Topic: Everyone Panic. There's a lawyer among us. [FinCEN Walkthrough on p2] - page 7. (Read 15227 times)

Welcome MSantori, a lawyer will be very useful around these parts

2.5 questions,

1: Suppose someone hacks bitcoin, and steals large amounts of coins from everyone, this person, if identified, would be sued because he has stolen a "commodity", correct? What if he hacks bitcoin in such a way that does not explicitly steal from people (but kinda does because it would destroy confidence/ and or devalue BTC). Is BTC a sort of commons?

2: What paperwork should I be filing for mining, this has kind of been bugging me, what taxes should I file? Assuming I withdraw monthly into USD.

Ahh, that makes sense. Which would be the reason MtGox, a Japanese company, ran into legal trouble serving US customers on the government currency side of things.

Thanks.

Okay, fair point.   Then, speaking very generally, if you are servicing US customers, you will likely be subject to the US' regulations in the money services context.

Of course, because I am not seeking legal advice from you on a public forum. I am just asking for a general sense.

Like all of these bitcoin gambling websites, certainly if they were running in the United States there would eventually be legal hurdles to deal with but if they choose another country to run their servers are they safe, even as legal citizens.

As someone who is opening up a website that could potentially put a powerful dent in government itself (my sig), I have considered ways of bipassing the meddlesome US government and the potential destruction that it tends to do to businesses that do not have 24/7 lobbyists in DC.

So many variables, so little detail!

Clear as mud indeed. You identified one of the "additional definitions" that I hinted at in my post.  I'm not sure that the definition of "funds transfer" is the same as "transfer of funds."  Taking a literal approach, the defined term "funds transfer" does not appear in the definition of "money services" business, so it doesn't apply to it.  It likely pops up somewhere else in this chapter, but I am in no mood to go digging.  Nonetheless, you are right that it could be relevant.  I'm still sticking to my interpretation, that FinCEN got the interpretation (my interpretation) right.  I can't wait to see how they defend their actions, and just how far down the regulatory rabbit hole they will go.

So, considering you are in good company in the United States thinking that regulation is a good thing. Would it be wise for bitcoin businesses to completely bipass the United States if they do not have to deal in government money? Say, like moving the website to the Bahamas and set up a corporation down there. Or would that bring some legal risk to the owner if they were a US citizen?

Okay so far, but we're not done.  Section 1010.100(w) defines "funds transfer" as follows:

The series of transactions, beginning with the originator's payment order, made for the purpose of making payment to the beneficiary of the order. The term includes any payment order issued by the originator's bank or an intermediary bank intended to carry out the originator's payment order. A funds transfer is completed by acceptance by the beneficiary's bank of a payment order for the benefit of the beneficiary of the originator's payment order. Funds transfers governed by the Electronic Fund Transfer Act of 1978 (Title XX, Pub. L. 95-630, 92 Stat. 3728, 15 U.S.C. 1693, et seq. ), as well as any other funds transfers that are made through an automated clearinghouse, an automated teller machine, or a point-of-sale system, are excluded from this definition.

Note that ACH payments (eg Dwolla) are excluded from this definition.  And bitcoin transactions are not "completed by acceptance by the beneficiary's bank".



All of this leaves me wondering just what it is that Mutum Sigillum allegedly did wrong.  Clear as mud, eh?

Welp, time to shit my pants.
I personally think Attorneys are awesome, will definitely ask you questions about law.
(Also, like your replies to the 'bitcoin ban' thing.)

Let's take the federal regime step by step together.  I've wanted to do this on the forum so everyone can have a better picture of the federal regs as I understand them.  As with all of my posts on this forum, nobody should take the following as legal advice.  If you need legal advice, then you need a lawyer, and I am not your lawyer.  Nonetheless, I'd love to hear your feedback on whether you think I'm right!  I'm going to chop up some of the Code for the sake of brevity.

19 U.S.C. 1960 states:

Whoever knowingly conducts, controls, manages, supervises, directs, or owns all or part of an unlicensed money transmitting business, shall be fined in accordance with this title or imprisoned not more than 5 years, or both.

