Hi Tagbond. Thanks for reaching out.  Unfortunately, most money transmitters are still in a holding pattern for Bitcoin businesses.  As you noted, Meracord, one of the larger licensees, is not currently considering Bitcoin agents.  The problem is not a legal one.  There's no legal reason why an existing licensee couldn't grant a certified agency to a bitcoin business.  A Bitcoin business can implement the licensee's AML policies just as well as any non-Bitcoin business.  The problem is one of perception.  Many existing money transmitters are unwilling to risk alienating their already-existing agency base by getting involved with Bitcoin, which has heretofore been known as a currency for criminals.  With the shutdown of Silk Road, the tide is turning in the media from "Bitcoin the drug money" to "Bitcoin the Future".  As that picks up steam, we will start to see a better, more accurate, public perception develop.

Edit: I should add that there are some money transmitters willing to work with certain Bitcoin businesses, depending upon the model.  I shan't go into detail, but they are out there.

I literally just saw this post...  Two months late.  Anyway, I hope you folks liked it. Part 2 is out as well.  Part 3 hopefully in a few weeks!

From a business perspective, not a regulatory one (for once), I think that this is a great write up:

http://daslee.me/10-things-i-think-i-think-on-bitcoin

The question, I think, that you are asking is: can a company legally accept money from public purchasers in exchange for its hashrate?

The answer is: It depends.

For United States issuers, at least, I can add some detail.  The way that most companies have been going about this is by selling "perpetual mining bonds".  These things - whatever else they might be - are securities subject to the registration requirements of the Securities Act.  That means that the company must pay a princely sum to attorneys and often auditors for securities compliance work. For small issuances like the "IPOs" we've seen, that just isn't cost-effective.  Furthermore, they can only be sold to a limited number of non-accredited or unsophisticated investors.  Issuers have essentially ignored these requirements and sold them anyway, taking investors money in exchange for little more than a promise to pay them back out of whatever profits they generate.  That's not legal.

I think there is another way, a better way, to do this, and without violating the securities requirements.  Instead of selling a right to profits or equity in the company, a company might sell a right to the hashes themselves not tied to the performance of the company.  Just like Amazon might sell its terabytes on a Glacier server, a mining company might sell a subscription to its hashing power directly to its customers.  Key word being customers - not investors.  You'd need a lawyer to prepare a proper contract for you, and it wouldn't be cheap, but I think it can be done.  Also, I think a competent attorney could prepare a contract that might even be freely assignable to other customers.  I'd love to hear the opinion of any legal beagles out there.

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?

Yes, there is. I've dealt with these agreements before.  It's not as simple as just substituting BTC for USD in the text of the agreement, but it isn't impossible either.


It would depend heavily upon the state. Usury is a question of state law in the US.


I honestly don't know the answer to this one.  The tax professionals I work with typically reason by analogy when dealing with Bitcoin income.  If there is some other in-kind investment out there that pays dividends in-kind, then they would probably use its tax treatment as precedent.

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.

Many participants in the Bitcoin securities market are violating US law. Not all, but many.

Some US Issuers are selling unregistered, restricted securities by means of general advertisements*.

Some exchanges are unlicensed, but US-based.

Some purchasers are reselling their unregistered, restricted securities to unsophisticated, unaccredited investors within one year of purchasing.

Part 3 of Bitcoin Law, my multi-part series on Coindesk will address this.

Edit: The general solicitation rules are lifted as of today, but that doesn't make legal the sale of an unregistered restricted security to unlimited numbers of unaccredited and unsophisticated investors.

I'll depart from my usual legal analysis and put on my pragmatist's hat.  Remember that FinCEN is concerned with detecting, preventing and punishing money laundering.  That is something that they have stated publicly in the past, and it is precisely what they told us when we went to visit them in person in Washington. 

Seriously, let that sink in for a moment.

Because they are concerned with money laundering, their primary concern is the tools of money laundering.  As such, if something is not even arguably an efficient tool for money laundering, then they aren't especially concerned with it.  Airline miles aren't a very efficient tool for money laundering.  They might be a nice use for dirty money, but so is a fancy car.

One of the points we try to emphasize in Washington and with other government officials is that Bitcoin is a terrible tool for money laundering.  That was borne out by the Liberty Reserve.  The last thing money launderers want is a public blockchain telegraphing their efforts to the world at large.  So, instead of using Bitcoin, a decentralized convertible digital currency, they flocked to Liberty Reserve Dollars, a centralized convertible digital currency.  There is still, to this day, no evidence of any major money laundering activity using Bitcoin.

I think it's a strong argument.  It needs to get made more often.

I'm just chiming in to echo what some of the other intelligent folks have already said.  The "as a business" requirement is a threshold one.  Unless you are acting "as a business," you can't be a Money Services Business. Simply failing to incorporate or organize as a corporation, limited liability company, etc., is not dispositive.  It is only one factor, actually, in the "facts and circumstances" test that determines whether you can be fairly characterized as a business.

OP, you're right in characterizing this as a smell test, or a "I'll know it when I see it" test.  It might be frustrating, but FinCEN determined it was better than trying to give another paragraph of enumerated monetary thresholds. I'll leave up to debate the question of whether a list of monetary maximums would be more effective.

