Bitcoin Forum

FinCEN Brings KYC Requirements To Bitcoin?

The U.S. Department of the Treasury (“FinCEN”) issued a Final Rule making non-bank providers of pre-paid financial instruments subject to comprehensive Bank Secrecy Act (BSA) regulations similar to depository institutions.

The regulations affecting “stored value” now use the term “prepaid access” which is more broad and technology-neutral.  Though FinCEN has not formally asserted that Bitcoin would fall under prepaid access regulations, earlier contact with the agency referred to bitcoins as a form of stored-value.  If correct, then Bitcoin sales to U.S. customers would likely be a regulated activity per this Final Rule.

The new regulations become effective on September 27, 2011, 60 days after its July 29, 2011 date of publication in the Federal Register.

To comply with the Final Rule, providers of prepaid access must register with FinCEN.  Because bitcoins are decentralized, it is uncertain who a provider would be.  Might every exchanger be considered a provider, for instance?

Also under the Final Rule, sellers of prepaid access must collect personal information from customers, maintain transaction records, file suspicious activity reports and comply with other requirements of money service businesses (MSB).  Last month FinCEN issued a ruling that was intended to clarify the definition of an MSB and includes the possibility that even businesses outside the U.S. conducting money transfer over the Internet could still be classified as U.S. MSBs.  Additionally, the definition no longer requires that an MSB be a business — any individual who receives funds in exchange for a stored value might be considered an MSB.

Though the ruling has exemptions to not impact the typical prepaid debit card found at grocery stores, for example, the exemptions would likely not apply to Bitcoin.  These exemptions give a pass to providers and sellers when the following conditions are met:

    The funds cannot be transmitted internationally.
    Funds cannot be transferred from one user to another.
    No additional funds can be loaded except from a depository source (e.g., from a bank).

There is no way to limit where bitcoins can be spent and the value is easily transferred from one person to another so Bitcoin will not likely be considered exempt from the AML regulations.

Following these regulations will be a serious burden to sellers. For instance, compliance requirements as specified in an article by Perkins Coie LLP include:

    Identifying information includes the customer’s name, date of birth, address and identification number. Sellers must retain this information for five years from the date of sale.

    The records must be easily accessible and retrievable upon request from FinCEN, law enforcement or judicial order.

The bigger impact of following AML may not necessarily be the cost of compliance but instead will be the likely result — to effectively de-anonymize Bitcoin.

Ironically, these new regulations may drive even faster Bitcoin adoption.  These restrictions may cause many retailers to discontinue offering the prepaid cards that can be used for purchases globally and at ATMs worldwide.  Since global redemption of stored value is a service that is legal to offer (assuming AML compliance, when required, is followed), is in huge demand (e.g., for travel) and is something that Bitcoin does well — using digital currency might become the more popular alternative.

A more immediate consequence will likely be the employment of lawyers to specifically consider how this Final Rule affects Bitcoin.

So to pay with bitcoins I have to provide my name, date of birth, address and ID number? Paypal suddenly became more anonymous than bitcoin...

So to pay with bitcoins I have to provide my name, date of birth, address and ID number? Paypal suddenly became more anonymous than bitcoin...

Prepaid access. Access to funds or the value of funds that have been paid in advance and can be retrieved or transferred at some point in the future through an electronic device or vehicle, such as a card, code, electronic serial number, mobile identification number, or personal identification number.

Bitcoins are not, in any sense, "paid in advance'.

they consider phone cards (e.g., 120 minutes of long distance) and transit cards (e.g., good for N day passes) as stored value.  they specifcally specify "electronic serial number" as one of the "card" types.

However, such regulation could be good for bitcoin.  It could help with security and curb hacking and scamming in the community. 

According to this new ruling, companies, organizations as well as individuals must register in order to legally transact with any parties, providing quite privacy invasive contact information on each individual transacted with as well as keep those records for 5 years.

What do you think would be a good way to insure that this ruling does not apply to Bitcoin?

The use of bitcoin is an exercise of free speech and as such is protected by the 1st amendment to the US constitution.  Any law that would interfere with the use of bitcoin is in direct contradiction to this amendment.

Forgive me for getting a little off topic, but it is because of a preponderance of regulations such as this that the U.S. economy will remain in a recession for the foreseeable future.  Who wants to bother starting a business (or engaging in any commerce, really) when you have to comply with myriad regulations and have to be continually leery of missteps that can land you in prison?  It's much easier to just stay at home and collect a check from the government.

Since when anyone in US cares about The Constitution? I thought there are like dozens of current and enforced laws which are clearly in direct violation of The Constitution. Anyone would like to list top 100?

The use of bitcoin is an exercise of free speech and as such is protected by the 1st amendment to the US constitution.  Any law that would interfere with the use of bitcoin is in direct contradiction to this amendment.

bitcoins are information, strings of bytes. That is communicated from one computer to another through the network..
thats how it falls under free speech.

Dollar transactions are strings of bytes communicated between banks ::) Bitcoin is a currency. It isn't free speech.

I think someone with easy access to a lawyer should check out if this applies to bitcoin or not (or maybe contact FinCEN directly).

Since when anyone in US cares about The Constitution? I thought there are like dozens of current and enforced laws which are clearly in direct violation of The Constitution. Anyone would like to list top 100?

You do realize that, in your example, BitProxy cannot operate legally, right? If you take bitcoins from someone without knowing his/her personal details, you are doing an illegal trade.

