Bitcoin Forum

While a handful of posters would prefer an option for 'ban Viceroy from the forums' I think my questions are important and I am guessing there are many who had no idea why these laws exist at all or who they are designed to protect.  Let me tell you a story.

In the late 1920's when liquor was illegal but pot was not, speakeasy's were all the rage.  In these crazy times of prohibition the underground liquor market thrived.  These were good times (I've read).  After years of having no regulation snake oil salesmen and other charlatans discovered Charles Ponzi.  Ponzi had been jailed in the beginning of the decade but the scheme was just starting to creep into the modern American vernacular.  

Throughout the twenties thousands of men, some with no ill intent, crafted investment schemes by which investors would become 'millionaires' overnight.  (For those who watch you'll recognize in Downton Abbey's third season they speak of the magical Mr Ponzi and his 'scheme' that could keep their castle afloat).  And you know what happened next?

In late 1929 the American stock market crashed and sent the country into the Great Depression, an event which would forever change the way we deal with poverty and investment and social services.

Prior to the 1930's there were no real 'securities' laws and the schemers could offer 'stocks' and 'bonds' to non-qualified investors.  After the crash the regulators stepped in to create a series of laws that would protect individuals from unscrupulous investments schemes.  The regulators operate under a set of rules created in 1933 which completely disallow any non-licensed securities 'broker' to sell or offer to sell any non-registered investment.

So what?

Well the impact is huge.  As a small business-person you are NOT ALLOWED to ask anyone in public for funding.  It's against the law.  I cannot say to anyone in this or any other forum something like: "hey I want to borrow bitcoins from you and I'll pay you back with interest".  To do that is ILLEGAL.  You may think it's not important, but this is exactly what the Securities and Exchange Commission regulates and believe me you do not want to cross them.  Beyond federal regulation we have state regulation.  

The short version is this:

Anyone starting or involved in a commercial enterprise that exchanges bitcoin for money or money for bitcoin is regulated under money transmitter requirements which the department of treasury regulates with their FINCEN unit who came out with guidance last month just before they seized Mt Gox's money as it entered the USA.

Anyone starting or involved in a a commercial enterprise that lends bitcoin to AMERICANS or borrows from them is regulated under securities laws at the state and federal level.  

Anyone who borrowed bitcoin to start a business has probably broken state and federal law as they likely did not create a PPM and only provide it to vetted 'accredited' investors.  

If you or anyone you know has done any of these things they SERIOUSLY NEED to talk to a securities lawyer IMMEDIATELY.  This is not a joke.

MT Gox was trying to (and I'm sure they still are) to become a money transmitter in every state and has spent more than $25,000,000 doing so.  Unfortunately, from my layman position, they appear to have broken the law as they traded in "commodities" and/or "items of monetary value" PRIOR to becoming licensed as a money transmitter in each state.

The American Public has a right to know and as a provider of service you have a duty to provide information related to this.  One simple option is to cut off the USA and if you are not an American you should PROBABLY do this RIGHT NOW.  Else you will be the next to have your funds seized.  Do not think for a second that the Mt Gox issue has ended, it has only just begun.  Liberty Reserve is a great example of what happens to foreigners who deal in America without the appropriate licenses.  

At this time I am unaware of any bitcoin "exchanges" or "lenders" who meet state requirements with the exception of Bitinstant who appears to have filed as a money transmitter in some 30 states and Mt Gox's claim that they are attempting to be fully compliant.  

I have no reason to believe that PERSONAL trading of bitcoin is in ANY way regulated.  Businesses, however, are CERTAINLY regulated if they exchange or buy and sell bitcoin.  A PERSON investing bitcoin into another entity is definitely regulated and has been for 80 years.  


Further analysis:

Source: https://bitcoinfoundation.org/blog/?p=152

      

What if the company is not in the US jurisdiction, but american citizens wire their money overseas??

If you are offering any of these services to Americans I think you must be licensed.  The issue here is the American "customer" not the location of the business.  In fact I think this is exactly what happened to Gox.  They are in Japan.  They tried to wire money to American's through Dwolla.  The money was seized during transit.

