Bitcoin Forum

I read something about this, but it seems pretty unenforceable. I understand US-exchanges need to be liscened as money transmitters in every state, but how can US states fine a foreign entity for making transfers to US accounts, since the transfered are not taking place in the state? What kind of laws are being broken?

As far as I understand, the exchange is only bound by the laws in the country which it does business and transfering money to US bank-accounts isn't exactly breaking any sort of laws. The US customers would still be coming onto the website, presumably hosted in the foreign country, so the business would still only be considered taking place in that foreign country.

I'm no expert on the legality here of foreign entities. Can anyone offer some advice.

Has there ever been any law suites, of states going after exchanges not liscened with them? I almost suspect its just propaganda so states can get some more money. I'd be interested to see how such cases would play out in court.

The way I see it, any entity in the US will simply avoid doing business with you.
They are the ones who will get into trouble first.

So, is the restriction just for exchanges who want to work with other US companies? I assume there is nothing to stop an exchange from wiring money to US clients.

Your clients won't like your service if they get into legal trouble because of it.

I highly doubt US clients would get in any legal trouble from receiving money from an overseas exchange. Think about it: A Bank sees a large transaction coming in from Europe. Maybe they ask the client about it. The client talks about bitcoins or whatever. I seriously seriously doubt any bank would go through the effort, or let alone have the means to verify whether or not some foreign company has lisecense here in the US. Even typing that out it sounds rediculous.

We can take Mt Gox for instance. Their Dwolla accounts were seized for not following US compliance. US customers would not get in trouble. The unliscensed exchange just could not operate in the US using US services, in the case of Gox, having accounts with a US company like Dwolla for instance.

Tax collectors, banks and governments weren't aware of any Bitcoin related businesses back then or they didn't care.
If your volume is low, nobody will take action against you are your customers. However, it doesn't make it legal.

I have close friends whose bank accounts (Canadian) were closed/frozen because of Bitcoin related businesses.
And yes, closing your bank account is simple enough for banks to protect themselves and they will do it.

Banks will not close someones account if a foreign exchange not registered in some state sends money to a user. There's no way. They may close the account for some other suspect reason, but they wouldn't do it for reasons of liscense. The only people who care about the exchanges being liscened are the states themselves, and the government. The Federal Government really only wants these companies do report, there is no liscencing requirement on the federal level.

This is honestly really grey area stuff. Even in legal code, bitcoin is hardly mentioned with respect to money transmitters.

I would love it if someone who knows tax-legal code could comment. Because right now we are both sort of speculating for the most part. The truth is banks can close peoples account for whatever reason they please. I'm just speaking of what would likely happen. I know one bitcoin trader that had his bank accounts closed over 6 times in a single year, but that was probably due to withdrawing cash all the time.

They will. They will ask you were this money is coming from. You'll respond something like "Bitcoin" and your account will most likely be closed.
Like you mentioned, banks can close accounts for any reason.

It depends on the bank, but most banks aren't going to close your account with the first mention of bitcoin. All my money in my bank account right now is from bitcoin and my banker is well aware. Never had any issues.

It's just too much work to accommodate US customers. The same happens for conventional finance products because of this - https://en.wikipedia.org/wiki/Foreign_Account_Tax_Compliance_Act

Loads of Americans are turned away from opening accounts and investing abroad because of that.

As you may have noticed America doesn't give much of a fuck how far away you are if you're in their sights and it's only gonna get worse.

This ^^

And also this:
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Report-of-Foreign-Bank-and-Financial-Accounts-FBAR

The penalties for the US clients for failing to do the FBAR can become huge and compounding, (even more than the amount of the account).

If those exchanges can be accessed by US residents then yes they must compile with KYC and get a trading license for the US or they will get in trouble.