Topic: Fincen Requirements? (Read 9480 times)

So registering with FinCEN as MSB doesn't mean that you are allowed to conduct business in the USA?
Why do I read everywhere that MtGox just needs to register with FinCEN and they will be fine? Why don't they need a money transmitter state license?

In general terms do you know why this has not been found to violate the prohibition of states regulating interstate commerce.  That prohibition clearly applies on states which do commerce other than MSB which cross state lines yet MSB related services seem strangely treated differently.

To avoid confusion I am not talking about State X regulating a business which reside in State X and provides regulated services to residents of State X but rather a business in State X offering services remotely (i.e. through mail, internet, or phone) to a resident in State Y.

Speaking generally, both banks (a kind of depository institution) and money transmitters (a kind of MSB) must register with FinCEN and obey AML regulations.

A company must register in every state for which it provides MSB services under that state's law.

Why do some companies have to apply in each state for a money transmitter licenses and some only register as a MSB with FINCEN?
Banks are not considered as MSBs?

Viceroy, it might look to an uncritical observer like you are trying to put words in my mouth.  I did not refer at all to FastCashforBitcoins and do not intend to pass on their regulatory status.  That's all I really have to say on that issue.

Otherwise, thank you for the kind words. I'm happy to help however I can.

As any good lawyer should.  That is why I pay lawyers, for their opinion.  Securities lawyers with an expertise are very very very expensive because it takes a ton of work to figure it all out.  We are lucky you play with us, Marco.  On behalf of the community I thank you for any and all insight as we try to figure out all these convoluted regulations.

The conservative thing to do is to become licensed in every location in which you want to operate.

I hear you.  The problem that we're both struggling with is reasoning by analogy.  The statute doesn't specifically address our situation.  No client has yet retained me to do a specific, close analysis of California law on the issue, so I'm left with the bare statutory framework and the scariest analogies I can make.  Lawyers are good at scary analogies, and its our job to protect our clients.  So, you can imagine why I come out on the risk-averse side of the decision tree.

Yea I'd sure hate to make case law.  ;-)

Ok, you may be right regarding the FinCen rules.

However, I still maintain that there is no issuer according to the California rules you quoted.

I expect it is possible that you may have to register with FinCen, but not with the state of California as an MSB or money transmitter?

How about this comment in that thread:

According to the top reply in this thread on StackExchange, it's not so clear:

http://bitcoin.stackexchange.com/questions/8486/do-usa-based-miners-need-to-register-with-fincen

Didn't FinCEN say that miners who sell their bitcoin need to be registered as MSB's?




edit:

Yes, here:
#3 If a miner exchanges their mined bitcoin for real money they MUST register with FinCEN.

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

I don't think so. Miners don't have a liability to pay someone something for the coins they've mined. Just like a gold mine is not an issuer of gold. I see it more as miners being paid by the bitcoin system, or winning a lottery. The creation of bitcoins are a part of the technical protocol.

Miners are issuers.  If they sell to "some-bitcoin-website" and they don't say they are miners that could be a problem, no?

Yes.


But I don't sell any of my btc.  So I'm ok... I pray.

I disagree. Who is the "issuer" of a particular bitcoin, and is liable to the holder of the bitcoin, and has undertaken to pay the stored value? There is no one!

Bitcoin is more like gold, with an intrinsic value. No-one issues gold, it is a commodity which men have given an intrinsic value.

I would guess that someone selling gold for investment purposes would not qualify under these rules (but surely under other rules pertaining to trading in investment commodities). Should be possible to check?

Thank you for that opinion, Mr Esquire.


To your point, sir, I am a law abiding American and proud to be one.  If I cannot do what he is doing then he cannot do it either.

What stored value?  Bitcoins aren't stored value.  What obligation does a Bitcoin create for the seller?   None.  A bitcoin sold can't be later "redeemed" by the buyer at the obligation of the seller.  Once sold it is sold and no obligation exists on either party. FinCEN (even as broadly interpreting as they are) has stated that decentralized virtual currencies are not prepaid access (another term for stored value).

Wow, Viceroy, you really have it out for Tangible Cryptography!

For the purposes of that statute, the definition of "issuer" is spectacularly broad:

"Issue" and "issuer" mean, with regard to a payment
instrument, the entity that is the maker or drawer of the instrument
in accordance with the California Commercial Code and is liable for
payment. With regard to stored value, "issue" and "issuer" mean the
entity that is liable to the holder of stored value and has
undertaken or is obligated to pay the stored value. Only a licensee
may issue stored value or payment instruments.

So, yes, I believe that most bitcoin businesses would be snagged by this.

So if the issue-er was, let's say, FastCashforBitcoins and they sold bitcoin to a person in California they would be a money transmitter acting without a license.  Right?