Can they get you if you are not licensed?  It depends where you are and if the government of your county cooperates with the USA.  It's against the law for the banks to handle the transactions, which is why the American Wells Fargo closed Mt Gox's account and is now chirping like a caged bird to the regulators.

I can see that having an active account in US soil is a liability, in this case.

But what can prevent an american citizen from investing in a BVI company? If there is no account or branches in the US?

Any American can invest in any publicly offered security.  The process is very complex and it can easily cost millions of dollars to register a security.  Any foreign bank allowing Americans to invest in them is subject these laws.

But is bitcoin a security?
It doesnt look like a security. It has no company behind. Its nothing but a virtual item. What does bitcoin represent?

Interesting post.  Can you provide a reference to a SEC document stating that transfer of virtual currencies between a bond issuer and bond buyers is regulated?  I understand the concept of exchanging virtual currency for USD and needing to register as a Money Transmitter, and that seems distinctly different from a bond issuer paying dividends in the form of btc.

Yes, because it is meets the definition of a commodity, and so writing contracts around it causes it to be regulated.  Commodities include things like wheat and gold bars and bitcoin meets the same definition.  I do not think anybody considers bitcoin "money" at this time but it is clearly a commodity AND a possible way to "transfer value".    http://www.sec.gov/about/laws/sa33.pdf

Value transfer systems are highly regulated as described here:
https://bitcointalk.org/index.php?topic=200443.0

And here:
http://cryptome.org/2012/05/fbi-bitcoin.pdf

A very valid question with some seemingly-extreme options but it needs to be asked.

My vote would be no surprise as I've voiced my opinion on the matter before.

You have a good idea and a big heart but your premise is flawed.

This used to be true but is no longer the case since the 2012 Jobs Act.  Even a pocket IPO site like GLBSE would have been fine except that the SEC has refused to issue guidance on the matter, despite being ordered by congress to do so. However if you are only raising money for your business you are now allowed to do so as long as it complies with the 2012 JOBS act.

I'm not trying to be contrarian here, but according to the text of the warrant, MtGox's Wells Fargo account was seized because they declared under penalty of law that the account they were opening was not to be used for the transference of money, that they were not a money service business and that they would not be engaging in the act of international money transfer.  Regardless of if they hard registered with FinCen as an MSB or not, they lied and got caught.
You are correct that if you trade money for money or money like objects you need to be registered.  In fact there is no penalty for not being an MSB and yet being registered.  However needing to be registered and not doing it is a crime under US Law.  If you accept money for money and there is ANY chance that ANY of your customers is from the USA then you need to register with FinCen.  If they are from Canada you need to register there.  In fact you need to register everywhere, globally worldwide unless you are a chartered bank or financial institution.  If you are chartered then you only need to register in places where YOU have bank accounts.

Agreed to a point.  In this case it's where the money is being sourced not where it's going to.  If you are an American company doing lending you need to register as a lender and comply with all local, state & federal laws.  However if you are from a jurisdiction where there is no need to register, then there is no need to register just to grant loans to Americans.  Be very careful conflating repayment of a loan with acceptance of a deposit.

Now on the other hand you as a foreign entity risk losing the ability to collect on your loan in the case of default if you are not recognized as a lender by the jurisdiction of the customer.  You may also lose recourse.  However you have not broken any laws, you merely assumed risk and lost.
That is a far cry from accepting a deposit for a customer and being in a position of trust and safekeeping.  This is MUCH more tightly regulated.

There is a significant difference between borrowing bitcoin and accepting bitcoin as currency in an exchange of stock.
Borrowing bitcoin would be governed by lending laws and can easily be secured by personal credit or some collateral.  In this case the lender bares the risk of the loan going bad and being defaulted upon.  However they should be recieving an interest payment high enough to cover their own assessment of the risk.
When you are in a position to lend and you lend, you bear responsibility for compliance, not the borrower.  The borrower bears responsibility for repayment.

