Bitcoin Forum

So I read the warrant against Gox, http://cdn.arstechnica.net/wp-content/uploads/2013/05/Mt-Gox-Dwolla-Warrant-5-14-13.pdf , and I think basically they are trying to justify the seizure by saying Gox is involved in dealing in currency and transmitting money for their customers, which Karpeles denied when he registered the account with the bank, however, I doubt whether such accusation is really well-founded.

First, the warrant is very assertive that Bitcoin is a digital currency, and Gox is a digital currency exchange, nevertheless, according to 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 (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)(search for "(m) Currency")  Gox cannot be called a currency exchanger or dealer because it doesn't deal in foreign currencies, you cannot exchange dollars for other currencies on Gox directly, you can only exchange them for bitcoins, which is not a currency by their definition.(In fact, the Japanese authority considered Bitcoin a ledger and decided not to regulate)

Second, Gox cannot be called a money transmitter either, according to the definition from the same source(search for "money transmitter"):"(5) Money transmitter —(i) In general. (A) A person that provides money transmission services. The term “money transmission services” means the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means. " Especially the following two exceptions:

"(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

......

(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."

So my conlcusion is there should have been no need for Gox to register as a money transmitter, as they never engaged in exchanging one person's currency and funds for another person's, and Karpeles should indeed answer "No" to the two questions. Any legally knowledgeable guy please enlighten me if I am wrong.

I was just reading the seizure PDF, and the judge is probably a DHS rubber-stamper; if she didn't sign drone strikes, wiretaps, and seizures daily, she would be replaced.

The evidence presented that mtgox is a money transmitter fails analysis. It is an assault on personal property without trial or process. I could make the same statements:

deepceleron has a bank account,
he regularly sends money to paypal account with the moniker gay-love-supplies,
the paypal money is transmitted to customers in exchange for goods,
a confidential informant had money transmitted to him in exchange for one used inflatable sheep. The informant then transmitted the money back to the account holder in exchange for "TSA anal lube".

Therefore based on my training and experience, deepceleron is a money transmitter and the contents of his accounts are subject to forfeiture.

Yes, and if deepceleron complains about this "due process" he can stand in the queue behind the Benghazi widows, Tea Party activists and AP journalists.

And surprisingly, the great majority of gay community support the FED and consider it a solid case, because deepceleron has screwed them by processing their orders slowly, so he must be a loser/liar.

I think you are wrong, their multi-currency engine does it implicitly.
Devil is in the details.

1. The warrant itself never mentions other foreign currencies.

2. After you have bought bitcoins on Gox, there is nothing they can do to stop you from exchanging it for other foreign currencies. The exchange cannot prove that the buyer/seller are the same person. And this is at best something Gox facilitates, not participates in, the site is not built to serve and profit from this purpose, so the first thing the government should do when they find soemone is using Gox to exchange currencies is to inform them to take actions against such users, not just forfeiting their account.

So what, it mentions "currency exchange" which is what my point is about, they exchange currency automatically because their trading engine is built that way, USD orders could match EUR orders and it would transparent for the users.

Which is technically brilliant, but legally stupid.

See previous comment, you miss the detail, their engine does it *automatically*.

I'm not saying that it's what they're being charged for, but it's one of the things they *could* be charged for if a judge bother to look into the details.

No, the evidence DHS presented to the judge is how a CI sends USD to Gox to exchange it to BTC and exchange it back to USD for six months, obviously they are targeting BTC specifically as a currency. And did you see that they only call Gox a "digital currency exchange" immediately after they call BTC a "digital currency"? Some smoke-screen is going on here.


I don't think you can consider a multi-currency platform buying/selling apples as a currency exchange/money transmitter ,  even if it's being done somehow implicitly, what's really being bought/sold is more important than anything else.

They didn't say the Bitcoin side of things was relevant at all. You assumed that.
What is relevant is the unlicensed money transmission. Read it again, it is written very clearly.

It performs a currency exchange each time it matches orders with different currencies. That is factual.
Whether random people on the internet think it is important or not doesn't change that.
It is not because some X thing is judged more important than some other Y thing that the Y thing immediately disappears.

If you want to discuss legalities it's best to remain factual.

The exceptions in the code specifically stated that if you:

(A) Provides the delivery, communication, or network access services used by a money transmitter to support money transmission services


(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."

you are not a money transmitter service, I think that's where Gox falls in? Bitcoin is just the goods/service Gox sells, not too different from apples actually.

