Legal status, Bitcoin an asset or derivative under Australian law? AMLCTF Act

[dadj]

Hi everyone,

I asked some questions of a lawyer today. She said she would read up on Bitcoin and this post and get back to me tomorrow or Monday. The questions are: Are people trading it required to register as money remitters when trading Bitcoins for Australian currency? Which category could Bitcoin be assigned if any?

My research shows that prima facie, if Bitcoin were defined as an asset, then it might be categorised as a derivative under the CORPORATIONS ACT 2001 - SECT 761D, though I'm not sure if it could apply at all - given Bitcoin's non-corporate entity status.

Meaning of derivative
             (1)  For the purposes of this Chapter, subject to subsections (2), (3) and (4), a derivative is an arrangement in relation to which the following conditions are satisfied:

                     (a)  under the arrangement, a party to the arrangement must, or may be required to, provide at some future time consideration of a particular kind or kinds to someone; and

                     (b)  that future time is not less than the number of days, prescribed by regulations made for the purposes of this paragraph, after the day on which the arrangement is entered into; and

                     (c)  the amount of the consideration, or the value of the arrangement, is ultimately determined, derived from or varies by reference to (wholly or in part) the value or amount of something else (of any nature whatsoever and whether or not deliverable), including, for example, one or more of the following:

                              (i)  an asset;

                             (ii)  a rate (including an interest rate or exchange rate);

                            (iii)  an index;

                            (iv)  a commodity.

On the categorisation of Bitcoin as an asset:

CORPORATIONS ACT 2001 - SECT 601WAA

Definitions
             (1)  In this Part:

"asset" means property, or a right, of any kind, and includes:

                     (a)  any legal or equitable estate or interest (whether present or future, vested or contingent, tangible or intangible, in real or personal property) of any kind; and

                     (b)  any chose in action;(EDIT: Can someone please explain what this means? I couldn't work out the meaning of chose here.) and

                     (c)  any right, interest or claim of any kind including rights, interests or claims in or in relation to property (whether arising under an instrument or otherwise, and whether liquidated or unliquidated, certain or contingent, accrued or accruing); and

(d) any CGT asset within the meaning of the Income Tax Assessment Act 1997

Bitcoin would probably not be considered as property because it is digital, just a set of mathematically related numbers - not anything to do with intellectual property either.

Is Bitcoin an asset? I would argue that holding a private key confers no right at all as there is a chance (albeit incredibly small) of a hash collision that would enable someone to also generate the same public / private key pair and thus spend your bitcoins - completely legitimately transferring your right (with no legal recourse) to spend your bitcoins.


Regarding regulation of financial transactions from the AMLCTF Act:

A reporting entity is a financial institution, or other person, who provides designated services. (Designated services are listed in section 6.)

Designated services from section 6 are listed in Table 1 here: http://www.austlii.edu.au/au/legis/cth/consol_act/alacfa2006522/s6.html.
Item 35 sections (b) and (ba) seem relevant but I'm getting confused reading them.

35
(b) in the case of an issue of a security or derivative--the issue does not consist of the issue by a company of either of the following:
(i) a security of the company (other than an interest in a managed investment scheme); or

(ii) an option to acquire a security of the company (other than an option to acquire an interest in a managed investment scheme); and

(ba) in the case of an issue of a security or derivative--the issue does not consist of the issue by a government body of a security of the government body or of an option to acquire a security of the government body; (EDIT: my head hurts reading this aloud - is this even a correct sentence?!)and

(c) in the case of an issue of a security or derivative--the issue is not an exempt financial market operator issue; and

(d) such other conditions (if any) as are set out in the AML/CTF Rules are satisfied

It is still unclear to me whether Bitcoin can be categorised as a designated service under these definitions.

Any thoughts / points to discuss are welcome!

[dadj]

Found an answer to my confusion on Chose in action.

From Wikipedia:

Chose (pronounced: "shows", French for "thing"), is a term used in common law tradition in different senses.
A chose in action is essentially a right to sue. It is an intangible personal property right recognised and protected by the law, that has no existence apart from the recognition given by the law, and that confers no present possession of a tangible object. Another term is a thing in action.

Given that Bitcoin is completely unregulated, is tangible (clear and definite / mathematics), not a property right, not protected by the law, exists despite no recognition given by the law and does confer present possession of the tangible key required spend a Bitcoin - I would submit that it is not a chose / thing in action.

Maybe Australian law would consider Bitcoin a thing in action in which case it may be classed as a derivative or even a security that exists outside of regulated financial markets.

Is that even possible in our regulatory framework? I don't think it is.

Does that mean the AMLCTF Act does not apply to Bitcoin transactions until such time that Bitcoin has a legal definition?

[mcgravier]

Is Bitcoin an asset? I would argue that holding a private key confers no right at all as there is a chance (albeit incredibly small) of a hash collision that would enable someone to also generate the same public / private key pair and thus spend your bitcoins - completely legitimately transferring your right (with no legal recourse) to spend your bitcoins

True to the fact, that holding private key confers no legal right, but simply capability to spend bitcoins, so I think maybe it should be treated the same  way as physical key (it is the closest thing IMO). Doing intentional hash collision in order to spend somones bitcoins probably would be as illegal as doing it for any other malicious action. It would be stealing fruits of somones work after all. As of completly random hash collision, chances are so small, that should not be considered at all.

[franky1]

in the UK its a personal possession asset. not a corporate asset. not a commodity. not a stock/share.. it is a personal possession asset.

heres a link to my topic on UK tax stuff
https://bitcointalk.org/index.php?topic=143425.0

feel free to grab what you want from it. as it saves explaining it all out in triplicate in individual threads that all seem to be asking/confused about the same question.

[benjamindees]

Money is a promise of future value.  Bitcoin isn't money, as such.  So, in general, just ignore any regulations that refer to "money" because they almost exclusively apply to promises of future value.  As for why money is regulated, see the history of fractional reserve fraud banking.