In the second case where bitcoin is being traded for stock, the same laws apply as any other stock offering.  If it is small enough to fall under the 2012 JOBS act then no harm, no foul, just keep up on your paperwork.  If it is big enough to fall outside the scope of the jobs act then you run a risk, but only if an investor complains.  In this case you as an executive bear personal risk, the corporate veil will not protect you.  It can and will be rolled back in an effort to recoup investor money should your enterprise not meet the expectations of your investors.  However once the ship has sailed, the SEC will not take action generally to shutter you unless you are engaging in illegal activity or activities that are regulated and you are failing to meet regulatory compliance requirements.  Most often they will just fine you for an illegal offering and many times a simple "I'm sorry, and I promise never to do it again" will actually suffice.

The SEC probably isn't what you need to worry about here either.  You also need to comply with securities laws in the state in which you engage in business.  I recommend if you are in Arizona to shut down and re-open in Wyoming.  The Arizona Securities Commission does not care that you have properly registered your offering with the SEC.  If you are an AZ corp and you offer shares of your corp publicly without ALSO registering with the AZ authories they will spank you and take away your birthday.  This is true even if none of your investors are in AZ.  Take my advice on that one.  I personally lost $250,000 a couple years ago just for the solicitation even though I had complied with SEC laws only because my butt happened to be sitting in a chair in Arizona when we made the offering.  This despite the fact that the offering failed to attract 1 cent in outside investment and I was held personally liable (I did use a registered securities lawyer for this too, so don't just trust that advice, read the law and know it).  
That was a crappy year for me.  They almost took away Christmas for my kids! :(

One other protip.  Make sure you are actually a corp, your LLC is not allowed to issue shares.

They don't need to do this.  They only need to register in the state they are incorporated in.  Then they need to be honest when they fill out applications.  This is what got them, laziness and dishonesty.

You would be cutting off your nose to spite your face.  AML regulations are fairly standardized and are required to participate in the money ecosystem.  Liberty Reserve's screw up was in not bothering to participate in the AML system by becoming registered in ANY jurisdiction to do what they were doing.  Furthermore to the best of my knowledge they have no idea who owned what accounts.  As a deposit taking or money transmitting institution this is illegal in all jurisdictions.  As a lender it's just stupid.
At the time MtGox opened their account they were engaged in money transmission and they were aware of it.  They do have an affirmative defense in that money doesn't enter or leave the systems unless they know the parties involved.  They also have an affirmative defense in that the account itself was not being used for money transmission (to the best of my knowledge) and that FinCen had not yet issued guidance on the matter.

This will end up with a stipulation order demanding they do not do it again, and probably a forfeiture of the funds that have been seized.
If they fight it, it will take several years to work out.  However I'm sure they have a lawyer working on it right now trying to hammer out a settlement.

Bitinstant has to file because they accept deposits in those states.  These are walk in cash deposits.
Unless MtGox adopts the same marked deposit scheme used by BitInstant they won't have to worry about it.
There are services you can use now to accept marked deposits.  These services didn't exist when bitinstant started and last time I tried bitinstant it appeared that they had moved to one or more of these services.  ZipZap is an example.
If you take money from people the law says you need to know who those people are.

Personal trading of bitcoin is as regulated as personal trading of cash.  There is no difference to the government.  If you accept it as a method of payment for goods and services you need to comply with all the laws of your jurisdiction in regards to those goods and services as though they were cash transactions.  This means IRS forms once it reaches a certain threshold.  For instance buying a $10,000 automobile with bitcoin would require the same paperwork as buying a $10,000 automobile with a suitcase full of cash.

A person investing cash in anything is as regulated as a person investing cash into anything.
If I walk into a casino and hand them a suitcase full of cash in exchange for a stack of chips, the same laws apply as if I walk in and hand them a bitcoin QR code.
When I convert those chips back to US Dollars, the same paperwork will need to be filled out and filed.

