Right. So far, the enforcement framework has it's pivot foot in fiat. That is, crypto-to-crypto exchanging and dealing doesn't seem to be the topic of any MSB enforcement at all. The regs say differently, but laws and the enforcement of those laws are two different things. Government enforcement - at least today at 11am - seems to concern itself only with people operating businesses that deal - at some point in their chain of value - with fiat currency. Thus, exchanges are prime targets for noncompliance. That might change 45 minutes from now when FinCEN promulgates a new regulation, or DHS nails a new pure bitcoin business, but for now, dealing in fiat seems to be what makes an MSB a target.
That's only the MSB regulations, though. What really surprises me is that nobody seems to be talking about the securities laws! The securities laws are far more byzantine and far-reaching than the MSB regs. Yet, there are investment pools, informal "stock exchanges" and "stock sales" - none of which comply with state blue sky regulations or the '33 Act.
You heard it here first - the next big enforcement push his going to be by the SEC.
Topic: full picture on US MSB regs, state and federal - page 2. (Read 5109 times)
Something that may be useful for people who sell products or services for BTC might be something like a How-to to avoid inadvertently becoming a money transmitter. For example, does someone who sells a single Green Dot MoneyPak become a money transmitter? What if they do it a few times? What if they actually set up a business that sells items like this? How about Linden Dollars for BTC? What level of activity triggers these obligations? If your nephew visits you and you take 1 BTC from him in exchange for walking around money, does that? Pretty much anyone in the BTC community has done some kind of transaction like this.
A couple clarifications.
1) Selling goods or services (no FinCEN doesn't consider "real" currency in any form to be a "goods or services") is never a MSB regulated activity. So you can sell computer parts, gold bullion, heroin (illegal for non MSB reasons but still not MSB), diamonds, webhostings, search engine optimizations, relaxation therapy, etc for BTC without running afoul of MSB requirements.
2) It is the action of exchanging virtual currency for real currency (or other virtual currency) which requires registration as a MSB (specifically money transmitter type)*. As for "what level" per FinCEN any amount of conversion makes you a MSB if done as a "business".
Per the guidance letter.
Quote
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 or exchanger that (1) accepts and transmits a convertible virtual currency or (2) buys or sells convertible virtual currency for any reason is a money transmitter under FinCEN's regulations, unless a limitation to or exemption from the definition applies to the person.
Looking at the actual MSB regs we see ...
Quote
(ii) Facts and circumstances; Limitations. Whether a person is a money transmitter as described in this section is a matter of facts and circumstances. The term “money transmitter” shall not include a person that only:
(A) Provides the delivery, communication, or network access services used by a money transmitter to support money transmission services;
(B) Acts as a payment processor to facilitate the purchase of, or payment of a bill for, a good or service through a clearance and settlement system by agreement with the creditor or seller;
(C) Operates a clearance and settlement system or otherwise acts as an intermediary solely between BSA regulated institutions. This includes but is not limited to the Fedwire system, electronic funds transfer networks, certain registered clearing agencies regulated by the Securities and Exchange Commission (“SEC”), and derivatives clearing organizations, or other clearinghouse arrangements established by a financial agency or institution;
(D) Physically transports currency, other monetary instruments, other commercial paper, or other value that substitutes for currency as a person primarily engaged in such business, such as an armored car, from one person to the same person at another location or to an account belonging to the same person at a financial institution, provided that the person engaged in physical transportation has no more than a custodial interest in the currency, other monetary instruments, other commercial paper, or other value at any point during the transportation;
(E) Provides prepaid access; or
(F) Accepts and transmits funds only integral to the sale of goods or the provision of services, other than money transmission services, by the person who is accepting and transmitting the funds.
(A) Provides the delivery, communication, or network access services used by a money transmitter to support money transmission services;
(B) Acts as a payment processor to facilitate the purchase of, or payment of a bill for, a good or service through a clearance and settlement system by agreement with the creditor or seller;
(C) Operates a clearance and settlement system or otherwise acts as an intermediary solely between BSA regulated institutions. This includes but is not limited to the Fedwire system, electronic funds transfer networks, certain registered clearing agencies regulated by the Securities and Exchange Commission (“SEC”), and derivatives clearing organizations, or other clearinghouse arrangements established by a financial agency or institution;
(D) Physically transports currency, other monetary instruments, other commercial paper, or other value that substitutes for currency as a person primarily engaged in such business, such as an armored car, from one person to the same person at another location or to an account belonging to the same person at a financial institution, provided that the person engaged in physical transportation has no more than a custodial interest in the currency, other monetary instruments, other commercial paper, or other value at any point during the transportation;
(E) Provides prepaid access; or
(F) Accepts and transmits funds only integral to the sale of goods or the provision of services, other than money transmission services, by the person who is accepting and transmitting the funds.
and for MSB in general ...