My italics:


I would argue that Bitcoin does not fall under that definition, because it has no issuer, and therefore can not represent "a claim against the issuer".
 

I will try to do that next week.  Have a paper I need to finish for the end of the semester and have to prioritize....

I tried to break down the federal regulatory regime for everyone here:

https://bitcointalk.org/index.php?topic=206305.20

We go from 18 USC 1960 to the definition of "money transmitter".

join us here:

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

We are talking about this.

Didn't the UK just shut down intersango's accounts?

If you serve any US customers, the problem is NOT solved

Come to the UK, setup here, problem solved

As I research state MSB requirements, it's becoming increasingly clear that some states have a very broad definition of what constitutes "money" and "money transmission". 

California, for example, is notoriously broad.  It defines money transmission as "selling or issuing stored value."  In turn, "stored value" is defined as "monetary value representing a claim against the issuer that is stored on an electronic or digital medium and evidenced by an electronic or digital record, and that is intended and accepted for use as a means of redemption for money or monetary value or payment for goods or services."  Yikes!  Many of the bitcoin business ideas I'm approached with are probably within this definition.

New York, on the other hand, doesn't even seem to define "money" in its banking law.  It simply states "No person shall engage in the business of...  receiving money for transmission or transmitting the same, without a license."  Does a particular bitcoin business fall into this broad provision?  That would be a highly fact-based inquiry, and we'd have to dive into the case law.  The answer isn't nearly as clear in NY as it would be in California.

Oh brave new world...

These regulations are simply put a monetary control. The bankers/ money interest of the world will want tighter and tighter control of where money can be sent and how much. Like the proverbial frog in a pot; we have seen over the years governments/bankers create new laws that control the flow money. As the economic situation deteriorates they will place more restrictions on these transactions. Using anti-money laundering as an excuse to regulate the flow of bitcoin is the first step in an attempt to kill it off. Central banking can not have unrestricted flow of currency, this gives to much power to the people.

Lets face it people like to see legitimacy in business, and they ask the government for licenses and permits to give them that aire. Because you want to move large amounts of "money" they want to keep an eye on you and your customers. Until the bitcoin system can become self regulated outside of Government. It is likely to fail. Asking permission from government has never done anything but create a bigger bureaucracy and less freedom.

Instead of seeking legitimacy from government, bitcoin community need to work on self legitimacy through the bitcoin community. For bitcoin to succeed, the bitcoin community need to step up and figure out a better way to interface with the end user. A system that is trustworthy, fast, and decentralized.

If you could share the specifics of your call with the state regulator, I think there are a lot of folks here who would be interested to hear about it...

Lots of things can be used as a store of value.  Gold, for example.  Is a gold trader considered a money transmitter?  In which states?

And if you grab any newspaper and look at the bank ads, read the fine print, most large banks list the states where the ad is good for.   Huge regional banks seem to only be able to operate in 10 states or so.  Kind of a large barrier to entry.  I guess spending billions on lobbying pays off for them and for the lawyers.

according to the US govt it's convertible virtual currency.  but regardless bitcoin is a store of value, and that's what these state regulations cover. furthermore, one can trade and transmit this value, and then later retrieve it.

they are hiring someone with AML experience... https://coinbase.com/jobs

i have an interesting call with a big state regulator on this matter next week, in particular whether anyone operating a ripple gateway falls under these regulations as well

Really, I do? Just the things I list out (having lawyer, trained staff, formal business plan, lots of money, etc) are easy to do? 

Perhaps I need to work on my writing style? 

Because bitcoin isn't "money", and buying and selling stuff isn't a money transmitter.

Very true thanks for correcting me, From their site:

 

I don't fully understand how Coinbase operates, how exactly are they not a money transmitter, you send them money and have bitcoins sent to you. Are they simply having Mtgox send the bitcoins?

Simple ... they didn't.

As pointed out above there are only 10 companies in the entire WORLD that are registered as Money Transmitters in all 50 states*.  This isn't 10 Bitcoin related companies, this is 10 companies period.

* Well 47ish states (excluding states which don't have an applicable license).

They are not licensed as money transmitters.


It would depend upon whether that person actually held or converted any bitcoins or dollars.

What I've been pondering is how current major exchanges and transmitters such as coinbase managed to get all of these licenses when they first started up.


If one were to hypothetically only accept Paypal as payment and not accept other forms of payment, would they still need these licenses?


I've gotten introduced to a lawyer regarding this but have not yet called to seek his legal advice. At the moment I have a lot on my plate and am just curious.

Dan nailed it. 

We can assist new businesses in money transmission licensing, but the bar is quite high on the state level.  Well-funded startups can surmount hurdles like net worth requirements and legal fees (I'll take the blame for that).  The greatest cost, though is still bonding. Bonding, Bonding, Bonding.  No matter what industry you're in, insurance and bonding is the kicker.

