newbie
Activity: 8
Merit: 0
Facts of Miami arrests:
1) Advertised selling BTC on localbitcoins.
2) Engaged in transaction to sell high volume.
3) Was informed of illegal intention by buyer.
They were operating as a service in an "exchanger" capacity, not a
"user". They were operating in a capacity that would probably meet the
definition of money transmission requiring licenses and registration
as a money service business ("MSB"). They were complicit in the act of
money laundering by failing to cancel the purchase transaction and
report the activity to the authorities under obligations outlined for
individuals or business acting as a MSB.
My interpretation of the Paragraph 3 below makes it pretty clear that conversion of BTC to legal tender does not by itself make a user (anyone mining or acquiring BTC) an exchanger, and subsequently a money transmitter. They were operating as a business and had obligations they failed to adhere to, notwithstanding the general common sense that one shouldn't be doing business with another party who states criminal intent.
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FinCEN guidance:
FIN-2014-R001
Issued: January 30, 2014
Subject: Application of FinCEN's Regulations to Virtual Currency
Mining Operations
For purposes of the guidance, FinCEN refers to the participants in
generic virtual currency arrangements, using the terms "exchanger,"
"administrator," and "user." 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. A user is a person that obtains virtual currency to
purchase goods or services on the user's own behalf.
FinCEN understands that Bitcoin mining imposes no obligations on a
Bitcoin user to send mined Bitcoin to any other person or place for
the benefit of another. Instead, the user is free to use the mined
virtual currency or its equivalent for the user's own purposes, such
as to purchase real or virtual goods and services for the user's own
use. To the extent that a user mines Bitcoin and uses the Bitcoin
solely for the user's own purposes and not for the benefit of another,
the user is not an MSB under FinCEN's regulations, because these
activities involve neither "acceptance" nor "transmission" of the
convertible virtual currency and are not the transmission of funds
within the meaning of the Rule. This is the case whether the user
mining and using the Bitcoin is an individual or a corporation, and
whether the user is purchasing goods or services for the user's own
use, paying debts previously incurred in the ordinary course of
business, or (in the case of a corporate user) making distributions to
shareholders. Activities that, in and of themselves, do not constitute
accepting and transmitting currency, funds or the value of funds, are
activities that do not fit within the definition of "money
transmission services" and therefore are not subject to FinCEN's
registration, reporting, and recordkeeping regulations for MSBs.8
From time to time, as your letter has indicated, it may be necessary
for a user to convert Bitcoin that it has mined into a real currency
or another convertible virtual currency, either because the seller of
the goods or services the user wishes to purchase will not accept
Bitcoin, or because the user wishes to diversify currency holdings in
anticipation of future needs or for the user's own investment
purposes. In undertaking such a conversion transaction, the user is
not acting as an exchanger, notwithstanding the fact that the user is
accepting a real currency or another convertible virtual currency and
transmitting Bitcoin, so long as the user is undertaking the
transaction solely for the user's own purposes and not as a business
service performed for the benefit of another. A user's conversion of
Bitcoin into a real currency or another convertible virtual currency,
therefore, does not in and of itself make the user a money
transmitter.9
FinCEN therefore concludes that, under the facts you have provided,
[the Company] would be a user of Bitcoin, and not an MSB, to the
extent that it uses Bitcoin it has mined: (a) to pay for the purchase
of goods or services, pay debts it has previously incurred (including
debts to its owner(s)), or make distributions to owners; or (b) to
purchase real currency or another convertible virtual currency, so
long as the real currency or other convertible virtual currency is
used solely in order to make payments (as set forth above) or for [the
Company]'s own investment purposes. Any transfers to third parties at
the behest of sellers, creditors, owners, or counterparties involved
in these transactions should be closely scrutinized, as they may
constitute money transmission.