The term “unlicensed money transmitting business” means a money transmitting business which affects interstate or foreign commerce in any manner or degree and... fails to comply with the money transmitting business registration requirements under section 5330 of title 31, United States Code, or regulations prescribed under such section.

...The term “money transmitting” includes transferring funds on behalf of the public by any and all means

So, to trigger this provision, the defendant must satisfy both of two requirements. It must:

1) engage in money transmitting, which includes "transferring funds on behalf of the public by any and all means"; and
2) fail to comply with the money transmitting business registration requirements under section 5330 of title 31

Since pretty much every bitcoin business satisfies (1), let's look to 31 USC 5330 to see if we satisfy (2).

That provision states: Any person who owns or controls a money transmitting business shall register the business (whether or not the business is licensed as a money transmitting business in any State) with the Secretary of the Treasury.

Okay, we still need to know what is a "money transmitting business".  Reading a little farther down:

The term “money transmitting business” means any business other than the United States Postal Service which--
(A) provides check cashing, currency exchange, or money transmitting or remittance services, or issues or redeems money orders, travelers' checks, and other similar instruments or any other person who engages as a business in the transmission of funds, including any person who engages as a business in an informal money transfer system or any network of people who engage as a business in facilitating the transfer of money domestically or internationally outside of the conventional financial institutions system;
(B) is required to file reports under section 5313; and
(C) is not a depository institution (as defined in section 5313(g)).

So to trigger this provision, the defendant must satisfy (A), (B) and (C).  Nearly every bitcoin business will satisfy (A) and (C) above, so we're kicked out again to another definition: someone who is required to file reports under 31 USC 5313.

When must someone file a report under that provision?  Let's read:

When a domestic financial institution is involved in a transaction for the payment, receipt, or transfer of United States coins or currency (or other monetary instruments the Secretary of the Treasury prescribes), in an amount, denomination, or amount and denomination, or under circumstances the Secretary prescribes by regulation, the institution and any other participant in the transaction the Secretary may prescribe shall file a report on the transaction at the time and in the way the Secretary prescribes

This tells us that a defendant must file whenever the Secretary of the Treasury's regulations say they must file.  As such, someone is a money transmitter subject to 18 USC 1960 whenever the Secretary of the Treasury's regulations say he must file.  So, what do the regulations say?

Primarily, 31 CFR 1010.310 et seq say that "financial institutions" must file.  One kind of "financial institution" under 31 CFR 1010.100 is a "money services business".

One kind of "money services business" that a bitcoin business might be is a "money transmitter", defined in 31 CFR 1010.100 as:

Any person, whether or not licensed or required to be licensed, who engages as a business in accepting currency, or funds denominated in currency, and transmits the currency or funds, or the value of the currency or funds, by any means through a financial agency or institution, a Federal Reserve Bank or other facility of one or more Federal Reserve Banks, the Board of Governors of the Federal Reserve System, or both, or an electronic funds transfer network; OR

and here's the kicker:

...Any other person engaged as a business in the transfer of funds.

So, to complete the thought: someone is a money transmitter subject to 18 USC 1960 whenever that person is engaged in the business of the transfer of funds.  The definition of currency is certainly relevant, but it is not necessary to the analysis.

For any particular defendant, this statutory analysis is only the beginning.  There are additional definitions that might be applicable to your particular business, and a competent attorney will be able to analyze the case law to determine just how this very general road map might apply to you.

I hope this helps!

The mods evicted my OP from currency exchange and I've found myself here:

https://bitcointalksearch.org/topic/usa-subsection-needed-poll-217709

The prohibition of unlicensed money transmitting businesses is 18 USC § 1960.  This section makes reference to the registration requirements of 31 USC § 5330.  The definition of "money transmitting business" therein makes reference to the reporting requirements of 31 USC § 5313.

The MSB regulations are in 31 CFR 1010.  This part cites 31 USC 5311 et seq (among other sections) as its statutory authority.

Yes, this is all fairly convoluted.  It's certainly possible that I've missed something.

