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Author Topic: Is bitcoin a payment Instrument?  (Read 1845 times)
RandomQ
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October 15, 2012, 10:37:20 PM
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I'm looking at some Arizona state laws. and wanted some feedback if you think bitcoin qualifies under part 13 as a payment instrument?
 

9. "Money" means a medium of exchange that is authorized or adopted by a domestic or foreign government as a part of its currency and that is customarily used and accepted as a medium of exchange in the country of issuance.

13. "Payment instrument" means a check, draft, money order, traveler's check or other instrument or order for the transmission or payment of money sold to one or more persons whether or not that instrument or order is negotiable. Payment instrument does not include an instrument that is redeemable by the issuer in merchandise or service, a credit card voucher or a letter of credit.


Do you think bitcoin qualifies as other instrument or order for the transmission or payment of money sold to one or more persons whether or not that instrument or order is negotiable?

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Stephen Gornick
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October 15, 2012, 11:45:34 PM
 #2

Do you think bitcoin qualifies as other instrument or order for the transmission or payment of money sold to one or more persons whether or not that instrument or order is negotiable?



Well, "or other instrument or order for the transmission or payment of money sold to one or more persons"

Can bitcoin transmit money? 

I don't think so, at least not in Arizona according to the definition you provided:

9. "Money" means a medium of exchange that is authorized or adopted by a domestic or foreign government as a part of its currency and that is customarily used and accepted as a medium of exchange in the country of issuance.



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October 16, 2012, 01:30:53 AM
 #3

Can bitcoin transmit money? 

Neither does a Check or Money Order but they are payment instruments.
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October 16, 2012, 01:52:18 AM
 #4

I was asking Nolo(the user) about this issue and here's one of the many things he sent me:

Quote
Here's the FBI's view on the issue:  http://www.wired.com/images_blogs/threatlevel/2012/05/Bitcoin-FBI.pdf

Quote

Although Bitcoin does not have a centralized authority, the FBI assesses with
medium confidence that law enforcement can identify, or discover more information about
malicious actors if the actors convert their bitcoins into a fiat currency. Third-party bitcoin
services may require customers to submit valid identification or bank information to complete
transactions. Furthermore, any third-party service that qualifies as a money transmitter must
register as a money services business with the Financial Crimes Enforcement Network (FinCEN)
and implement an anti-money laundering program.

...

The FBI further assesses with medium confidence, based on previously witnessed
misuse of other virtual currencies, that malicious actors could increase their anonymity by
laundering their bitcoins through third-party Bitcoin services registered outside the US. Some of
these services act as exchangers or transmitters (see text box on page eight) that convert virtual
currencies to fiat currencies (or other virtual currencies) or transfer bitcoins between members.
Offshore services may provide additional anonymity by allowing currency exchange or money
transfer without verifying user identification or enforcing any monetary exchange limits.


...

In July 2011 FinCEN revised the definition of “money transmission service” to mean “the acceptance of
currency, funds, or other value that substitutes for currency from one person and the transmission of currency,
funds or other value to another location or person by any means.” It is likely that the business models of many
third-party bitcoin services qualify them as money transmitters, and therefore money services businesses (MSB),
under 31 CR Part 1010.100(ff)(5). Third-party bitcoin services that qualify as money transmitters and who wish
to operate legitimately must register with FinCEN, implement anti-money laundering programs, retain certain
records, and file suspicious activity reports and currency transactions reports as required. Additionally, since any
third-party Bitcoin service that falls under the MSB rule would do so as a money transmitter, there is not a
transaction threshold (such as 1,000 per day) that must be met for the regulations to apply, unlike dealers in
foreign exchange or issuers or sellers of checks or monetary instruments.34 (Note: In certain states, third-party
bitcoin services would also be required to obtain a state license).



This unclassified FBI report certainly seems to say that third party services that convert bitcoins into a fiat currency are money transmitters.