I think oakpacific may have a point. The issue here is what MtGox profits from, and they profit from the sale of bitcoins, nothing else.

It will be interesting to watch this one play out in the courts, as it will no doubt establish some juridical guidance in the US as to the legal nature of cryptocurrencies. Hopefully MtGox will have the resources (and spine) to fight it out.

I have the same hope, but the problem is they probably don't, based on what I have seen. Gox has always been like:'Let me run the exchange and leave me alone!"

Actually, the purpose of this post, as the title stated, is to point out that, although Gox has proved to be incompetent in many cases, Karpeles has actually always been quite serious with legal affairs, it's naive to believe that he did think he can blatantly lie and get away, he must have had reasons to believe that Gox is not a money service business and he should not need to register.

As I wrote here (https://bitcointalk.org/index.php?topic=206253.msg2166855#msg2166855):


This is probably more complex that we think, but when at first sight it seemed that their US LLC lied in the application, at the second sight it seems that they might wrote the truth. They never accepted money from customers and they never sent money to customers. They used Dwolla for that, probably explicitly because they didn't want to be a money transmitter.

It wouldn't be that hard to accept directly wire transfers from customers to their US LLC, but they didn't do it. They accepted money transfers directly to Japan, so you could send an international wire, and their Japan company probably has it legally covered. And they used a 3rd party registered money transmitter to accept deposits in the US.

Edit: of course it's for lawyers to decide who's right and wrong here and I have no qualifications for that, so this is just a loose speculation from me.

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

"An exchanger is a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency."

Presumably the seizure is agenda-driven. If we can figure out the (exact) agenda, we can more accurately predict process and outcomes.

A generalized hypothesis such as "to assert State power" or "to destroy BTC" won't be helpful, but a specific one such as "exhaust Gox in legal red tape in order to blah blah" might be useful.

As for whether Karpeles lied, the State will be the judge of that and there is presumably some kind of "gotcha" meme in play - so carefully exploring "lie/no lie" here may be unproductive. His team will say he did not, the State's team will say he did, and the State will make its decision. The media will take position X and the public will take position Y. Who will do what to whom, why when and how?

Huge range of possibilities. I don't think this is about the factual issue "lie/no lie" though.

Well, everything is agenda driven. But if this was the government's agenda (as opposed to an individual agent within the DHS), there are other ways it could've been pushed forward.

This one seems very clumsy even by government standards, with lots of collateral damage (BTC prices dropped hard and fast and are not yet back to where they were, for instance) and no obvious gain for the public interest. If the issue really were that someone filled out a form incorrectly, say a banker, then the resolution would normally be a polite exchange of letters between lawyers, payment of a fee, and everyone back on the golf course by three. Instead, this seems so contrived. But... what's it about, and of course, what comes next?

A guidance is not a piece of law.

And even if it were a piece of law, it still has to pass the judicial test... I'd love to see a court grappling with the fact that there isn't a "Bitcoin" anywhere, just a freely distributed ledger.

As I said, from a legal perspective, it will be popcorn time  :D

Could have been true, but only if funds were going in and out *only* through Dwolla. It wasn't the case.

That would have been true if mtgox sold you Bitcoins directly, which wasn't the case since they aren't counterparty to the transactions (see their ToS, it's also plain common sense)

So no, gox doesn't fall in either category, for the reasons outlined.

What mtgox sells is the service of matching buyers with sellers, they do not sell, nor buy Bitcoins.

Like I said this is wrong, mtgox makes its money from selling you an intermediation service, not Bitcoins.

You can't possibly be serious. Look up the 'CIC v MACARAJA' French case.
In this particular case, MtGox got in trouble for the exact same reasons.
Apparently no lesson was learned, because they're getting in trouble in the US for the same reasons, and will eventually get in trouble in Poland, again, for the very same reasons.

What is even more naive is to believe that rules don't get bent over multi-million dollar market shares. Especially if MK had the intention to sell his US activity to coinlab. You can get away if you lie, but you need to have an exit strategy. Obviously the exit strategy failed.
What do you think this coinlab deal was about ? Yes that's right, it was good for coinlab because they'd have bought a good source of revenue, and it would have been excellent for mtgox because it would have allowed them to move out of the US market and this legal nightmare.