Last month FinCEN issued a ruling that was intended to clarify the definition of an MSB and includes the possibility that even businesses outside the U.S. conducting money transfer over the Internet could still be classified as U.S. MSBs.  Additionally, the definition no longer requires that an MSB be a business — any individual who receives funds in exchange for a stored value might be considered an MSB.

bitcoins are information, strings of bytes. That is communicated from one computer to another through the network..
thats how it falls under free speech.

Note that Germany has passed a similar law, which might also apply to Bitcoin.

Dollar transactions are strings of bytes communicated between banks ::) Bitcoin is a currency. It isn't free speech.

I think someone with easy access to a lawyer should check out if this applies to bitcoin or not (or maybe contact FinCEN directly).

bitcoins are information, strings of bytes. That is communicated from one computer to another through the network..
thats how it falls under free speech.

bitcoins are information, strings of bytes. That is communicated from one computer to another through the network..
thats how it falls under free speech.

Maybe if we called each other up on the phone and spoke the hashes  :D

So even disregarding its application to bitcoins.... you will need to show ID to buy an amazon.com gift card?

I understood the main reason for this legislation was to close the anonymous pre-paid phone accounts... that is they are not happy that you can use a phone without it being tied to your name/address. The whole thing is silly, however, as those with criminal intent will just use others credentials to purchase.

I don't think that's what it is. Anyone can get a Metro PCS phone without ID. I think it's the fact that stored value cards are used to launder drug money. The Treasury issued a Memorandum about this a few years back. They claimed it was the number one way people were avoiding taxes and laundering drug money.

Gosh! You guys never let me down on amaze me with prepotency!
WTF do I care for an US "act"?! In my jurisdiction "US acts" can be used for toilet paper, like in the remaining 95% of the World... the bankrupt treasury of US should be more concerned about pay its huge over 100% of GDP debt rather than "regulate" an international borderless e-currency which doesn't belong to USA.
Well, if you're American you must abide your country laws, but that's it.

legalize drugs.

reasons: less money spent on catching criminals and keeping them locked up.
heavily tax the drugs, they would still be cheaper than off the street.

tada! half the money laundering is now gone.

No no no, your mistaken. Even if you're not American you have to go by American laws. Don't believe me? Just wait. After North Korea and Iran and Libya, your Next buddy!

We can't have them competing with Big Pharma now can we...

Seriously I agree with you in all points... the problem is there is no organized bribery... I mean lobby group for the "illicit" drug sellers.

legalize drugs.

reasons: less money spent on catching criminals and keeping them locked up.
heavily tax the drugs, they would still be cheaper than off the street.

tada! half the money laundering is now gone.

Looks like Libya isn't going down that easy, doesn't it? Let alone N Korea and Iran. And what about China and Russia? Putin just called US an economic parasite whereas launched the re-equip of Russia... looks like US's reign of terror is about to end rather than someone "to be next".

ctoon6, you're probably a very smart person, so I wonder why you have not figured this out yet.
Banks and Drug laws exist to work hand in hand together. Banks would not exist, if there were no drugs which were illegal to launder money through. There would be no need for banks if drugs were legal. Banks were created to serve the purpose of laundering the opium profits and returning the Britsh pound to gold to pay the opium farmers because all they accept for payment is gold. Elementary Watson

No empire lasts forever...
I rather have Russia and US staring at each other again, like in good'old 80's, hopefully without all those proxy wars. It brings balance to power and restrain US for go on "war on drugs", "war on inexistent weapons", "war on <put or make up the reason here>"... gosh! Those folks really have an obsession for "war"!

i find the argument that banks only make money and exist through laundering money hard to believe. although it would not surprise me much if someone did present proof unless it already does exist and i do not know of it. but even so, you can launder money way cheaper in bitcoin than through a "real" bank. and that would make banks not make as much money, although i have no idea why they would need to do it in the first place, at least in the current day US. Though FRB banks make money out of thin air anyway.

You answered your own question. They print it out of thin air. But they need to keep the drug trade going, and oil and gold, and they need to transfer funds between the 3, without it being obvious to all nations, how it's done.

correction, they don't even print it, they simply change a few bits of text in the computer and people accept that as a valid form of payment.

Russia has some pretty bad ass weapons, too. Like what they did to Japan. That was horrific with the Tsunami and the Scalar Weaponry. You guys need to keep your leaders under control.

Wait a minute! That one was GOD! Here:

http://www.youtube.com/watch?v=fPd-SY6OhLY

or here, the shorter version:

http://www.youtube.com/watch?v=1U-GaP4PEW4

I don't speak Russian enough to check whether the translation is accurate, however I bet if they open a bit more the scene you would see a lot of empty vodka bottles around that guy.  ;D

«You've them»?! I don't have mystical God powers, as far as I'm aware. All I can is to throw Kamehamehs SanGoku-like... oh! Wait! Not even that... toxic farts count?

Oh man... but back in the old days here's how everybody knows who is who:

http://www.facebook.com/video/video.php?v=259095894115809&oid=344488255560&comments

 ;D

I hope that those who have been opposed to the idea of a representative organization will receive this as a gentle wakeup call to the importance of the UABCI and your personal involvement in our future to help protect you

Russia has some pretty bad ass weapons, too. Like what they did to Japan. That was horrific with the Tsunami and the Scalar Weaponry. You guys need to keep your leaders under control.