Topic: Everyone Panic. There's a lawyer among us. [FinCEN Walkthrough on p2] - page 5. (Read 15227 times)

I believe the relevant inquiry is generally whether you are doing it "for profit", but the CFR or BSA may actually include it as a defined term.     Your strikes me as a pretty important question.  I will look into it.

As I read the guidance, operating as a business is a predicate to enforcement, but I'm probably in the minority. Let's dissect it:

"This guidance refers to the participants in generic virtual currency arrangements, using the terms "user," "exchanger," and "administrator".

So, a participant in a virtual currency arrangement is either a user, exchanger, administrator, or some some combination of those three (according to the footnote).

"A user is a person that obtains virtual currency to purchase goods or services."

"A user of virtual currency is not an MSB under FinCEN's regulations and therefore is not subject to MSB registration, reporting, and recordkeeping regulations."

"However, an administrator or exchanger is an MSB under FinCEN's regulations, specifically, a money transmitter"

"An exchanger is a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency. An administrator is a person engaged as a business in issuing (putting into circulation) a virtual currency, and who has the authority to redeem (to withdraw from circulation) such virtual currency"

So, to be an MSB, one must be at least an exchanger or administrator, but to be an exchanger or money transmitter, one must be engaged in a business.  

We could stop here, but we wouldn't be getting the full picture - and the problem with my (or anyone's) analysis.  Moving on:

"FinCEN has reviewed different activities involving virtual currency and has made determinations regarding the appropriate regulatory treatment of administrators and exchangers under three scenarios: brokers and dealers of e-currencies and e-precious metals; centralized convertible virtual currencies; and de-centralized convertible virtual currencies."

FinCEN then sets forth the circumstances under which administrators and exchangers are MSBs.  One of those circumstances is when an exchanger or administrator:

"creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent"

FinCEN did something funny here, though.  It didn't explicitly say that only "exchangers and administrators" who do this are MSBs.  It said any "person" who does this is an MSB, without regard to whether that person is an exchanger or administrator.  It's something of an oddity, since the three preceding headings and literally all of the language within them assume that only exchangers or administrators can be MSBs.  Thus, if you take this language literally, and forget about the rest of the guidance, then FinCEN has created a fourth category of persons: a person who is neither a user, exchanger nor administrator!  That interpretation can't be right, because it would contradict the very first premise FinCEN gave us to work with.  My theory: FinCEN didn't mean to say "person".  It meant to say "administrators" or "exchangers or administrators", just like it did in every preceding paragraph.  Ultimately, I believe enforcement will turn on your specific circumstances.

I realize I may be in the minority here, and I may just be dead wrong.  That's the sad state of affairs afflicting this industry.

TL;DR: Santori thinks you've got to be engaged in a business to be an MSB under the guidelines, but he may be wrong, and you shouldn't bank on him being right without giving him the chance to really understand the facts of your case.

What is the definition of "as a business"?

At what point does my hobby become a business?

Pretty sure there is a BIG difference, legally, between "engaging IN business" and "engaging AS A business". 

Am I right MSantori?

At least it sounds like I'm understanding the info correctly, based on your response.

Isn't that the same thing?  If a miner is mining to pay his bills that is not engaging in business.  If the miner is producing coins and selling them for money which the miner then places into the bank he is engaging in business and therefore a money transmitter.

My "take" comes from this:


https://bitcoinfoundation.org/blog/?p=152

No, this is a common misconception.  Only those engaged as a business in mining and then converting the BTC to fiat are money transmitters.

I don't think you are.  If you are mining coins and holding them then you are a money transmitter.  If you are mining coins and using them to pay for your bills you are not a money transmitter.

I am not a lawyer and even if I were I'm not sure I'd be right with my answer but that is my "take" on it.

I do have a question, as a result of another thread.

I had noticed that in parts of the FinCEN guidelines it mentions the phrase "engaged as a business" in various places.

I take this to mean that if my bitcoin activities are not a primary (or even secondary) business activity for myself, that I likely don't need to register anywhere.

