Topic: FinCEN's definition of a Money Exchanger (Read 3156 times)

There are a few threads here on BTC Global.  They sound really solid -- an address in Uruguay & pre-IPO share auction is their unicorn blood.

No money, No honey:(
So how does someone do business in the states without shelling out so much cash? this is crushing my entrepreneurial vibe. I heard of BTC global offering a legal umbrella.I basically explained the elements of what I want to do above Any help about how to go about my business legally would be appreciated!!

No need for such weak legal foolery (which any court would see through anyways).  FinCEN has already stated Bitcoins are not stored value (prepaid value).  Period.  If you are exchanging Bitcoins for another form of Bitcoins there is no "exchanging" going on.

Now if you want to sell BTC for USD then regardless of if you send them as on chain transactions, "physical Bitcoins", or private keys written by hand on the back of a napkin FinCEN says you are a "money transmitter". 

The law isn't a videogame, you can enter a cheat code and bypass the law.  If your intent is to sell BTC for USD or vice versa then any weak attemtps to obfuscate it ("I am selling this paperclip for $140 and it includes 1 BTC as a free gift") has no legal merit.  I mean stop for a second if that worked as a legal strategy then why wouldn't drug dealers be "paper clip dealers" and each sale includes some free drugs.   Granted possession is still a crime but it is significantly lower penalty than distribution.

Yes I would be selling a funded private key. Take for example cassasius. If he were to sell his 1 BTC coin in USD, he could sell his coins for the 1.3 BTC exchange rate (ATM 140$), and claim that the he charges 140 per piece of physical metal, meanwhile the BTC is a gift. If legally necessary the coin could be funded with BTC at a later date (lets say after you bought the coin at a store, go home and send me an email with your public key), that way you paid 140 for the coin and the extra BTC is not considered "consideration" because it was not on the card at the time of purchase. Is this feasible and legal?

Funded private key under tamper-evident cover, corresponding BTC address & denomination on front?

Possibly however the phrase "bitcoins on gift cards" is unclear.  Can you better describe exactly what will be happening?

i.e. "I will do X, the other buyer will do Y".

So if I sell bitcoins on gift cards but less than 1000 per person per day I don't have to deal with bureaucracy ?

If you are saying in a round about way that FinCEN has overstepped their regulatory authority well you will get no argument from me.  However unless you have seven figures and a willingness to fight them out in court it really is academic.

but the BSA does not give FinCEN the authority to require MSBs to register.  It only requires money transmitting businesses to register.  So in requiring MSBs to register, FinCEN is actually claiming that all 6 types of MSB are money transmitting businesses that are required to register under section 5330.  Really.

The above aren't money transmitting businesses.  Money transmitter is a money transmitting business.  The BSA gives FinCEN the authority to consider the following financial institutions.  


http://www.law.cornell.edu/uscode/text/31/5312

FinCEN added stored value and later expanded it to prepaid access under the authority that the Secretary of the Treasury determined that "gift cards" were similar to one of the other categories.  IIRC it was "(K) an issuer, redeemer, or cashier of travelers’ checks, checks, money orders, or similar instruments".  However even that is subject to public input and review.  FinCEN didn't do that with Bitcoin they simply deemed "virtual currency broker/exchanger" = "money transmitter" which is just nonsense.


http://www.govtrack.us/congress/bills/111/hr2893


Still that wasn't really the point I should have said regs not laws. The eCFR and related forms, registrations, reporting, etc has no reference to "virtual currency exchanger".  There are only the 6 types of MSBs listed above.  Contrary to the view of another poster, you couldn't register as a "virtual currency exchanger" even if you wanted to.

Oh really?  Show me where in the BSA it defines "stored value" or "prepaid access".  It's not there.  These are just new categories of money transmitting businesses that FinCEN added to the regulations.  In 2011, they removed "stored value" and added "prepaid access".



No, but they can write new regulations.  However, they didn't, so they're not really following proper procedure by coming up with a new definition of "virtual currency" in a guidance document.

http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=57b923ddd7f27fbedc8afb57c6f8e605&rgn=div8&view=text&node=31:3.1.6.1.2.1.3.1&idno=31

If a business is losing money is still "for profit".  "For profit" is based on intent.  Some business ventures never even break even that doesn't make then

The exception requires three things:
a) a natural person (so no "non-profit corporation" for example)
b) not for profit or gain
c) infrequent basis



There are no sole prop exceptions for any class of MSB.  The only difference between a sole prop, corporation, and partnership is the structure of ownership.  What purpose would it serve to except one business over another merely by how it is owned.  Take PayPal which is a MSB.  The same PayPal, same business model, same everything except it was owned by one person.  Suddenly it is exempt?  I have never seen any regulation at any level of government which treats a business differently based on the structure of ownership.  Once again what public good is served?

The reverse is often true.  MOST regulations use the word "person" and imply that the "person" can either be a natural person or a legal construct like a corporation.