Quote
(
Limitation. For the purposes of this section, the term “money services business” shall not include:
(i) A bank or foreign bank;
(ii) A person registered with, and functionally regulated or examined by, the SEC or the CFTC, or a foreign financial agency that engages in financial activities that, if conducted in the United States, would require the foreign financial agency to be registered with the SEC or CFTC; or
(iii) A natural person who engages in an activity identified in paragraphs (ff)(1) through (ff)(5) of this section on an infrequent basis and not for gain or profit.
Limitation. For the purposes of this section, the term “money services business” shall not include:(i) A bank or foreign bank;
(ii) A person registered with, and functionally regulated or examined by, the SEC or the CFTC, or a foreign financial agency that engages in financial activities that, if conducted in the United States, would require the foreign financial agency to be registered with the SEC or CFTC; or
(iii) A natural person who engages in an activity identified in paragraphs (ff)(1) through (ff)(5) of this section on an infrequent basis and not for gain or profit.
The part B above could be nicknamed the "BitPay" exception. BitPay is simply acting as a payment network and thus isn't (my opinion not legal counsel) subject to regulation. The part iii is likely the exemption most applicable to a user. Key words are infrequently and not for profit. Actually making a profit doesn't matter, as you could be a bad businessman as still be for profit. So if you exchange $100 into BTC for your nephew so he can get his first coin and do so without any markup well you probably are not a MSB. If you do so for 100 of his friends over the course of a year and collect a 10% markup for your time well you probably are a MSB. Ultimately the regs are very "loose" so it comes down to does FinCEN think you are a MSB (or if it gets that far does a judge agree with FinCEN determination).
Edited for clarification and included cites:
"FinCEN Virtual Currency Letter":
http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html
"FINANCIAL CRIMES ENFORCEMENT NETWORK, DEPARTMENT OF THE TREASURY" regulations:
http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=b3dbf70d55232935bba654ea6c52ba2b&tpl=/ecfrbrowse/Title31/31cfr1010_main_02.tpl
"PART 1022—RULES FOR MONEY SERVICES BUSINESSES" regulations:
http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=b3dbf70d55232935bba654ea6c52ba2b&rgn=div5&view=text&node=31:3.1.6.1.6&idno=31
* Prior to FinCEN guidance the "common sense" conclusion would be that exchangers would be classified as a "Currency Dealer" but FinCEN makes it clear that this type of MSB is only for conversion between two REAL currencies. The conversion of virtual currency nonsensically falls under "money transmitter" type of MSB. So as of today an entity which exchanges virtual currency for real currency is a money transmitter and one that exchanges real currency for real currency is a currency dealer. One that does both is both. Both currency dealer and money transmitter (along with check casher, money order issuer, etc) are sub-types of the MSB.
My law partner pointed me to this fairly good overview of US federal and state msb laws as applied to btc:
http://contrariancompliance.com/2013/04/14/is-us-regulation-the-single-biggest-threat-to-bitcoin/
Registering with FinCen is not the end of the story, by a long shot.
http://contrariancompliance.com/2013/04/14/is-us-regulation-the-single-biggest-threat-to-bitcoin/
Registering with FinCen is not the end of the story, by a long shot.
Thanks for this. I imagine a lot of people were looking for exactly this. While I am a recent law school graduate myself and have worked in the law, the area of financial regulation is exceedingly complex and really requires a specialist to understand and explain.
Something that may be useful for people who sell products or services for BTC might be something like a How-to to avoid inadvertently becoming a money transmitter. For example, does someone who sells a single Green Dot MoneyPak become a money transmitter? What if they do it a few times? What if they actually set up a business that sells items like this? How about Linden Dollars for BTC?
What level of activity triggers these obligations? If your nephew visits you and you take 1 BTC from him in exchange for walking around money, does that? Pretty much anyone in the BTC community has done some kind of transaction like this.
It is interesting that point (2) seems to refer to something like bitcoin mining. I am unaware of any convertible currency which is created in such a manner.
Well that probably is because "convertible" doesn't mean what you think it means. Still I do agree that it was horribly bad form for FinCEN to use the word "convertible" without providing a definition. Still you are making an assumption that "convertible" means "a fixed 1:1 exchange rate" which is quite a leap not supported by other datapoints (presentations by FinCEN, responses given on FinCEN hotline, DHS action, etc).
