not currency dealers.  
Money transmission compliance starts from the first penny (or satoshi).

For as long as the US Dollar is the global reserve currency; Bitcoin will be legally exchangeable for Dollars. It's counter productive for any Reserve currency to behave any differently.

You don't see USD attacking the EURO for the same reason it would be illogical for USD to attack Bitcoin. Trading USD for anything; be it another currency, a gallon of milk, or a drum of crude oil is dually beneficial to the Dollar.

The US will clarify this uncertainty and become pro Bitcoin...

*I hope*

I know I'll rally for it when it comes up...

It would be interesting if one of the ATM vendors offered some mechanism for enforcing the $1k-per-person-per-day rule without encroaching on peoples' privacy.

Maybe some sort of biometric that isn't stable over multiple years, like heartbeat rhythm or vein patterns or something (*).  They just need to be able to recognize the same person showing up twice in the same day.  I don't mind them collecting data about my physical body if it's going to have changed a year from now.

This might be a way out.

(*) I know jack squat about medicine or physiology, these are just (bad) guesses and probably wrong.

The guidance is about non-bank ATM owner-operators (click the link).  They're explicitly talking about the case where the customer does not have an account with the ATM operator because nobody has an account with the ATM operator.

Thanks for posting this.

If they're really going to play by this rule then I ought to be able to set up a "BTC-e code ATM" that spits out US dollars in exchange for BTC-e USD codes and claim immunity since BTC-e is the "depository institution" so AML/KYC is their problem not mine.

I'm pretty sure I'd wind up in a cage if I tried that.

So you see, the regulations as written are totally inconsistent with what actually gets enforced.  Therein lies the double standard.  Pretty much any form of commerce is technically illegal under some vague and subjective FINCEN rule; they just don't bother enforcing them unless you pose a competitive threat to the legacy financial system.

That was actually pretty good. I was thinking that it made no sense...

Nope still not right.  Currency dealer has ABSOLUTELY nothing to do with virtual currencies.  I feel stupid just saying those words but that is the "guidance" of FinCEN.

If you use logic and common sense you might think virtual currency exchangers are "currency dealer or exchanger" but they are not.  They are money transmitters as FinCEN has stated that the mere act of the exchanging virtual currency for real currency is in itself money transmission (even if no other transmission on money in the traditional sense exists).  Of course this magical property does NOT apply to the exchanging of one real currency for another real currency. 

Don't apply common sense to the law, it almost never makes sense (common or otherwise).
If your business exchanges USD for EUR you are NOT a "money transmitter" you are a "currency dealer or exchanger".
If your business exchanges USD for BTC you are NOT a "currency dealer or exchanger" you are a "money transmitter".

Yes that makes absolutely no sense but that is the law of the land right now.  Don't try to think on it too hard it will only make your head hurt. FinCEN did some serious legal gymnastics to contort the definition of money transmission almost beyond recognition in order to cover the exchange of virtual currency for real currency.

The proper thing for FinCEN to have done is gone to Congress and say "current regs for BOTH money transmitter and currency dealer do not cover virtual currency so we need you to pass new laws expanding our scope".  They didn't and there are five categories of MSB that they regulate.  The only one which "fit" (in a lets use this sledge hammer and force this square peg into this round hole) was "money transmitter".

http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html


The bad news is that unlike dealer in currency which has a $1K per person per day threshold there is no min requirement for money transmission.  Converting a single penny makes the business a money transmitter and subject to the requirements of the BSA.  Also many states don't regulate currency exchangers and likely would have just followed FinCEN's lead.  By FinCEN instead declaring virtual currency (but not real currency) exchanges money transmitters it created this massive cloud of regulatory uncertainty.  Each state has a different definition of money, currency, transmitter, etc.  So the largest problem is simply the unknown.

I know what you are thinking right now (because I thought the same thing at time) "D&T can't possible be right, this is so asininely stupid and makes no possible sense there is no way FinCEN did that" but sadly I am, it is, it doesn't, and they did.

If I read it correctly, the transmission of money isn't defined by the act of sending money; rather the existence of an extra party to the transaction which was the point of my first post...

I'll rephrase for some clarity, ATM's owned by your financial institution where you hold an account are not acting as money transmitters when you make a withdrawal. ATM's outside of your financial institution are money transmitters as they receive a payment from your financial institution and then release the same type of currency minus a fee.

However, this is a quote from the link I posted...

"Currency Dealer or Exchanger

A "currency dealer or exchanger" is defined as a currency dealer or exchanger whose business activity exceeds the threshold transaction size of $1,000 per person per day.

Under the limited circumstances pertaining to this guidance, the ATM is a terminal for communicating a customer's withdrawal instructions to the customer's financial institution, and for dispensing funds in a single currency pursuant to an authorization from the financial institution to honor the withdrawal instructions. The ATM dispenses currency in accordance with the authorized withdrawal instructions, in exchange for a fee. The owner-operator of the ATM is not in the business of buying and selling currency for the customer. In such circumstances, the owner-operator would not be doing business as a currency dealer or exchanger as that term is defined in our regulations."

It looks like the defining line for a Bitcoin ATM is the average transaction amount per customer. If it's greater than $1,000 they are a currency dealer or exchanger.