Same with a bank, same with a western union, same with an investment company, same with a forex.
Cash is cash and bitcoin and all other crypto currencies have now been declared cash by the US & Canada.  It's exactly what we've been asking for because it means that governments are saying that bitcoin is not some exotic investment instrument that needs more regulation.  It is as regulated as cash, no more, no less.  You need to comply with cash laws, not securities law (unless you are accepting bitcoin for shares instead of US Dollars).

It is a good idea to assume that all other countries will eventually follow suit.  
So comply with the laws of where you are at and understand that accepting bitcoin is largely held as being the same as standing where the person is at and taking cash from them.

Not it is not a security.  That was sorta the point of FinCen saying it was cash.
Also Gold & Silver are considered a legal currency now in several states and is gaining traction every day.
They're all regulated as cash and cash like instruments.

You can't do that.  The law was signed by Obabma it's true, but there are no rules yet that allow ANYBODY to actually crowdsource funding.  The SEC has dragged their feet on the matter and the states have said nothing. Like most securities laws there are two completely different sets of rules (fed and state) and there is no state who allows crowdsourced funding... even the fed does not allow it *yet*.




That issue is up for debate at all levels.  In my home state it is a commodity, per the "unofficial" position of the securities division.  If somebody would pay to get the "official" position in any state I'm highly confident many would say the same.  

Unofficial interpretation from an actual regulator:

Federal law trumps state law in all cases of interstate commerce including international commerce.
Still cash is in fact a commodity, it does meet the definition.  Cash is a special case of commodity that is subject to certain specific regulations that other commodities aren't. Cash is well defined and well understood and only subject to the regulations of cash and cash like instruments.
Bitcoin has been declared as "cash" which itself is a specific case of commodity and therefore only the regulations of cash properly apply to bitcoin.

When you swap USD for BTC the same laws apply as when you swap for USD for CAD.  That is to say you need to know the source of funds was a legitimate business activity.

When you swap BTC for USD the above applies as well.

When you accept a deposit of BTC you need to follow the same laws that you would accepting a deposit of CAD or USD.

If you accept BTC from people and allow them to withdraw or send then you need to comply with the same laws you would as either a money transmitter or a bank.

If you lend BTC it is the same as lending USD and you should comply with the same laws as you would as a lender, however here you bear the risk of loss without the chance to recoup if you fail to comply.  It is not a criminal act in and of itself.

This discussion could be extended to the peculiarities of every country though.  The fact is you need to know your customer so you can comply with your own local laws and potentially theirs.

The rules for an individual business to do it are in place at the federal level.  Utah has a crowd funding law in place.  Last I checked Colorado was looking to do it too and Wyoming doesn't care as long as you register your shares, pay your taxes and no one complains.

What is not in place yet are the rules regarding companies that do this sort of thing on behalf of other companies.  Something like kickstarter for companies cannot yet come into existence because the SEC is in the pocket of big wallstreet firms that make their money raping IPOs.

Still you as an individual small business can do this on your own or with the help of a lawyer.  Just make sure to read the law and comply fully with it.  There are a lot of paperwork obligations and a lot of hoops to jump through, but it's still less than it used to be.
And it is in effect now.

Not in the Case of Colorado & Washington and their overturning Federal marijuana prohibition last year...  if the Fed won't back down this will become new caselaw when the supreme court gets around to listening to it.  The Fed argues they have jurisdiction over marijuana because of interstate commerce.  This is the law of the land from Ashcroft Vs. Raich.


I disagree sir, else you would see people doing it.  We are all awaiting the SEC to make it's rules.  There are other types of funding like SCOR which is done within the boundaries of a state but you cannot crowd fund in the USA yet because the SEC won't let you.

"Unlike some of the other provisions of the JOBS Act, before crowdfunding is lawful the SEC must proposed and finalize additional rules. Despite a December 31, 2012 deadline, no rules have been proposed."

http://www.forbes.com/sites/deborahljacobs/2013/04/17/the-trouble-with-crowdfunding/

Are you suggesting that most publicly traded bitcoin-centric companies are likely non-compliant could be easy SEC targets?

Yes that is one assertion and that assertion is actually valid if the company is based in the USA.

Yikes.


Thanks for the heads up.