However if you still aren't convinced request an administrative ruling from FinCEN demanding clarification of the term "convertible" and asking for examples of both convertible and non-convertible virtual currency.
http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=9cd941ce33a75e80167579c14e862a5a&rgn=div6&view=text&node=31:3.1.6.1.2.7&idno=31
That's it, I give up. Hashman, why don't you go test this by setting up a Mt Gox replacement and see what happens.
Are you looking at the FinCen guidance of March 18 FIN-2013-G001? This document does not contain the word "decentralized" nor the prefix "crypto". It states very clearly that it addresses convertible virtual currencies.
How could you possibly miss it.
Quote
c. De-Centralized Virtual Currencies
A final type of convertible virtual currency activity involves a de-centralized convertible virtual currency (1) that has no central repository and no single administrator, and (2) that persons may obtain by their own computing or manufacturing effort.
A person that creates units of this convertible virtual currency and uses it to purchase real or virtual goods and services is a user of the convertible virtual currency and not subject to regulation as a money transmitter. By contrast, a person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter. In addition, a person is an exchanger and a money transmitter if the person accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency.
A final type of convertible virtual currency activity involves a de-centralized convertible virtual currency (1) that has no central repository and no single administrator, and (2) that persons may obtain by their own computing or manufacturing effort.
A person that creates units of this convertible virtual currency and uses it to purchase real or virtual goods and services is a user of the convertible virtual currency and not subject to regulation as a money transmitter. By contrast, a person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter. In addition, a person is an exchanger and a money transmitter if the person accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency.
Lol, thank you. I thought I read that but then on search I forgot the hyphen!
Note however that they are quite clearly still talking about convertible currency here. Again, bitcoin has no guarantee or contract of convertibility at any rate into any real currency.
It is interesting that point (2) seems to refer to something like bitcoin mining. I am unaware of any convertible currency which is created in such a manner.
My law partner pointed me to this fairly good overview of US federal and state msb laws as applied to btc:
http://contrariancompliance.com/2013/04/14/is-us-regulation-the-single-biggest-threat-to-bitcoin/
Registering with FinCen is not the end of the story, by a long shot.
http://contrariancompliance.com/2013/04/14/is-us-regulation-the-single-biggest-threat-to-bitcoin/
Registering with FinCen is not the end of the story, by a long shot.
Well I'm not a lawyer either but this FinCen threat looks like it is NOT on solid ground. Bear with me here while I try some pro bono work:
Quote from: FinCen
This guidance addresses "convertible" virtual currency. This type of virtual currency either has an equivalent value in real currency, or acts as a substitute for real currency.
Well I guess we can stop reading here.
Bitcoin unequivocally does *not* have an equivalent value in real currency, *nor* does it act as a substitute for real currency (using the term real currency here as it was defined in FinCen guidelines).
Coin as for example purchased by an individual from an exchange, is information - in particular information which is, or allows control of, a private key corresponding to published data (the block chain), and the sale of a coin is more akin to the sale of an ebook or a domain name than a legal tender equivalency vehicle (such as an amazoncoin). There is NO guarantee by the seller of a coin to ANY quantity of real currency, let alone a conversion.
If a litecoin or a private key to GPG pair are convertible currencies, then so must be the euro, a blog post, the new top level domains, and a 2 minute streaming video. Clearly they are not, and so we have a proof by contradiction.
Bitcoin is not a convertible currency, and the FinCen guidance of March 18 FIN-2013-G001 thus clearly states that it does not address bitcoin.
I don't understand your proof by contradiction. Can you clarify how bitcoin does not act as a substitute for real currency? Also, if it does not act as a substitute for real currency, what exactly does it act as?
http://www.fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html
Maybe it would be more clear if we looked at an example of convertible virtual currencies. One example is the Liberty Reserve dollar. A single unit of this acts as a substitute for a single US dollar. It can be converted (there is a fixed ratio) by the manufacturer. Another example is a MtGox USD code (which no longer exist AFAIK). These can be converted at a fixed conversion rate to real currency (legal tender, in this case federal reserve notes). I believe BTC-E creates such convertible virtual currency as well now. At the moment of redemption (conversion to real currency) they are removed from circulation (destroyed).
A bitcoin on the other hand does not act as anything other than what it is (a number), there are no guarantees for any convertible value in any real currency. Note that e-books in circulation probably have created more real currency revenue for publishers than bitcoins have for miners. Note further that domain names (DNS entries) in circulation have create more real currency revenue for registrars than bitcoins have for miners. Like bitcoin, these things can be sold for real money or traded for goods and services. They are not convertible virtual currencies, because no fixed conversion rate exists.