I found a good resource on State by State law here:
http://www.moneytransmitterlaw.com/

Bolded the key part for you.

Outside of that niche case how many ATMs do you know that ONLY allow a customers that have an account with that specific ATM operator to receive funds?  FinCEN wasn't say no ATM network operator is a money transmitter they were saying this very niche usage of an ATM network doesn't constitute money transmission.  Why did the operator seek an exemption?  Because MOST ATM  networks do constitute money transmission.    I can get funds from my BofA account (or just about any bank or debit card on the planet) from a Wells Fargo ATM.  That is money transmission according to FinCEN.  The operator of those networks are moving value from my BofA account to Wells Fargo network in order for me to receive it at the Wells Fargo ATM.

Are you talking about cash advances from an ATM? Or bank withdrawals from a personal account?

I can see a cash advance as an exchange of value because the debt is traded between the debtor and creditor with the ATM as a proxy facilitating the exchange. A withdrawal is just that... No transmission of money between me and myself...

http://www.fincen.gov/statutes_regs/guidance/html/MSB-ATM-Guidance.html

This is regarding ATM's at financial institutions where customers hold deposit accounts:

"The owner-operator of an ATM described above provides a customer with electronic access to the customer's own account. The ATM dispenses funds belonging to the customer, pursuant to withdrawal instructions that are authorized by the customer's depository institution. The ATM is unable to transmit funds to third parties or to customer accounts at other financial institutions. In consequence, the owner-operator would not be doing business that meets the definition of "money transmitter" as that term is defined in our regulations."

FinCEN would disagree (and while not all states have weighed in, no state has made that distinction either).

FinCEN has stated that the exchange of virtual currency for real currency is money transmission.
FinCEN has (previously) stated that ATMs are money transmission.

The fact that the later doesn't involve a change is immaterial, both are still money transmission.  States are a little more complicated because of differing regulations and definitions but please provide a cite from a state to backup this higher or lower level of compliance.

One key point to make is that the operator of the ATM network is the money transmitter, this is how mom & pop entities are able to own and operate an ATM they operate it as a node on a larger network where the network is the regulated entity.  The local owner operator has no direct control over the operation of the ATM.

When you pull money out of an ATM it's not considered an exchange of value. You put money in the bank, then you pulled it back out. Nothing was exchanged...

When you buy/sell Bitcoins to a Bitcoin ATM for/with cash you are doing a business deal with the owner of the ATM. The ATM is a proxy for the seller and anything above a certain amount of money (each State has it's own laws on these amounts) requires a record of the transaction.

If the ATM weren't involved as a proxy party the rules governing the transaction would be different and less stringent.

A Bitcoin ATM could use the same "flmsy piece of cover-your-ass-paper" by getting a foreign bank to legal declare they have done the min checks before issuing cards to cardholders and then the Bitcoin ATM could offload that responsibility as well by accepting the card and PINs from that issuer as a proxy from direct verification.


There is no evidence anyone from any agency made this company take fingerprints and facial scans.  Have you used coinbase?  Did they start requiring a facial scan and fingerprints as well as scans of passport?  Two posts up you were applauding another startup which doesn't take these steps.  If the requirements were forced by FinCEN wouldn't it seem likely that all ATM companies would have the exact same facial scan and handprint capture in their ATMs?   It isn't like this second startup is hiding with their very public website and news stories.   Wouldn't that seem to indicate it wasn't FinCEN making some special "Bitcoin needs handprints" rule and instead it was just the action of an individual company deciding to play it safe.

It's called a flimsy piece of cover-your-ass paper.  Do you really think that Chinese banks, whose cards work in US ATMs, are subject even indirectly to Treasury/FINCEN requirements?  They give the SEC the middle finger on a regular basis; I doubt Treasury is any different.



Of course not.  FINCEN/Treasury bully the bitcoin businesses into doing this but don't bully the legacy financial system into doing it.

It's still a double standard.

This is one to keep an eye on, I hope they succeed.

Yeah it is called peering arrangements.  That is how a card from one issuer can work in the ATM of another issuer.  However part of the peering agreement is that each issuer WILL do AML/KYC.  For a card from slovenia national bank of snow to work on a US ATM network someone stated they do the min checks required by law.  Now the reality is there are tons of shady outfits which don't.  Eventually those shady cards stop working in US ATM networks.  Of course for each one shutdown, another one opens up.  Nothing prevents a Bitcoin ATM to reach a peering arrangement with card issuer by offload the KYC obligation on them.  

I mean do you think ATM operators, or banks, or card issuers, or western union want to do ANY KYC stuff.  It doesn't make any money, it just adds cost.  They do it because they have to.

There ARE NO BITCOIN SPECIFIC AML/KYC requirements.  None.  Absolutely none.  If a particular ATM operator is doing x,y, and z it is because the operator believes x, y, and z is what they need to do to compy with general money transmitter AML/KYC requirements.

There is no regulatory in the US saying "cash ATMs" can do whatever they want but "Bitcoin ATMs" need handprints and photos of passports.  It is that operator who is decided to be cautious and make to without access to the existing networks.   Tomorrow someone could reach an agreement to have all of Chase's networks dispense Bitcoins instead of cash and there would be no different requirements on them than existing right now.


If you still don't get it, you simply don't want to and I think we can both agree we are wasting each other's time.