Can anyone here explain to me the compliance aspects of the 2012 JOBs act? I realize they were requiring the SEC to write laws based on microfinance/microfunding however they obviously haven't done so.

This is an aspect I am VERY interested in because it is why I am wanting to seek BTC investment for my company. (My premise was that since BTCT/BF were "Virtual" exchanges, that it would be an out for me).

So then private companies need not worry?  I can accept bitcoins for my restaurant let's say, and currently am not in violation of any laws, correct?

what mama dont know wont hurt her..

Viceroy, thanks for the invite to this thread.  It seems like Nova has it nailed down here.

Excellent.  Glad you came, thanks!

I didnt read the whole thing but It really doesn't matter.... the govenment isnt going to come after individuals selling and trading coins and if they do it is because their is serious money changing hands..as long as the government gets paid they are good, just pay your taxes. These guidelines are for institutions doing millions of dollars of revenue... Do you really think the government is gonna track you down and throw you in jail for borrowing or trading or selling coins between a bunch of nerds online.. look just buy and sell and use coins get people using them.. grow it big enough and it cant be stopped...dont worry about the government!
 

So if the government doesn't explicitly condone the behavior through legislation, then it is assumed to be illegal? Does this sound like the ideology of a free country?


It is data and code. Nothing more.





There are already rules in place to prevent the selling of fake securities. It is called "fraud".

I can give a rats ^%#^& about anything coming from an administration that traffics firearms to drug dealers and slaps the hands of major banks (HSBC) laundering money for the same thing.

Luckily this law was changed April 5th.

Other countries also have securities laws which may be as complicated as the American laws and also apply internationally. So is it not better to make a subsection about security legislation in general?

Damn straight

I dont get it... so its illegal for a private citizen to give a loan to a business?

Lmao I have NEVER heard of anyone getting caught for that.

It's not the individual investor who usually gets caught, it's the guy pitching.  It is illegal to ask the public for funding with an unregistered offering.  This law is designed to protect the individual from unscrupulous con men.

We want to run a BTC mine.

- mining without conversion to USD does not require FinCEN registration (right?)
- we will pay the revenues from mining to people just like a dividend ... does this require registration as MSB ? (this would mean that all companies that pay out dividends must register as MSB).

As long as you pay your taxes, yes. 

I would also avoid using one of the unlicensed exchanges to cash back into USD because of their non-compliance with various laws and regulations.

Can you name such exchanges?  Are there ANY exchanges that are licensed or is there any known legal way to convert btc to usd?  A miner can't even sell btc to his best friend for "cash" can he?

I would think you'd have no problems selling things like amazon gift cards or home depot gift cards but cash in the mail seems sketchy, right? and wires?

Quite the opposite its created to steal our money and give it to the con men in office.

You can with coinbase

edit: Coinbase is registered as an MSB

My questions:
As a user do we have anything to worry about?
As a miner do we have anything to worry about?

Things that I do with bitcoin:
buy bitcoin, buy stuff with bitcoin, mine bitcoin
I purchased 10 "shares" of a group buy for KnC miners, they went "public" with an IPO on bitfunder, I was issued 1000 shares of the group buy.

Are any of these activities illegal?

btceic you should look through this section of the forums.  There is great advice in this "legal" section that answers the kind of question you are asking.  Just click here:

https://bitcointalk.org/index.php?board=74.0

If you can't find what you need you may want to start a new thread. 

No, not really.  Commodities are not securities.

The regulatory authority is different as well, securities are SEC regulated, commodities (futures contracts) are regulated by CFTC.
Commodities are not regulated in this way, just the contracts on them.
You can buy wheat, you can buy gold, you can buy the actual stuff.  The SEC and CFTC care about the paper, not so much the actual stuff unless it fits the structure of a futures contract.

Absolutely, because it may be a commodity you need to be careful writing contracts around it.  Offering to pay someone 1.1 btc for a 1 btc loan at some future date might be a problem in many states.