Whether you use a stick or a gun to hurt someone makes little difference, you're hurting someone.
Whether you intermediate through Dwolla or not doesn't change anything. EXCEPT if everything goes through Dwolla and mtgox only moves funds between Dwolla accounts as part of the trade settlement process.

The reason why they didn't accept wires directly to their US account is (I assume) that it would have raised a shitload of AML red-flags at their bank.


I don't think it is. The prediction is quite simple : if you break the law you'll eventually get in trouble.


Yup, and it's not even relevant to this cases.

Okay, it's a platform providing service of buying/selling bitcoins, still would have fallen in the category.


None of this he could have planned back in May 2011. Back then Dwolla was probably Gox's greatest payment service provider, if the same thing had happened then Gox would have been finished.

Still not. Dwolla is MtGox's financial services provider, not the other way around. The proper way would have been :
 - All US customer funds held at Dwolla,
 - Your MtGox USD balance being merely a simple display of your personal Dwolla balance
 - MtGox moving USD around *among Dwolla accounts*

If not it doesn't fall in the "simple technical provider of a licensed financial entity" category.

And again MtGox wasn't transferring funds in order to sell Bitcoins directly, but to intermediate the sale and purchase of Bitcoins. And no, the fact that the money transmission was relevant to a sale doesn't apply here, re-read what you quoted and see the little detail : "by the person who is accepting and transmitting the funds."

Is it clearer this way ?


Guess what, it could perfectly have been planned. Because for one you just need to use your brain to figure it out, and oh, I also discussed this very topic with Mark (http://www.youtube.com/watch?v=wG-Wt0dAm_U) in... wait for it... July 2011.

Any questions ?

This is a totally wrong comparison, as it's clear that authorities don't have any problem with the action that was performed (transferring customers money is legal) but with the tool that was used (wether the company was money transmitter or not). So the whole mess is actually about wether a stick or a gun was used, one of which would make it legal and the other illegal.



Of course intermediating through Dwolla might change everything. It's what money transmitters are for, to intermediate through them and don't need to get involved in certain actions by yourself. The question which they were asked in the application was “Does your business accept funds from customers and send the funds based on customers' instructions (Money Transmitter)?”. But this is exactly what Dwolla does. Mutum Sigillum LLC wasn't accepting funds from customers, it was accepting funds from Dwolla (which isn't their customer). They might used that intermediary to have someone to accept funds from customers and not need to deal with it themselves (because that would require registering as money transmitter). Of course as I wrote before, this is a thing for lawyers to argue and I'm not one of them so I can only speculate using a common sense (and I'm aware of how actual laws might be very far from common sense sometimes).

Not really relevant, it's the person who accepts and transmits the funds provides a service, for which the acceptance and transmission of funds is integral, and that's why they have to specifically exclude "money transmission service" from the service that can be provided.


Yes, it's in French.

And you are a bit over yourself, Gox could have eaten dirts a long time ago(it's quite a surprise that the authorities did wait for 2 years), have he really planned that, I could only say Mark is a bit....overoptimistic.

The example is badly chosen, but the gist is right, it does not matter whether Dwolla was involved, it would have been the same with bank wires, with whatever. They transmitted money, without being licensed and that's the problem. Whether or not Mark Karpeles lied is largely irrelevant, it's not the bank that's going after him, it's the DHS, and not for lying, for doing things that require a license without having said license. And trust me, MK knows exactly what he's doing and the risks involved.

And of course transferring money is legal, but you need a license if you're a corporation doing it for clients...


It doesn't change anything. Had MtGox gone through an american bank instead and accept wires directly it would have been the exact same. Just because the entry point is licensed doesn't make the whole thing licensed. If they wanted to do things properly they should have had Dwolla itself hold the funds. Again, whether MK lied or not is not really relevant here, if he had he answered "Yes" instead of "No" (and assuming for the sake of the argument that the bank would still have granted the account) he would have been in trouble the exact same way today.

Just because you put a proxy between yourself and the customer doesn't change anything. Look at it this way, had Dwolla been a bank it would have been the same, had Dwolla been instead multiple banks sending wires around, each one proxying the other, it would have been the same.

And after all Dwolla was accepting funds on an account in Mutum Sigillum's name. Which means that Mutum Sigillum was accepting funds.


You don't make sense. Re-read what I wrote, it'll sink in.