I think that most of your post is on the right track.  Even in the portion above, you identified the correct provision (18 USC 1960).  Indeed, you've identified the provision that proscribes unlicensed money transmitting. But you haven't connected the definition of "currency" to that provision, or even identified why that that definition is relevant.  Let's take it step by step and we can get to an answer

What is your basis for this?  The definition of currency in 31 CFR 1010.100 clearly refers to legal tender.  Bitcoin is not legal tender in any country.

Are you supposing that a future change to the regulations could expand the definition of currency to include bitcoin, and then, at that point, someone might challenge that designation?

The definition of 'virtual currency' in the recent FinCEN guidance is not part of any law of regulation.  It's not really clear to me that this guidance has much legal weight, except possibly in relation to the scienter requirement of 18 USC section 1960.  If one follows the guidance, and is accused of breaking the law, they can argue that they did not knowingly do so.  Does the guidance have any applicability beyond that?

I am curious why it is required to get the license in all the states that require them.  Why does it not require a nexus like sales tax currently does as the Quill case decided?

I've actually reached out to them, but haven't had much experience with them yet.  The foundation looks right up my alley.

Bitcoin Foundation, not quite yet, but possibly soon (given that 'soon' is a undecided time period)

Sure.


Yes.  Based on my understanding of how MtGox handles money, it and it's subsidiaries are - under the current statutory regime, required to register with FinCEN, together with every state in which they are transmitting money under that state's MSB laws.  Depending upon how they do their business, they are likely required to register in every state with an MSB statute.


You are correct.


Not a single one.


BTC will be considered a currency or a commodity depending upon the particular regulatory framework applied.  Generally speaking, for tax purposes, BTC is treated as a sort of commodity.  Income is realized when BTC is converted to fiat, goods or services.  I believe this will change once BTC is more widely-accepted in exchange for goods and services.  But for MSB purposes, BTC has its feet planted firmly in currency, and the entire money transmitter regulatory framework applies.  As to challenging this designation, well, where to start?  The bar for challenging an administrative rule is a very high one: the rule must be "arbitrary and capricious".  These rules don't strike me as such.  In any event, the cost of challenging the rules would likely top a million dollars for competent litigators in the field to bring such a case to completion.


I think the regulators are really struggling with this issue.  If I had my way, the larger players in the BTC community would fund a competent industry group that would begin a dialogue with the appropriate policy makers.

Hey! Wanna play, uh... five-ish sometimes-loaded questions? (just as speculation, not legal advice)

If MtGox were to become compliant, do you think they'd need both federal and state FinCEN/MSB compliance (assuming they don't latch onto a national bank/CU somehow)? Most people seem under the impression you can just register with FinCEN and it's done - woohoo, you're fully compliant, and this is the "compliance" most BTC MSBs seem to be talking about. But, these companies do business in all 50 states, and all these states have their own laws, licenses, and usually crazy-expensive fees.

Am I wrong, or is federal FinCEN registration as a MSB not enough?

Do you know of any US-serving exchanges which you believe probably are fully compliant?

Do you believe the USG (particularly, the courts) will accept Bitcoin being treated as a currency, and do you think that premise they're seizing Gox due to should be legally challenged? If you think it should be challenged, who should be challenging it? In an niche economy of startups, maybe we should all chip-in for a legal team to challenge the definition of BTC as a currency?

For almost all of us, we've treated Bitcoin as a commodity rather than a currency for tax purposes - especially relevant because complying with tax regulations as a miner would be an enormous, practically unfeasible pain in the ass. Still, AFAIK nobody's really bringing this up. The implications of letting FinCEN and other bureaucracies call Bitcoin a currency seem pretty unexplored, and there are people just saying "it won't affect me, I'm in the UK" when the US has a tendency for its precedents/definitions to be adopted elsewhere. Do you think the Bitcoin community has under-reacted to the likely changes in definition of Bitcoin will bring, or is it appropriate just to wait until we're explicitly told by a government we're doing something wrong (IF we're doing something wrong)?