CFTC and SEC are federal US, not state.
Federal law is mostly silent on small lending.
An exception being the Dodd-Frank Wall Street Reform and Consumer Protect Act of 2010 which created the Consumer Financial Protection Bureau, but there's not much to it, mostly it is focused on helping consumers understand credit terms.
http://www.consumerfinance.gov/strategic-plan/#overview

State lending rules are a different matter entirely but generally if you are incorporated in a state, you get the rules of that state nationally.  Lending a commodity is generally not an issue, unless you are a large bank expecting to be governed by BASEL III and have reserve requirements.

This is inaccurate.  Privately negotiated lending does not have to be registered per se in the US, even if the initial solicitation is public, so long as it doesn't otherwise qualify as a security under the '33 and '34 acts.  The catch-all in the '33 acts definition of "security," the investment contract, is not broad enough to cover private non-standardized lending (as broad as it is).

There are exceptions to each of the ANYONE blanket statements made in the OP.
Some but not all business transactions fall within these regulatory governance parameters.
Most private business transactions are just that.

Well yes, there are always exceptions and OPs statement would have been overly-broad and inaccurate even if he had said it exclusively about equity funding.  That said, what I was trying to point out was that when it comes to raising capital, equity financing by default creates a security, while debt financing does not (it can, it just doesn't do it by default).  Registration requirements for offerings and sales apply to all securities unless explicitly exempted, so it's probably fair to say "As a small business-person you are not allowed to ask anyone in public for equity funding" even though there are some very unique types of equity funding that don't create securities and there are some equity securities that are explicitly exempt, because as a general rule that's correct.  With debt financing, registration requirements are the exception rather than the rule, and so saying it about borrowing with interest is flat wrong, it's nether absolutely true nor even generally true, only sometimes true. 

It's particularly inaccurate now, with the beginning of the JOBS Act implementation, ya? 

Even so, we need a USA subsection.  How 'bout it admins?

The JOBS Act has/will provide some avenues, but for the most part they [will] either: a) provide avenues for accredited investors or b) still require registration, but reduce regulatory burdens on small issuances. 

A law ghetto?

Law is a matter of geography everywhere.  Why exacerbate US exceptionalism?

We can't help it if we're exceptional! 

But ultimately I think I agree with you, though for different reasons.  The securities laws of many jurisdictions are based on US law anyway, the world is our subsection, suck it nerds.

And the first stock exchanges were in Europe, so we all learn from each other.  If you need to feel separate, stick a [USA] in your thread title or something distinctive.
Hiding all the USA stuff in its own little sub forum doesn't improve matters.

FWIW I voted for:   Warn exchangers not to deal with Americans

If you're going to do that, will you also warn them not to deal with essentially every other country in the world?  With the exception of a few (China, the UAE, Brazil, and Nigeria come to mind), nearly every other country's securities laws are modeled significantly after the US system.

Edit:  Similarly, AML compliance (while less likely to track the US scheme) is also detailed and complex in nearly every country, the impact of FATF and related FSABs worldwide on national policies has been far reaching.  Singling out the US as if it's laws are somehow uniquely onerous is just idiotic and demonstrates complete ignorance about the international environment for investment and AML compliance regulation. 

You are absolutely correct.  I should have specified "warn US Based exchanges not to deal with Americans".

I still don't understand the distinction.  Whether you're a US based exchange selling to Panamanians, a Panama based exchange selling to Americans, a US based exchange selling to Americans, or a Panamanian based exchange selling to Panamanians, the rules are essentially the same.  It may determine whether the SEC or the SMV is more or less likely to be the relevant enforcer, and you might make a practical judgment there about who you'd rather go up against (The SMV tends to be more relaxed, but they also can be pressured more politically if you've pissed off the wrong person, and they have greater investigative powers as they are a unified financial regulator.  The SEC has substantially greater resources, but they're also usually more responsive and organizationally easier to deal with, they're more independent politically, but also more reliant on inter-agency cooperation), but from the neutral standpoint of this board, neither is preferable to the other.

Even if we warn exchangers not to deal with Americans, they still will deal with them

There might be a more misguided segregation request in this forum somewhere, but I haven't seen it.