So what? I just explained to you what I discussed with MK, there's really nothing more to it. The rest of the discussion was about Yubikeys and other unrelated stuff.

Like I said, mtgox did in fact eat some dirt in France in 2011. Like I said for the exact same reasons.
Do your homework, google it.

To help a stupid guy understand better, can you confirm to me using my analogy: would you consider a multi-currency platform buying/selling(matching orders between different customers) apples, with the apples possible to be delivered at any time by the instruction of the customer, to be a money transmission service? If not, what's the difference?


About the only thing showed up for "CIC v MACARAJA" is the Bitcoin talk post in which MK tried to explain why they have done nothing wrong.

Yup, I agree here. It probably depends on what they've been doing with that money. If each transfer from Dwolla was sent to MtGox Japan and then each user withdrawal request was send to Dwolla from Japan, then it's probably money transmitting.

But that's also very ineffective. So they probably just kept a balance at Dwolla and/or US bank which served as a pool for transactions with US customers. So customer A deposited to Dwolla but the money didn't went any further and contributed to the balance. And when customer B wanted to withdraw, it was served from the balance. And the transfers between Mutum Sigillum LLC and MtGox were only once in a time to rebalance amount of money kept, as a whole balance available in the US. The question is wether such practice is considered as money transmitting. But even if not, the practice I described looks like some kind of financial operations, so that would probable require some license anyway.

I'm curious how it will resolve.  Unlike many people here, I like the company and I wish them the best (except for holding their domination in exchanges market, as it's healthy to have more distributed market). I really appreciate their AML/KYC efforts. Even if it was much easier for me to deposit to Bitstamp (I had my money deposited there without any hassle just 24 hours after registerning and it cost me only a fixed €1.2 regardless of amount, deposited via SEPA transfer) than to MtGox (I've been waiting in the verification queue for two weeks before I was able to send SEPA transfer), I understand that just because of this process, Bitstamp is probably more risky. On the other hand, it didn't prevent MtGox to have their US operations stopped. And their EU deposits are also handled by a local, Poland-registered LLC so if they didn't follow rules in the US, they might also cut some shortcuts in the EU and the story may repeat here.

For now, it seems that MtGox screwed their US operations at every possible point. They failed when they tried to do it alone (the Dwolla drama) and they failed when they tried to do it with an US-based partner (the CoinLab drama). Well, I am purchasing some more popcorn and going to watch what happens next.

Yes, if it worked like mtgox (escrowing the funds in the middle) it would qualify as a money transmission business.
It's not specific to Bitcoin at all. It could have been the exact same with Magic the Gathering playing cards.

Keep in mind that this issue is more specific than that, it targets only the US subsidiary, not MtGox itself.

There are other resources, mostly in French though
 - http://www.fs-reboot.eu/static/2011/09/Ordonnance-de-Référé-31-août-2011.pdf

If you find a way to read French I'll help you find the other available documents.

That time they got out of it OK because the plaintiff was the bank, not the government, and they simply ended up kicked out, not with funds seized/frozen.

And it was exactly for the same reasons, like really exactly, Macaraja argued that they were simply an "intermédiaire commercial" and not a money transmitter which the judge found to be nonsense according to the facts presented.

Thanks, I can read French a bit, but not listen.

It does seem to me Mark somehow believe what he said though, but since you know him... ::)

The story *will* repeat in Poland, and in Slovenia as a matter of fact.
It's not that they're doing anything that I'd find morally wrong, it's that they let themselves be completely vulnerable from a regulatory PoV.
It's not in anyone's interest. I wish them the best too, because the more people share the Bitcoin pie, the bigger and tastier it becomes.

Yeah, the document I linked basically says "we'll settle it on September 13th", can't seem to find the document for that though, I had it at some point, if you want I'll have a look.

Probably yes. Well, there's more and more professional people and companies getting involved with bitcoin and while many see e.g. Silicon Valley funds as bad, I'm happy they're jumping in. We may want bitcoin to be disruptive, but it has to play by the rules which adult world is running on. Either that or it will remain a niche bohemian oddity (and while it's nothing wrong with that, I'd like it to be something more).

Thanks, if its not too much trouble(a serious "if").

So based on your personal understanding of MK, it appears to you that it is possible that this is not entirely due to bad foresight?

So the way Coinlab operates is perfectly acceptable I guess? Just buying a large amount of bitcoins from a variety of sources, then sell to customers at whatever price they deem to be profitable?