Currently I do mine bitcoins, but with such limited hardware (only have about 500 MHash/s worth) that it's not worth it in terms of profit.  I plan on just buying bitcoins as a type of savings account, and doing some limited trading on CampBX to try and make it grow at least a little.  More than likely I'll stop mining soon, as it's costing more in electricity than what I'm getting back in bitcoins.

Anyway, thoughts?  Does it sound like I'm interpreting that right?

Arlington v. FCC challenged the agency's interpretation of "a reasonable period of time” as 90 to 150 days.  The court held that this was reasonable.

You may want to contrast this with American Library Association v. FCC in which the DC Circuit held that the agency exceeded its authority.  The law did not allow the FCC to rule on copyright and recording devices, even if it was related to broadcast TV.

Do you think the recent Arlington v. FCC decision increases this deferential standard of review, or just extends it to an agency's interpretation of its jurisdiction, and in either event, does it have any likely relevance to Bitcoin regulations?

I looked at Coinlenders, and it isn't the loaning that worries me.  It's the depository products.  I'm not a banking attorney, and I don't know the details of his offerings, but I can't believe that Coinlenders isn't acting as a depository institution.

You make me almost want to go to tradeFortress and ask for an illegal bitcoin business funding loan. 

Sorry if I'm not being clear, Viceroy.  The costs depends greatly upon the business.  Taking New York, for example the cost of registration as a money transmitter could include:

$3,000: "investigation" fee paid to the state
$5,000-$55,000: bonding fee paid to bonding agent yearly (depends largely upon credit and prior dealings)
$Varies: Fingerprinting and background checks for control persons
$Varies: Auditing financial statements (unless a new business)
$Varies: State fees and legal fees associated with creating a legal entity and associated agreements (varies depending upon business structure)
$Varies greatly: Legal fees associated with developing agency policies and pro forma agency contract, preparation of organizational charts, review of specimens and other exhibits submitted by the applicant, development and review of AML, KYC, physical and network security, assembly and review of application, etc.

I know that a "ballpark" estimate would be helpful.  There's just no such thing.  There are some fixed costs and there are costs that vary greatly.  Unfortunately, the ones that vary greatly are the high ones. I can't stress enough how fact-dependent this pricing would be.  I will only say this: to take on the obligations of money transmission, you should be well-funded.  Most tend to have access to OPM.

I'm wondering what it might cost for a hypothetical business, hypothetically, to operate as an exchange in Cali, NY, PA, TX and perhaps WA. ..  

What does it cost for an exchange like gox to become licensed as a money transmitter in the biggest five states in the union? (In ballpark non-committal I don't intend to hold anyone to the cost kind of "back of the napkin" ballpark price type pricing sorts of terms).

The 10-15 state number is a hypothetical number for a hypothetical business.  I have no way of knowing which -if any- states are low, medium and high risk for any particular business without knowing what that business is.

Feel free to reach out to my privately if you want to share your business details greater confidence.

You are up to 10-15 states that you'd roll out in?  I'm almost ready to take you up on that free initial consult...

Tell me:

What would it cost to become licensed as a money transmitter in:

Cali, NY, PA, TX and i dunno...  WA

I value your service but I need to know what it realistically costs.

Understood. That makes a lot of sense.

Thanks!

Yes, such info would need paying for, but not (just) because I'm a greedy capitalist-type.  It's because the question of a "safe state" is not one that can be answered generally.  It is a highly fact-specific inquiry.  I would need a very detailed rundown of your business model to apply each state's law to that model.  For (almost) every business model, there are some states wherein that model does not trigger the licensing requirements, some states in which it might, and maybe even some states in which it certainly does.

Bitcoin businesses are new, unwieldy creatures for most states' law, and even a close analysis by a professional will yield, at best, a risk assessment.  There are no absolute answers in this area of the law.

Good suggestion, but I am intrigued. Which are the 10 or 15 safe states, and is there a ranking list which can be maintained publicly on this forum for BTC-trading businesses to be aware of? It might help new start-ups to get going knowing they have lower red tape hurdles in their jurisdiction.

Or, would such a list be info (professional advice) which needs paying for...?

If you're asking "Is it illegal to convert USD to BTC when not operating as a business?" I think the answer is clearly no.  If you're asking "Is it illegal to donate BTC to an organization?" I think the answer is still no.

I'd need more information to give a less vacuous response.