Most of the lawyers dealing with this issue are pure transactional folk, so, as a lawyer who actually litigates, maybe I can bring a more concrete perspective to this.  To be sure, there is no single circumstance or fact that determines whether you are a business.  Instead, you should think about the only thing that ultimately matters: a courtroom.  If you had to describe your trading activity to a jury, what characteristics of your activity would you want them to see?  You'd probably want them to see that you only trade infrequently; that you typically trade with a single counterparty or a small group of counterparties; that those counterparties are registered MSBs; that you don't advertise; that you don't have any website or brick and mortar location; that you don't claim any deductions against any profit on your tax returns; that you don't have any investors; that you don't have employees or regular assistants ...that sort of thing.

Thinking like a litigator helps avoid litigation!

I actually wasn't able to find any active federal registration for the trademark "BITCOIN".

There were two registrations attempted. Both were abandoned.

As a matter of law, "ownership" and "control" are two distinct concepts.  Similarly, "power" and "right" are two distinct concepts. 

If I have car keys, I have control over the car associated with that key.  That is to say, I have the power to drive it around.  Whether I have ownership over the car depends upon a panoply of factual circumstances that are as varied as every day life.

Similarly, if I possess a private key, I have control over the coins associated with that key.  That is to say, I have the power to dispose of them.  Whether I have ownership over them depends upon a panoply of factual circumstances that are as varied as every day life.

To address a few questions:

FinCEN hosted the meeting, not the Foundation.

It did not subpoena the foundation. We went willingly

As far as I know, it was not recorded.  It wasn't open to press either.

The Foundation did not endorse any particular investigative or regulatory methods, nor did we lobby for any particular policy position.  The meeting was the beginning of a conversation, not a debate.  Moreover, the Foundation has not developed any particular policy position as of yet.  It is in the midst of determining its policy positions by democratic, community-driven process.  If you'd like your voice heard in this process, or would like to know more about how it works, you should consider joining the Foundation.  

I should say that we made one particular point very strongly, that the Foundation does not represent "Bitcoin".  We represent our constituent members.  We tried to be as transparent as possible about that.

Back from D.C.

What a trip!  De-briefing here:

https://bitcointalk.org/index.php?topic=282631.0

As many of you know, in addition to being an attorney in private practice, I am Chairman of the Bitcoin Foundation's Regulatory Affairs Committee.

The Foundation was invited to a private conference held yesterday by FinCEN in Washington, D.C.  In attendance were high-level representatives from FinCEN, IRS, FDIC, Federal Reserve, OCC, FBI, DEA, Secret Service, Department of Homeland Security and more.  It was a packed house.  FinCEN did an impressive job of bringing together in one room nearly all of the agency stakeholders in the Bitcoin issue.

At the conference, Patrick Murck, Peter Vessenes, Brian Klein, Jim Harper and I each gave presentations totaling about an hour.  We canvassed Bitcoin the protocol, bitcoins the currency, regulatory challenges, enforcement and investigation methodologies – everything under the Bitcoin sun.  We then responded to questions from the agency representatives for about an hour.  Our goal was to begin a frank dialogue with the federal government about Bitcoin and dispel some of the publicly-available misinformation.

It was a smashing success.  

First and foremost, we received a very friendly reception.  The attendees were engaged and interested in learning about distributed finance in general and Bitcoin in particular.  Each Foundation member lit the subject matter through his own lens.  Peter walked the government through a discussion of the core technology.  Brian, an ex-federal prosecutor, discussed investigative methodologies.

I, of course, discussed regulatory challenges.  I discussed some of the ways in which the regulatory landscape in the US did not achieve the government’s policy goals.  In particular, I spent a few minutes just going through the ambiguity in the March FinCEN Guidance, and emphasized the importance of supporting innovation in the Bitcoin industry.  I hit some points very hard – like how the regulatory environment has disincentivized businesses from launching in the US and from servicing US customers.  I also discussed how some businesses were simply picking up and leaving the US entirely.

Our message was straightforward: It is critical that the industry and the regulators work together to create a safe and sane regulatory environment for Bitcoin businesses in the United States.

To be sure, they asked the tough questions.  The agencies have some very real and legitimate concerns.  We often had to give the tough answers.  By the time we were through, though, many of the representatives approached me and some the other presenters to say that they had a much better understanding of the industry and the technology.  I don’t think anyone believes we achieved world peace, or solved the regulatory challenges once and for all.  

We started a dialogue – the first step in understanding each other.

If you are looking to explain this issue to a litigator, then he'll want to see a few things up front:

1) what are the terms of that governed the transaction?
2) what is the timeline of the parties' statements and representations (who did/said what when)?
3) how many orders were placed and who placed them?
4) what was the cost of each order and the total orders?
5) what orders were/were not shipped?

This information isn't always available, of course.  Nonetheless, a class action suit needs a few informed, passionate lead plaintiffs to communicate information like this to their lawyer, whomever that may be.

Thanks!

Unfortunately, there was a "no recording" rule in place so that it could be more of a round table.  I think that ultimately that rule achieved its goal.  It was a relatively intimate setting (for a conference) where people felt free to voice their personal experiences and concerns.

My posts start about halfway down the page, answering a similar question.

https://bitcointalk.org/index.php?topic=217036.msg2291146#msg2291146

Re: a letter ruling:


plussity plus plus.  Please don't do this alone.  Remember that at this early stage of the game, every ruling is precedent.