Topic: Everyone Panic. There's a lawyer among us. [FinCEN Walkthrough on p2] - page 4. (Read 15227 times)

Yes, and these are the redundant topics for discussing it: https://bitcointalksearch.org/topic/bitcoin-foundation-receives-cease-and-desist-order-from-california-241314 https://bitcointalksearch.org/topic/2013-07-02-bitcoinfoundationorg-response-to-ca-dfi-warning-letter-248620

Hello. Wondering if anyone has seen this beautiful piece of news with a link to actual letter sent to California DFI...

http://www.americanbanker.com/issues/178_127/bitcoin-group-to-california-you-have-no-jurisdiction-over-us-1060364-1.html

I can give a thoughtful explanation of the payment processor exemption.  Or, I can relay on Bitpay to do it!  Check out this blog post:  http://blog.bitpay.com/2013/03/how-fincen-guidelines-affect-bitpay.html

Bitpay says it's a payment processor because it sits between the merchant and the customer, only accepting enough value from the customer to pay for the good or service purchased from the merchant.  It then transfers that, and only that, value to the merchant. therefore, Bitpay says, it is a mere payment processor.

I'm not saying Bitpay is right (in fact, I see one particular reason why they may not be a mere payment processor, but I won't get into that now).  I'm saying that this is the exemption upon which their business model is premised.

In any event, to rely upon that exemption, all a bitcoin business need do is facilitate the payment of a merchant's good or service, accepting funds only integral to that payment.

To the extent they were previously doing business in Delaware and had "sufficient minimum contacts" with the state, they could have been sued previously.  Having a registered agent just makes it easier to accomplish service and establish personal jurisdiction.  It seems they will probably have to register in other states as well if they want to do business, though I am not certain what penalties they face in each jurisdiction if they don't.

But generally, if a corporation is doing business with the people of a state, those people are generally going to be able to argue "specific jurisdiction," that is, they can take that corporation to court at least over their own business transactions, even if Joe Random who had an unrelated beef with the corporation couldn't.  That's a good general rule, even though it is possible to imagine exceptions:  i.e. you sign up with Gox in Delaware, give a Delaware bank account info, then move to Wyoming, where you are their only customer, and don't update your address.  (Of course if they run afoul of "Know Your Customer" rules by not keeping track of them there might be an issue there.)

While off topic, I posted this nonetheless.  The Vinklevoss Brothers have made an SEC filing.

There is a thread discussing this.

MSantori, thank you for offering guidance here.  In my mind, it is "chilling" and sadly squelching innovation by simply producing contextual uncertainty to any entrepreneurial assessment about future obligations. 

What does it mean when BitPay says it is "payment processor"?  What exemption is this?  Aren't they subject to MSB and MTB considerations in the US.  I think I heard the have over 8,000 companies using their platform. Aren't they are target for licensing within any of the 50 US states?

This thread does a good job dissecting some of the law and I think I am following it.  More specifically,  what is the law for a "payment processor" which might possibly be used for an exemption?  It seems many of us would like to sit in that exception.

I can't speak to Japanese law.  As to US law, there are two levels of money transmission regimes: state and federal.  In practice, registration with the federal government (via FinCEN) is a fairly ministerial act: fill out a form, click a button.  The more interesting question is whether MtGox will register with any or all of the states.
 
Registration as a money transmitter with the states is required for any state in which the business has a physical presence.  More and more state are stating explicitly, however, that even soliciting or servicing their citizens makes you a money transmitter in that state.  Thus, MtGox will have to register under state law as well.  This is a financially burdensome and time-consuming process that can cost millions and take over eighteen months.  Each state has its own complex regulatory regime, including bonding requirements and personal financial investigation.  As such, MtGox might instead seek to team up with already-existing money transmitters in each state. That kind of agency relationship comes with its own costs to be paid to those money transmitters, and will likely cut into its bottom line.

So, I don't know whether Mt. Gox is compliant with Japanese law.  As to US law, I don't know whether they will seek state licenses.  That will be the test of how compliant it is willing to become.

Isn't it true that if my "good" is $US Dollars and I accept bitcoin payments for them then I'm an MSB by definition right?

Let's take a look at Mt. Gox's legal status.

Mt. Gox has now registered with FinCen. They have a registered agent in Delaware. So, can they now be sued in Delaware courts? 

Japan regulates payment services under the Payment Services Act. This allows non-banks to engage in payment services, and most of the wireless carriers in Japan now offer payment systems. There's a registration requirement, and various audit and capital requirements. Does Mt. Gox need to register?  Have they?

Hi Johny,

FinCEN's guidance states that persons who accept BTC in payment for goods or services - even as a business - are not MSBs.  

BitPay's position is that it falls under the "payment processor" exemption to MSB registration.

Does that help?

Hi Santori,

This was what I was wondering also where it mentions any user that exchanges coins for fiat is an MSB. Does that mean that businesses who accept BitCoin and then exchange them for Fiat are MSB's?

For example businesses using BitPay are having BitPay do this on their behalf therefore they would still be considered MSB's. Maybe FinCen doesn't really care about users but just about the Exchanges.

Is it possible you being a lawyer to ask for some clarification on this specific paragraph of FinCens guidance? Can users who exchange their currency through an exchange are they exempt from MSB laws, or are they covered under MSB's licenses of the exchanges?

Also send you a PM about another topic

Thanks and this Thread as been wonderful to read, makes me think sometimes I should become a lawyer haha.

Hah!  Glad to see someone else finds this stuff interesting!

Thanks.  I've now read the entire thread, and deleted my post.

Hi profmac.  There is a post at the bottom of page 3 of this thread that lays this out.

what does the law have to do with bitcoin.....? why are you even here

Typically, the rules of statutory interpretation dictate that we look first to the definitions contained in the statute itself.  Your reference the Internal Revenue Code (IRC) would in most cases be a wrong turn.  As far as I can tell, though, there is no definition of "business" or "as a business" in 103.11.  So, you're not crazy to look to other guidance, and the IRC strikes me as a good a guide as any.  That particular piece of guidance you quoted follows the IRC, which in turn follows many of the common-law factors for determining whether a person is engaged in a business for a variety of purposes.

I know, it's not a satisfying answer.  There are very few of those to be found in this area of the law.

Moved from another thread:



Ok,
Which brings me back to the "as a business" definition.

Here is what I found in a ~10 minute search on the subject:
http://www.irs.gov/uac/Business-or-Hobby%3F-Answer-Has-Implications-for-Deductions

Possibly relevant, a UK city is using local currency, which is akin to what we are doing except it is digital only and worldwide

https://bitcointalksearch.org/topic/bristol-pound-is-just-one-example-of-what-local-currencies-can-achieve-236424

It's a tough question, but it's more than just profit.

If I bought gold and made a profit, does that make me a precious metals dealer?  No.
If I bought shares of AMZN and made a profit, does that make me a securities dealer?  No.
If I bought bitcoins a year ago, does that make me a money transmitting business?

I understand that we may be all wrong on this until FinCEN and others really weigh in on this.  For right now this will be my guiding idea, that I won't worry about it since I can't make a profit at this right now anyway and I'm not running it as a business either. 

So far this is just a hobby of mine so that's how I'll treat it for all the legal side of this.

However, I'll definitely look at the legal side again once I start saving money like it's a savings account and doing some trading with a bot to generate the "interest" I would have gotten with it in a bank.

See, I'm going about it like this since I'm pretty sure the banks that foreclosed on me a few years ago would garnish anything I put into a regular savings account.  Hopefully, this will let me get enough together so I can pay for a bankruptcy to clear all that up and let me start over again.