Topic: Mt. Gox is an unlicensed money exchanger dealing in "crypto-currency." (Read 9356 times)

Considering the fact that the government retrospectively required them to get licensed, it would be ridiculous if they couldn't.

Of course, they were Magic Gathering card exchange, they need no license back in the days.

Good analysis.

Questions. What is the track record of resolution of similar situations with other companies? Can Mutum apply for MSB status, quickly, retrospectively, and expect to get it? Or have they lost their chance and their US operation will remain somewhat crippled?

I have had a look at the affidavit. As far as I can tell, the position seems to be as follows:

1. A  dwolla account holder  sells his bitcoins and requests the withdrawal of his dollars to his Dwolla account.

2. Instead of Mt Gox sending those dollars directly to the customer's Dwolla account, instead it sends them to its subsdiary company ("Mutum") which is a Delaware company with an account at Wells Fargo in the U.S.

3. Mutum then sends the funds onwards to the customer's Dwolla account.

4. Mutum is thus acting as a money transmitting business but is not licensed to do so.

5. The Department of Homeland Security has obtained an order from the Maryland District Court freezing the contents of the account of Mutum at Wells Fargo.

A number of points arise:

1. The action is against Mutum rather than Mt Gox.

2.  It is unclear whether the DHS may argue in future that Mt Gox (which is a Japanese company) breaches US law by making direct payments to U.S. individuals and companies. But this is not the issue in this case, though it something that I am sure Mt Gox is considering very carefullly..

3. It is unclear why Mt Gox uses Mutum as an intermediary rather than simply remitting funds directly to U.S. customers.

4. It is unclear what any of this has to do with the Department of Homeland security

5. The affected funds are those which were in transit from Mt Gox via Mutum to customer Dwolla accounts as at the date of the freezing order. Quantity unknown.

6. It is unclear how Mt Gox will, in future, remit funds to Dwolla accounts.

7.  The freezing order is purely because Mutum acts as a money transmitting business of USD as between Mt Gox and customer dwolla accounts. It has nothing to do with the transmission by Mt Gox of BTC purchased by clients (whether in the U.S. or elsewhere).The position would be exactly the same if Mt Gox were a precious metal exchange. The freezing order is directly at the U.S. proceeds of sale being remitted via a U.S. subsidiary to dwolla accounts.

So what i have gathered so far seems to be indicating that gox is being investigated for operating a money transfer service and this has been defined by the FinCen guidance (and explicitly described in the warrant) as involving an alternative currency (BTC). Therefore if Gox are found in court to have broken this law there would be a legal precedent that Bitcoin is recognised as a currency.

Could any one with better undertanding of this matter please correct me if I am wrong.

Well, if it is proved in court that they deleted that information it would not be any good to them.

At least they admit in support tickets that Dwolla widthdraws are unavailable but hiding the fact that their account got locked by authorities is just insane.

Was pleasantly surprised by the first few replies. Was expecting a bunch of negative comments along the lines of "Cya at 1 figure" etc.

I have a feeling the fall of Mt. Gox could be a good thing for BTC.. We'll see though.

This part, at least, is true. The rest is debatable.

tl;dr:

The FinCEN guidance is mostly bullshit.  Follow it at your peril.  DeathAndTaxes is spewing irrelevant nonsense, as usual.  MS, the only entity to be affected, is technically a 3rd party money transmitter.  That's why the dollars in their account were seized.  They never touched Bitcoins.  This has nothing whatsoever to do with Bitcoins.

For sure that is possible - but I was trying to find a reasonable explanation for why they removed information after they had posted it. Any other explanation is welcome as I think this move must have had some intention behind it (duh).

About 200k BTC have changed hands in the last 60 hours or so on MtGox so maybe they were sold and are now being held by someone who hasn't relisted them for sale.

For example I purchased about 800 BTC myself yesterday and I'm only a small holder. These BTC aren't listed for sale anywhere today but they were yesterday before I acquired them.

Also more importantly - they are still on MtGox in case I want to sell them again.

The reason people are removing sell orders and buying is because the price is expected to rise.

The statutory language refers to monetary instruments such as travelers checks and money orders.  It's arguable that bitcoin is not "other value that substitutes for currency".  If bitcoin is a substitute for currency, the same argument could be made about gold, silver, seashells, or just about anything else.  It's pretty clear that the law was not intended to apply that broadly.

This question will probably end up in front of a federal judge sooner or later.

That is astonishing - actually removing critical information after they posted it! My take on it is that they have noticed a substanstial amount of btc being transfered out. On the 6th of may there was about 178k btc for sale, then on may 15th about 150k - and today about 134k (for sale).

This is why I like deathandtaxes, good explanations. Clean and clear.

Pretty much, they're gonna do, what "they" want to do, regardless. Pitty they have such powers like so.

Mt. Gox has just removed their official statement on Facebook about the DHS incident.

You can't just look at one tiny section of the code.  The money transmitter definition is more broad (one could argue overly broad) and thus covers more than just currency.


FinCEN guidance assets that virtual currencies (even decentralized ones like Bitcoin) fall under "other value that substitutes for currency".  Now the definition is painfully broad and you could argue in court that Bitcoin does NOT meet that definition.

The definition is there.  The definition is the regulation.  FinCEN guidance is there way of saying "when we take you to court this is what we are going to argue".  You can disagree but ultiimately at the end of the day what matters is what the guy in robes thinks.  If he agrees with FinCEN that Bitcoin is "other value that substitutes for currency".  The the activity of exchanging virtual currencies falls under the definition of the MSB.  If he disagrees then the guidance has been overturned.  

Of course even if you won the next logical step would be to FinCEN in Congressional hearings to argue that their scope needs to be expanded to explicitly (by name) regulate the exchange of virtual currency.  If Congress then passed a law giving them that authority well you are right back at the beginning.


TL/DR version:
Do you think lawyers for the state (FinCEN) could convince a judge that Bitcoin is "other value that substitutes for currency"?  If so then you should heed their guidance.  If not then don't but you should EXPECT to end up in court as FinCEN has all but told you that is where you will end up.

Indeed. Despite their efforts to cover everything they omitted to cover the situation of a foreign currency not issued by any government. They also assume that it is coin or paper. FinCen have performed a herculean job in concluding cryptocurrency is included in this definition.

Ha!
http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&sid=d5570d7646c5fc13fe1fa42a61d1dcf1&rgn=div5&view=text&node=31:3.1.6.1.2&idno=31#31:3.1.6.1.2.1.3.1

See here: "(m) Currency. The coin and paper money of the United States or of any other country that is designated as legal tender and that circulates and is customarily used and accepted as a medium of exchange in the country of issuance. Currency includes U.S. silver certificates, U.S. notes and Federal Reserve notes. Currency also includes official foreign bank notes that are customarily used and accepted as a medium of exchange in a foreign country."

As if they were worried that they were not clear enough that "currency" must be something issued by a government!

Onto a serious note: what you have said has just given more weight to the hypothesis that Satoshi is employed by the U.S government, that's why they knew!

The guidance is meant to be interpreting existing law!

Turns out the legislators used a time-machine to go into the future, learn about cryptocurrency, but did not detail it openly in their legislation. However, FinCen found enough clues to detect this hidden wisdom and produce the detailed guidance needed to cover cryptocurrency.

So Mt Gox broke laws about cryptocurrency which existed before Bitcoin was created.

Since when does guidance become law?