Thanks,
Nolo

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October 16, 2012, 06:07:32 AM
 #5

I agree with Stephen Gornick that it doesn't currently qualify as a payment instrument because it doesn't transmit money (according to the legal definition of "money").  But as tarrant_01 points out, lawmakers and regulators are catching on, so it will qualify as a payment instrument eventually as laws are updated to include bitcoin as money or "value substituting for money".

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October 16, 2012, 06:25:55 AM
 #6

I'm looking at some Arizona state laws. and wanted some feedback if you think bitcoin qualifies under part 13 as a payment instrument?
 

9. "Money" means a medium of exchange that is authorized or adopted by a domestic or foreign government as a part of its currency and that is customarily used and accepted as a medium of exchange in the country of issuance.

13. "Payment instrument" means a check, draft, money order, traveler's check or other instrument or order for the transmission or payment of money sold to one or more persons whether or not that instrument or order is negotiable. Payment instrument does not include an instrument that is redeemable by the issuer in merchandise or service, a credit card voucher or a letter of credit.


Do you think bitcoin qualifies as other instrument or order for the transmission or payment of money sold to one or more persons whether or not that instrument or order is negotiable?



Is there a specific context the definitions are going be applied in?


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tarrant_01
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October 16, 2012, 11:10:36 AM
 #7

The state of Arizona, where I operate Bitcoin to Cash LLC from, requires a money transmitter's license, which then qualifies the business as a Money Service Business, which then means the incorporation of AML and KYC into the process.

More from the article above:
Quote
In July 2011 FinCEN revised the definition of “money transmission service” to mean “the acceptance of
currency, funds, or other value that substitutes for currency from one person and the transmission of currency,
funds or other value to another location or person by any means.” It is likely that the business models of many
third-party bitcoin services qualify them as money transmitters, and therefore money services businesses (MSB),
under 31 CR Part 1010.100(ff)(5). Third-party bitcoin services that qualify as money transmitters and who wish
to operate legitimately must register with FinCEN, implement anti-money laundering programs, retain certain
records, and file suspicious activity reports and currency transactions reports as required. Additionally, since any
third-party Bitcoin service that falls under the MSB rule would do so as a money transmitter, there is not a
transaction threshold (such as 1,000 per day) that must be met for the regulations to apply, unlike dealers in
foreign exchange or issuers or sellers of checks or monetary instruments.34 (Note: In certain states, third-party
bitcoin services would also be required to obtain a state license).

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Korbman
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October 16, 2012, 01:38:12 PM
 #8

The state of Arizona, where I operate Bitcoin to Cash LLC from, requires a money transmitter's license, which then qualifies the business as a Money Service Business, which then means the incorporation of AML and KYC into the process.

Are you being required to submit for the license by the state, or are you just reading up on what might apply to your business?

Otherwise, you could ask yourself "What is Money?". The definition of...
9. "Money" means a medium of exchange that is authorized or adopted by a domestic or foreign government as a part of its currency and that is customarily used and accepted as a medium of exchange in the country of issuance.
...is roughly the same thing my counsel told me. "A medium of exchange adopted and backed by a government". Bitcoin can't fall into this category because it only has intrinsic value (it has value because we say it has value), compared to conventional currencies.

tarrant_01
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October 16, 2012, 01:53:07 PM
 #9

We are just reading up on what might apply to the business.

I'm fairly certain that "other value that substitutes for currency" includes bitcoin.

Quote
...definition of “money transmission service” to mean “the acceptance of
currency, funds, or other value that substitutes for currency from one person...

Even if we feel that it is not counted as currency, the proper thing to do would be to file for a license anyway as a "just in case" until a court determines otherwise.

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October 16, 2012, 02:12:17 PM
 #10

Quote
...definition of “money transmission service” to mean “the acceptance of
currency, funds, or other value that substitutes for currency from one person...

Even if we feel that it is not counted as currency, the proper thing to do would be to file for a license anyway as a "just in case" until a court determines otherwise.

Probably the best idea. Talking with a lawyer would also help to sort it out, but my guess is that they would agree with the "better safe than sorry" approach.

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