Bitcoin Forum

Now to withdraw bitcoins from Gox and Bitstamp you have to be verified.
https://www.bitstamp.net/article/bitstamp-new-verification-requirements/
It seems that nobody asked them to introduce these changes. As they say "Bitstamp is proactive about compliance".
Is being proactive with state's requirements a good idea?

Sure, do you prefer accounts frozen like MtGox?

It's a good idea, since the state can squash any exchange it wishes if it suspects it of supporting "the bad guys"--usually terrorists or criminals of some sort.  You do not survive by pushing against the state; you survive through adapting.  That's the entire point of the state, I think.

KYC is so important to any business who operates such as BitStamp

Totally for what they have done.

As a business in the space, I feel it is essential to be compliant if you're in the US, or even if you are doing business with US citizens. As a consumer, I personally would not do business that did not take compliances seriously because then i would consider any data I gave to them to be compromised.

I have to agree with him.
You are free to not verify your account, and stop using bitstamp, but if you want a sustainable exchanger, it has to be legal and follow rules.

Bitcoin exchanges exchange bitcoins for government-issued money. It makes perfect sense to accept and play by the rules of those governments. If anything there bothers you, take it up to your government, or simply quit using their money and remain within Bitcoin ecosystem.

It's good that they are doing some customer identification, but, from a US legal perspective, that doesn't cut it.  If Bitstamp is a foreign MSB servicing US customers, then it is subject to the so-called Foreign MSB Rule, requiring, at minimum, FinCEN registration.  It also must register in those states that have adopted extraterritorial jurisdiction, like NY.

Lame metaphor: It's good that Bitstamp knows how to drive and isn't getting into any accidents.  But if it ever gets pulled over, that won't matter if it doesn't have a drivers' license.

Regarding Fincen rules, they would still have to have some sort of US presence.  Does bitstamp even have a bank account in the US?

By 'Foreign MSB Rule' I assume you mean the 2011 amendments to 31 CFR 1010.100(ff), which replaced


with


However, to be considered a 'financial institution' under 31 CFR 1010.100(t), they would have to have an "agent, agency, branch, or office within the United States".

The state law issues are more messy.  The scienter requirement of 18 USC § 1960 only applies to knowingly operating a money transmitting business and not whether it was required to be licensed under state law.

If a New York resident wires money to Bitstamp, is Bitstamp really operating a money transmitting business in New York?  They weren't the ones who sent the money from NY.

What a mess.

I agree that it is a mess, but I'm not sure I agree with your point about (t).  Why do you say the definition of "financial institution" is relevant to the foreign MSB analysis? Neither the definition of "money transmitter" nor "money services business" rely on the term "financial institution".

FinCEN doesn't agree either: http://www.fincen.gov/statutes_regs/guidance/html/FIN-2012-A001.html

Ultimately, I think this extraterritorial exercise of jurisdiction is probably legally justified.  Servicing a customer in a particular jurisdiction typically subjects you to that jurisdiction's ...jurisdiction for claims arising out of that transaction.  That is, it probably satisfies constitutional "minimum contacts" and "traditional notions of fair play and substantial justice."  At least for the civil claims, I think it would survive judicial scrutiny.

What do you think?

PROACTIVE

Be proactive as you can possibly be, and it'll never be enough for the totalitarian state.

Because many of the rules apply to 'financial institutions' rather than MSBs specifically, and the definition of financial institution in (t) includes a money services business as defined in paragraph (ff).



I think you're probably right.  Whether such a judgement would be enforceable is another matter.

Bitstamp's new verification requirements are mostly irrelevant to this, except insofar as having a verified address would allow them to exclude customers in certain problematic jurisdictions.

If a state prosecutor goes after bitstamp for not having a state license or surety bond, and Bitstamp knew they had customers in that state, it's not really going to matter how carefully they checked those names and addresses.

I strongly believe that they should be proactive, because Gox really wasn't and had a lot of money seized because of it.

You can't be proactive enough, we have already seen the consequenses with MTGox haven't we?

Regardless of the Federal Money Service Business determination or the  US State Money Transmitter regulations and jurisdiction, the US Department of Treasury has had great success policing foreign financial institutions by issuing 311 Actions.

"Section 311 of the USA PATRIOT Act provides the Secretary with a range of options that can be adapted to target specific money laundering and terrorist financing risks most effectively. These options provide the Treasury Department with a powerful and flexible regulatory tool to take actions to protect the U.S. financial system from specific threats."

The US Treasury can essentially brand a financial institution (bank or non-bank) with money laundering or financing terrorist activity claims then all of the targeted institutions partners could potentially freeze their assets and cut off their banking relationship to avoid the reputation hit.

Juan Zarate, a former Assistant Secretary of the Treasury, discusses the effectiveness of this effort in his recent book "Treasury Wars."
http://www.amazon.com/Treasurys-War-Unleashing-Financial-Warfare/dp/1610391152.

The point being that the US has ways of reaching beyond its boarders to "protect the U.S. financial system from specific threats."

Not only it is great that Bitcoin exchanges including Bitsamp are being pro-active about compliance but it will be absolutely necessary if these businesses and this industry is to continue to grow and thrive.

So far bitstamp has been a much better experience than gox ever was.

Personally I have no problem with governmental regulation at the exchanger level, because its super easy to launder the Bitcoins after or before exchanging in or out. USD can already be easily tracked, so it makes sense to make the exchange process as clean as possible.

Can you provide a hypothetical example explaning how bitcoins can be laundered? To get started, let's assume I have been milking my neighbour's cows and selling the raw milk for bitcoins, falsely advertising it as mother's milk. There are several more-or-less illegal aspects of my business. I need to launder those coins. Please enlighten me. Let your creativity run wild. The end goal is to have the coins laundered, meaning I can convincingly demonstrate that my coins in fact originate from some sort of legal business.

1. You open a webstore where you sell spells
2. Mix the coins
3. You buy yourself a lot of spells
4. ...
5. Profit!

1) Deposit your coins into blockchain.to / any other offchain web-wallet with a non-retarded mixing algy.
2) Withdraw your coins from that web-wallet to Coinbase.
3) Exchange your coins for USD.
4) Win at life (nonotreally).

Spells? Like in Harry Poter?

Yes, love spells, stop smoking spells, protection spells...

No, actually, we are not free to do that.  Bitstamp never emailed me about this policy (even though they've sent me dozens of emails in the past to confirm trades/withdrawals).

Now they've basically stolen my money and won't give it back unless I send enough high-resolution documentation to steal my identity to some dude in Slovenia.

I've offered to let them wire the funds to my US-based bank, which has full AML documentation for me on file and who will confirm that I am the signatory for the account.

I want to stop using bitstamp and get my coins back.  They're refusing to close my account.  Scam scam scam.

Indeed, customers should be made aware of this.
And i dont mean on some page, which i have never seen before.

They will keep asking for more and more, and it will impede the rest of Bitcoin. We need more dayjobs in privacy not tracking.