Here you go, all the documents I have related to this case :
https://dl.dropboxusercontent.com/u/52452135/MACARAJA_DOCS.zip

You'll want to look at the last one if you want the conclusions.

What do you mean by your last question?

That isn't a MSB, it is a company that sells something that falls in the default category of goods/services.
To be specific, what they sell is the service of digitally signing chunks of data that have some mutually-agreed-upon properties.

Technically the account of an intermediary company were seized not that of mtgox. You are analyzing the wrong thing.

You just decreased the signal/noise ratio.
I'm analyzing the exact right thing.

I think the case is more about skirting past international wire clearing and using mutum sigilum as a domestic proxy to keep the fees at the domestic level by accounting methods in essence  being their own international clearing house rather than the automated clearing house(ach). they  wanted their cut. this is how fees were so cheap w/out that international fee of 50 dollars otherwise small amounts less 500 to 1000 would be unprofitable to even send by users of btc. was probably wiring large sums monthly( 12 times a year rather than each transaction) from profits to keep the domestic account balanced right and mitigating fees at every transaction...seems like a good accounting method but bad business decision by law...fine probably

If they are providing transmission or store of value, they need to register.  At least that is the case in California.  FinCen gives you 180 days...

MtGox does way more that just provide a platform for trading Bitcoins. They are also in the money transmission business according to their TOS. If I can copy and paste these terms so can an officer at the US DHS. https://mtgox.com/terms_of_service (https://mtgox.com/terms_of_service).


I will leave it to reader to judge if Karpeles did lie after reading the above.

What's the currency transfer they did? Coupon code redemption? I never remember a time when I can transfer my fiats on Gox to another user in any other way.

There are the coupons, but you also transfer fiat when you exchange.

He refers to the TOS, which talks specifically about "currency transfer" besides "bitcoin transfer", if it's only done through bitcoin then I think it quite a bit redundant, and with bitcoin the so-called "same-platform" restriction is useless.

And what's with the 2.5% commission? I can never seem to find such a rate.(yes I routinely "transfer" between my USD/EUR/GBP accounts)

I guess it's just the coupons then.

Yes, but still the 2.5% commission part is not clear, I have never been able to move USD to EUR or vice versa with coupon, to my best knowledge it's not allowed, maybe it's deprecated long ago and they are just too lazy to update the TOS.

IANAL  It is the coupons, both BTC and USD. It can also happen if the exchange allows the withdrawal of BTC to a Bitcoin address not under the account holder's ownership and control.  The transfer of funds that are incidental to an exchange of USD for BTC or vice versa do not make the exhange a MSB. The Fincen guidance in clear on that.

Now when it comes to the seizure I suspect a that a good lawyer may be able to quash the warrant on the grounds that no evidence of a MSB was actually provided to the judge.  To put it bluntly the DHS informant missed a crucial step namely the transfer of USD via a MTGox code or BTC via MtGox code or by a transfer to a Bitcoin address not under the control of the account holder to a third party.

I think the 2.50% cross-currency trading fee is pretty clear if you read the FAQ: https://support.mtgox.com/entries/20800336-Multi-Currency-Trading

You don't convert your money into another currency. You just place bids in whatever currency you prefer/have and all multi-currency bids go to one order book (and this is good as it allows matching your offer with the globally best offer, not only with offers in your currency - example below). The 2.50% fee is automatically added to the order book prices if a trade would be between two currencies.

For example. You want to buy 1 BTC with your EUR and let's assume for math simplicity that 1 EUR = 1.30 USD. There are two ask offers: 1) someone offering 1 BTC at 130 USD; 2) someone offering 1 BTC at 105 EUR. If there were separate order books for separate currencies, you would need to buy at 105 EUR. But what actually happens at MtGox is that 1) offer is converted to EUR, so 130 USD price becomes 130/1.30+2.50% = 102.50 EUR (already including the 2.50% fee). This is your best match so you buy your 1 BTC for 102.50 EUR. 100 EUR of that is converted to 130 USD and goes to the seller. 2.50 EUR goes to MtGox as the 2.50% fee. This is why you don't see that fee as a separate operation - it's simply included in the EUR-denominated price when matching offers. If there were another ask order available: 3) someone offering 1 BTC at 100 EUR, this would be your best match and you would buy at 100 EUR without currency conversion fee as there would be no cross-currency trading.