The nature of the bitcoin as information (which is valuable in virtue of its use in reference to published data known as the block chain) makes the most obviously relevant legal precedent the domain name (which is valuable in virtue of its use in reference to published DNS tables).
My law partner pointed me to this fairly good overview of US federal and state msb laws as applied to btc:
http://contrariancompliance.com/2013/04/14/is-us-regulation-the-single-biggest-threat-to-bitcoin/
Registering with FinCen is not the end of the story, by a long shot.
http://contrariancompliance.com/2013/04/14/is-us-regulation-the-single-biggest-threat-to-bitcoin/
Registering with FinCen is not the end of the story, by a long shot.
Well I'm not a lawyer either but this FinCen threat looks like it is NOT on solid ground. Bear with me here while I try some pro bono work:
Quote from: FinCen
This guidance addresses "convertible" virtual currency. This type of virtual currency either has an equivalent value in real currency, or acts as a substitute for real currency.
Well I guess we can stop reading here.
Bitcoin unequivocally does *not* have an equivalent value in real currency, *nor* does it act as a substitute for real currency (using the term real currency here as it was defined in FinCen guidelines).
Coin as for example purchased by an individual from an exchange, is information - in particular information which is, or allows control of, a private key corresponding to published data (the block chain), and the sale of a coin is more akin to the sale of an ebook or a domain name than a legal tender equivalency vehicle (such as an amazoncoin). There is NO guarantee by the seller of a coin to ANY quantity of real currency, let alone a conversion.
If a litecoin or a private key to GPG pair are convertible currencies, then so must be the euro, a blog post, the new top level domains, and a 2 minute streaming video. Clearly they are not, and so we have a proof by contradiction.
Bitcoin is not a convertible currency, and the FinCen guidance of March 18 FIN-2013-G001 thus clearly states that it does not address bitcoin.
I don't understand your proof by contradiction. Can you clarify how bitcoin does not act as a substitute for real currency? Also, if it does not act as a substitute for real currency, what exactly does it act as?
http://www.fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html
Are you looking at the FinCen guidance of March 18 FIN-2013-G001? This document does not contain the word "decentralized" nor the prefix "crypto". It states very clearly that it addresses convertible virtual currencies.
How could you possibly miss it.
Quote
c. De-Centralized Virtual Currencies
A final type of convertible virtual currency activity involves a de-centralized convertible virtual currency (1) that has no central repository and no single administrator, and (2) that persons may obtain by their own computing or manufacturing effort.
A person that creates units of this convertible virtual currency and uses it to purchase real or virtual goods and services is a user of the convertible virtual currency and not subject to regulation as a money transmitter. By contrast, a person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter. In addition, a person is an exchanger and a money transmitter if the person accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency.
A final type of convertible virtual currency activity involves a de-centralized convertible virtual currency (1) that has no central repository and no single administrator, and (2) that persons may obtain by their own computing or manufacturing effort.
A person that creates units of this convertible virtual currency and uses it to purchase real or virtual goods and services is a user of the convertible virtual currency and not subject to regulation as a money transmitter. By contrast, a person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter. In addition, a person is an exchanger and a money transmitter if the person accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency.
....
Bitcoin is not a convertible currency, and the FinCen guidance of March 18 FIN-2013-G001 thus clearly states that it does not address bitcoin.
Bitcoin is not a convertible currency, and the FinCen guidance of March 18 FIN-2013-G001 thus clearly states that it does not address bitcoin.
That is a dead-end street to go down. At a stroke of a pen they can just add "crypto-currency", "digital currency" or even "Bitcoin" to the guidance.
The guidance specifically addresses decentralized cryptocurrencies. The question is, are you doing something that makes you an issuer or exchanger. But then, this is only guidance that says FinCen thinks virtual currency is already covered by existing laws, rules & regs. If people think they might be covered, they should actually read the applicable law themselves and not just rely on this one piece of guidance.
Are you looking at the FinCen guidance of March 18 FIN-2013-G001? This document does not contain the word "decentralized" nor the prefix "crypto". It states very clearly that it addresses convertible virtual currencies.
....
Bitcoin is not a convertible currency, and the FinCen guidance of March 18 FIN-2013-G001 thus clearly states that it does not address bitcoin.
Bitcoin is not a convertible currency, and the FinCen guidance of March 18 FIN-2013-G001 thus clearly states that it does not address bitcoin.
That is a dead-end street to go down. At a stroke of a pen they can just add "crypto-currency", "digital currency" or even "Bitcoin" to the guidance.