Corporations, partnerships, limited liability companies, and foundations are "persons" (hence the term corporate personhood) under the law.  The law doesn't need to specifically name these ownership structures they are implied in "person".  When regulations only apply to "human persons" they often will use language to indicate that such as "natural person".

I do not believe "not for profit" is the same as (not "engaged in business").  There are plenty of non-profit and not-for-profit entities who are "engaged in business".  There are also many for-profit companies who are losing money and not "profitting" but again they are "engaged in business".

I wonder if there may be some exception for "sole proprietors" but you are probably right that the Department of Treasury has only begun to consider bitcoin at all.

Yes there is an exception for persons that are engaged in the activity infrequently and not for profit.  Of course those terms are rather open and vague but some people have the misconception that if you don't form a corporation you must not be a business.  If you are exchanging virtual currency for real currency for profit and frequently you are a business.  It doesn't matter if you don't have a business checking account, or office, or legal docs.  By default any individual engaged in business is a sole proprietorship.  No filling necessary.

Now how that related to miners who sell their coins.  Well who knows FinCEN guidelines are kinda nonsensical on that issue. I can't see the intent being that every miner who exchanges their mined coins for USD registers as a MSB but by the letter of guidance that is what they say.  My guess is even FinCEN doesn't know what they are trying to say.

I think he's right. That's one of the things I hate about law is that you basically have to hire a lawyer to understand what it means, and even then you will get differing opinions, so it is absurd that common people are suppose to follow the law when the laws are written in such a way that common people have great difficulty understanding them.

It's a con to force us to need to buy expensive legal services so the 1% can continue taking money from those of us who work and it is one of the things I despise about this country (and lawyers, though not all are bad, don't want to stereotype them all).

But I think he's right.

By that logic, a car dealership is not a business if it's not making enough money.  Neither is a factory -- that's a company many individuals running a business with a hobby in common. 

I think the one thing I'm taking out of this is the following:


Note the highlighted part.

Since I'm just an individual, not running a business, I figure that a lot of those really don't apply to me.  Yes I mine bitcoins, but there's no way I could be running a business off of only 0.01 BTC per day. 

So I figure FINCEN won't be bothered by what I'm doing. 

I am not spreading misinformation, I am quoting the definition from the finCEN guidance document. You're making yourself look very silly.

Exchanger in the guidance doesn't refer to "(1) Currency dealer or exchanger" which is a FinCEN regulatory definition.  "Exchanger", "administrator", and "users" are just definitions within the guidance.  As I indicated you need to READ THE ENTIRE GUIDANCE.  Guidance isn't law.  Guidance merely indicates what existing law this new concept of virtual currency applies to.  Those guidance definitions lay out further in the document which MSB regulations apply to

The simple version (from your cite)


Let me simplify the cite further since you hate reading.


even simpler



If you are a virtual currency exchanger you ARE NOT a "(1) Currency dealer or exchanger"   <- Actual regulatory definition found in the eCFR
If you are a virtual currency exchanger you ARE a "(5) Money transmitter."  <- Actual regulatory definition found in the eCFR

It can't be more black and white than that. If your confused that is fine but don't spread misinformation as fact.

I've got no idea why you are writing me a wall of text. The definition is quoted straight out of the definitions section of the guidance document. "An exchanger is a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency".

For clarity, this is the exact part of your original post that is wrong: "FinCEN has definitively and clearly indicated that an entity which exchanges virtual currency for real currency is NOT a "(1) Currency dealer or exchanger"

I cited that document.  Read further and you will realize why I am correct (I also included cites). "Exchanger" is not a " Currency dealer or exchanger".  Don't try to apply common sense to the law.  Laws have absolutely nothing to do with common sense.  Read further into the guidance on what type of msb a virtual currency exchanger is.  


It isn't "currency dealer or exchanger" (which is a sub type of MSB regulations).  Yes it would make logical sense than a virtual currency exchanger would fall under the sub type which has "exchanger" in its name.  Once again don't try to apply common sense to the law, you will fail.

Further in the guidance FinCEN puts it in absolute black and white.   Once again before saying "I am wrong".  This is the exact wording of the document you cited.


AND



Before responding I would recommend (a recommendation which likely will fall on deaf ears) that you STOP and read the entire guidance from the first line to the last one.  Don't skim it, don't try to speed read it, don't try to look for the once sentence that you think means what you think it means.  Read it completely every word.   It is in absolute black and white.

What you say is "completely wrong" is absolutely right.  There are only 6 types of MSBs.  No more, no less.  They all have exact definitions in the eCFR.  When registering as a MSB you must select one or more of the following six types.  You can't select none, you can't write in a new type.  All MSBs must be one these six.   

(1) Currency dealer or exchanger.
(2) Check casher.
(3) Issuer of traveler's checks, money orders or stored value.
(4) Seller or redeemer of traveler's checks, money orders or stored value.
(5) Money transmitter.
(6) U.S. Postal Service.