You actually make it sound easy.  So that everyone knows, it is not the Federal government that is the problem, it is in fact the states.

For an internet-based MSB that wants to service the entire US, said company must obtain 47 licenses.  Taking a look at just one, California, the company needs $100k-$500k in net worth alone; audited financials, owner(s) financials, surety bond and more.  

Now do that 46 more times.

This is why only about 10 companies nation-wide have achieved all 47 licenses; such as Amazon, PayPal, and Western Union.

http://www.aarongreenspan.com/writing/essay.html?id=86

If you really want to understand this then watch this in full:
https://www.youtube.com/watch?v=gmiY35brih0

Congress is really needed to resolve this issue.

The petition by FaceCash is here:
http://www.change.org/petitions/the-u-s-senate-reform-money-transmission-laws-to-allow-mobile-payments


PayPal's licenses are listed here:
https://www.paypal-media.com/state_licenses.cfm

Yup, look at California.  5K fee just for the chance to register.  there are only about 25 companies registered for the entire state (google, square, western union).

You need to have an employee that is familiar with the regulations.  You need to submit a business plan.

You need to spend probably 25K per state minimum for the first year, and then have at least 1 lawyer on staff, retainer with firms in all states, and train enough compliance people.  

Better to go to Panama or Malta or whatever...

This is not to be taken as legal advice, or any kind of advice for that matter, but any bitcoin exchange will have to register as a money transmitter federally and with every state whose residents it conducts business with. The fees associated with such registration are incredible. To think otherwise seems naive. Look at what just happened to MtGox. It doesn't necessarily have to do with bitcoin, but the fact that you are holding customer funds for later delivery. This is textbook money transmission.

For example:

Completed applications for new money transmitter license, along with the non-refundable fee of five thousand dollars ($5,000), should be addressed to Mr. Patrick Carroll, Strategic Support Manager, Department of Financial Institutions, 45 Fremont Street, #1700 San Francisco, CA 94105-2219. Contact him at (415) 263-8559 or by email at [email protected]

www.dfi.ca.gov/Licensees/money_transmitter/default.html

5 Gs is no joke...

If you are running an exchange where you are taking or sending US dollars, you need to have an MSB permit from each state of the USA where you do business.

Now isnt that jolly... have fun filling out those forms, you might as well be applying for the FBI or getting a rectal exam.

Same conversation going on in this thread.

Only thing I can say with a high degree of confidence based on reading the FinCEN guidelines is that a miner who does not exchange BTC for any currency is NOT an MSB.  Almost any other scenario may put you in that category.  Checking with a lawyer is a good idea.

Depending on your circumstances, yes, you'll have to register with FinCEN *and* your state MSB regulator.  You'll have reporting requirements, have to show a compliant anti-money laundering program, and have record-keeping requirements.

e-gold 

Anyone who is even thinking about starting any sort of fiat/virtual type business and doesn't believe that this is the case should probably look into starting another type of business.

There are problems before you even get to the state level, let alone federal.

FinCEN is a piece of cake compare to the rest.

PayPal was almost destroyed early-on by attempting to launch an e-currency without a compliance program. That is why Peter Thiel seems to be so down on bitcoin (at least per his public statements last year). Also why kickstarter and other crowdfunding platforms all have in their terms of service that they can't be used to fund e-currencies. For a worst-case scenario, look up the Wired article on e-gold. This is no joke, you can go to federal f*-me-in-the-ass prison if you are not savvy about MSB laws and regs on federal and state levels.

Atm No, alot of posts are  misinformative , id even say companies like mtgox and other exchangers have done things they though where the right thing to do but they where actually not legally required of.

The EU report that covered Bitcoin and money exchanges was just an initial kind of foray into the subject,

Paypal banning users calling them money exchanges is also false.

and declaring anything to Fincen   hilarious

Would appreciate that, PM sent

Happy to point you to some attorneys who specialize in this area of the law. PM me or drop me a line: patrick (at) bitcoinfoundation.org.

I'm curious to know what you find out. AFAIK you need both. This is based on conversations I've had with three lawyers. It's too grey of an area for most non-specialized lawyers, but I think if you're at this point, I'm not adding anything new.

I'm assuming you're located in the US and are looking to exchange virtual to fiat and/or the opposite.

Done. I'll post my findings later if anyone is interested

... hire a lawyer.

If you have to ask...

I've been getting a lot of mixed information lately and would like a simple answer to this if anyone knows.


If you are running any sort of bitcoin exchange, would you have to file as a registration with FINCEN for a MSB (money services business) ? Also can anyone provide me with some other basic things I'd have to do legally to protect myself, for example is a money transmitter license needed?


Would appreciate any input into this.


Thanks.