The guidance specifically addresses decentralized cryptocurrencies. The question is, are you doing something that makes you an issuer or exchanger. But then, this is only guidance that says FinCen thinks virtual currency is already covered by existing laws, rules & regs. If people think they might be covered, they should actually read the applicable law themselves and not just rely on this one piece of guidance.
....
Bitcoin is not a convertible currency, and the FinCen guidance of March 18 FIN-2013-G001 thus clearly states that it does not address bitcoin.
Bitcoin is not a convertible currency, and the FinCen guidance of March 18 FIN-2013-G001 thus clearly states that it does not address bitcoin.
That is a dead-end street to go down. At a stroke of a pen they can just add "crypto-currency", "digital currency" or even "Bitcoin" to the guidance.
Well of course they could, but they make it quite clear here they aren't talking about bitcoin:
Quote
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.
Do you see any coins being redeemed or withdrawn from circulation? I don't think even the so called destruction of blockchain assets (by sending to addresses without private keys) could be described as withdrawing them from circulation, and there is nothing like a redemption involved with using private keys to make signatures.
....
Bitcoin is not a convertible currency, and the FinCen guidance of March 18 FIN-2013-G001 thus clearly states that it does not address bitcoin.
Bitcoin is not a convertible currency, and the FinCen guidance of March 18 FIN-2013-G001 thus clearly states that it does not address bitcoin.
That is a dead-end street to go down. At a stroke of a pen they can just add "crypto-currency", "digital currency" or even "Bitcoin" to the guidance.
That's certainly true for a lot of larger operations. Remember that the state MT regs were written with big businesses in mind. Smaller operations with no employees, no office space, etc., - largely in virtue of their diminutive size - can comply with a more modest layout of costs and resources.
As to legal fees, well, that depends on how nicely you treat your lawyer
Oh, and yes, excellent article!
As to legal fees, well, that depends on how nicely you treat your lawyer
Oh, and yes, excellent article!
hahaha. good post! it's also a view shared by our attorney.
My law partner pointed me to this fairly good overview of US federal and state msb laws as applied to btc:
http://contrariancompliance.com/2013/04/14/is-us-regulation-the-single-biggest-threat-to-bitcoin/
Registering with FinCen is not the end of the story, by a long shot.
http://contrariancompliance.com/2013/04/14/is-us-regulation-the-single-biggest-threat-to-bitcoin/
Registering with FinCen is not the end of the story, by a long shot.
Well I'm not a lawyer either but this FinCen threat looks like it is NOT on solid ground. Bear with me here while I try some pro bono work:
Quote from: FinCen
This guidance addresses "convertible" virtual currency. This type of virtual currency either has an equivalent value in real currency, or acts as a substitute for real currency.
Well I guess we can stop reading here.
Bitcoin unequivocally does *not* have an equivalent value in real currency, *nor* does it act as a substitute for real currency (using the term real currency here as it was defined in FinCen guidelines).
Coin as for example purchased by an individual from an exchange, is information - in particular information which is, or allows control of, a private key corresponding to published data (the block chain), and the sale of a coin is more akin to the sale of an ebook or a domain name than a legal tender equivalency vehicle (such as an amazoncoin). There is NO guarantee by the seller of a coin to ANY quantity of real currency, let alone a conversion.
If a litecoin or a private key to GPG pair are convertible currencies, then so must be the euro, a blog post, the new top level domains, and a 2 minute streaming video. Clearly they are not, and so we have a proof by contradiction.
Bitcoin is not a convertible currency, and the FinCen guidance of March 18 FIN-2013-G001 thus clearly states that it does not address bitcoin.
Truer words...
So anyone who sells coin for a living must have millions of dollars and an army of lawyers?
Yes. Unless you want to live as an outlaw. But if you're an outlaw, you'd better not be a half-assed outlaw.
So anyone who sells coin for a living must have millions of dollars and an army of lawyers?
That's certainly true for a lot of larger operations. Remember that the state MT regs were written with big businesses in mind. Smaller operations with no employees, no office space, etc., - largely in virtue of their diminutive size - can comply with a more modest layout of costs and resources.
As to legal fees, well, that depends on how nicely you treat your lawyer
Oh, and yes, excellent article!
As to legal fees, well, that depends on how nicely you treat your lawyer
Oh, and yes, excellent article!
You really need a solid year and a few million bucks in the bank to approach this with any level of comfort. Legal budget is a relatively small component of that, however. Mostly talking about compliance personnel, state bond requirements, reserves required in your business.
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