The law doesn't allow any other type of MSB.  FinCEN can't write new law.  The guidance is there way of putting Bitcoin (a square peg) into one of the existing definitions (a round hole).  While it doesn't make common sense the only category which can even be stretched to cover exchanging virtual currency is money transmitter.  That is what the guidance says (if you read the whole thing).  You will notice there is no "exchanger" or "virtual currency exchanger" in the list.   Congress would need to pass new law for that to happen.  A virtual currency exchanger is a "(5) Money transmitter".

Exchanging virtual currency for real currency = (5) Money transmitter
Exchanging real currency for virtual currency = (5) Money transmitter
Exchanging on real currency for another real currency = (1) Currency dealer or exchanger

Hmm, so if you are just mining on the side, like I've been doing, no need to register?  Sounds good, but I think I'd hold off and see what the layers in here say about it.

how much work must one do, beyond the basic filing which is free and standard accounting to be an MSB?

You're actually completely wrong. See the recent FinCEN guidance pdf: http://www.fincen.gov/statutes_regs/guidance/pdf/FIN-2013-G001.pdf

Note on page 2, under the heading "Definitions of User, Exchanger,and Administrator" it says: "An exchanger is a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency".

+1 Great to hear from someone who bothers with looking at the overall picture.

Thank you.

No please don't add misinformation.

FinCEN has definitively and clearly indicated that an entity which exchanges virtual currency for real currency is NOT a "(1) Currency dealer or exchanger"; they are a "(5) Money transmitter".  All of it is laid out in the cite above.   Please don't try to apply common sense to the law.   While you may "think" it would "make sense" for an exchanger to be under category 1 you would be wrong.  It is one thing to be wrong, it is another thing to spread misinformation.  


I mean it can't be anymore black and white then that.

" ... a person who accepts real currency in exchange for virtual currency, or vice versa, is not a dealer in foreign exchange under FinCEN's regulations."


Per FinCEN guidelines a currency dealer/exchanger ONLY involves exchanging one "real" currency for another one.  

For example:
Exchanging USD for EUR? (1) Currency dealer or exchanger
Exchanging USD for BTC? (5) Money transmitter

Right - I was meaning in the context of the OP, selling bitcoin for cash. That's exchange.
The p2p network is 5 but I'm not sure transmitter really could apply to a p2p network since there isn't centralization of it.

Bitcoin does not fall under 1 it falls under 5.  1 is out because it uses the language "currency of a foreign government".  5 is FinCEN way of forcing Bitcoin (round peg) into a MT definition (square hole).   It is the only thing which even comes close so FinCEN has used that.

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

Also you have to remember there is the federal definition and then there are state definitions of which there are fifty and no two are the same.  

It depends on the state you live in, I think.  In California somebody who sells brand name retail store giftcards must be registered as a money transmitter.  So they'd be a money transmitter and would declare that when they file the MSB.

(I am not a lawyer, do not take my advice as legal advice).

That puts them under FinCEN, but classified as a Money Exchanger ?

Money Services Business - The term "money services business" includes any person doing business, whether or not on a regular basis or as an organized business concern, in one or more of the following capacities:

(1) Currency dealer or exchanger.
(2) Check casher.
(3) Issuer of traveler's checks, money orders or stored value.
(4) Seller or redeemer of traveler's checks, money orders or stored value.
(5) Money transmitter.
(6) U.S. Postal Service.

As I read that, bitcoin falls under 1 and not 3/4

So it is still under MSB regulations but not all those defiinitions are necessarily the same rules, as one would expect there are different regulations for a Check casher than the U.S. Postal Service.

Gift Cards = Stored Value Cards and therefore are regulated by FinCEN

"(3) Issuer of traveler's checks, money orders, or stored value. An issuer of traveler's checks, money orders, or, stored value (other than a person who does not issue such checks or money orders or stored value in an amount greater than $1,000 in currency or monetary or other instruments to any person on any day in one or more transactions). "

Gift cards are not an exchange of currency.

A $25 iTunes gift card is in US denominations and how much you can buy with it relative to spending $25 USD doesn't change.

yes.  in America selling "money value transfer" cards requires registration with fincen and state agencies.  This is why drug stores limit the number and amount of "gift cards" you can buy per visit.

A bitcoin is not a gift card. In fact, it's incredibly different than a gift card. I'm not sure where you're coming from here...

Is a gift card "money"?

The flip side of that would also be interesting: Can I buy/sell a giftcard with/for bitcoin without being a money exchanger?

I was noticing that you can sell gift cards for cash.  Isn't this the same as selling Bitcoin for cash?  Is FinCen coming down on these guys like they are on Bitcoin?

http://www.dailyfinance.com/2013/02/15/unwanted-gift-cards-5-ways-cash-in/