FinCEN says you must be MSB if you sell bitcoins for $

[tarrant_01]

I just wanted to add that if you register as a money transmitter with the state, you are required provide your MSB registration with FinCEN, atleast in my state anyway.

[1714848424]

1714848424

[benjamindees]

The bottom line answer for the scenario you describe to us you would be a Money Service Business. That is because you would be a money transmitter purchasing a valuable and using it as money and doing it by means of transmission.

So, now it's time for the OP to tell us what scenario he *actually* described to them.  Because this doesn't at all sound like "selling Bitcoins on my website."


Once again, the legal position of Bitcoin is very simple.  "Money" is that which has future value.  "Currency" is that which has current value.  Bitcoin is a currency, with no guarantee of future value.

Money is actually a very rare thing, because it's pretty difficult to guarantee that something (anything) will have value in the future.  The usual method is via counter-parties who guarantee, through force, that their issued money will have future value.  These issuers tend to be governments, who have regional monopolies on the use of force.  But there are other issuers as well.  Banks, for instance, that hold the debt of a substantial number of members of a community can use this leverage to issue money, backed by the implied force of calling in that debt.  The mafia, also, has its own complex monetary systems, again based on counter-parties and the transmission of force.

Bitcoin has none of that.  Bitcoin is a currency, because it only has current, market value, and because no one guarantees Bitcoin's future value as money.

Money is regulated because it is force.  Money transmission is further regulated because it is a service which comes with the risk of the money losing value during "transmission".  Between the time that you purchase a MtGox code from BitInstant, and redeem that code, MtGox could go out of business.  You would have bought "money" or "stored value" with the implication that it has future value and can be redeemed by the money issuer.  You would have been defrauded if that turns out not to have been the case.  And BitInstant would have been defrauded as well, which is the reason money transmitters actually seek out the protection of governments via regulation.

This has nothing to do with Bitcoin.  Bitcoins can't be regulated, because they come with no implied guarantees of future value, no backing and thus no counter-party risk to regulate.

In fact, the protection that regulation would provide to the OP in the scenario described in this thread is protection against counter-party risk in the traditional banking system, not Bitcoin.  The risk of the fraud of credit card chargebacks has been discussed to death on this forum.  It's the reason no one sells Bitcoins for credit cards.  Not regulation.

[caveden]

For example the largest retail gold buyer in the US (APMEX) doesn't have a money transmitter license (or any MSB license).  They buy "purchasing a valuable" (gold) and pay sellers via a transmission (ACH or bank wire).

Do they sell gold too?
If buying and selling gold doesn't require this license, I fail to understand why buying and selling bitcoins would.

<off-topic>

What if you own an island on international waters and you would "run" you business there.

Would you be subjuct to some sort of international law?

IANAL, but I used to follow the discussions on seasteading. There's no natural island that's not claimed by a state, so there's no "international island"*. A vessel in international waters is supposed to carry a flag of a sovereign state, in which case it should follow the laws of this state. A vessel not carrying a recognized flag may be treated as a pirate vessel.

The bottom line is that, while you may manage to acquire a lot of freedom by "settling" in international waters, potentially more freedom than anywhere else in land, you also may just be attacked if you provoke large governments enough. I can't tell you if "anonymous banking" is provocative enough, but it's among the things the seasteading institute advises not to attempt (see page 15 of this document).

* Antarctica might be an exception. But states do have a sort of agreement concerning Antarctica. I don't think you could just build your new state there. And even if you could... I don't think you'd find many people willing to join you.
</off-topic>

[JoelKatz]

So, now it's time for the OP to tell us what scenario he *actually* described to them.  Because this doesn't at all sound like "selling Bitcoins on my website."

Once again, the legal position of Bitcoin is very simple.  "Money" is that which has future value.  "Currency" is that which has current value.  Bitcoin is a currency, with no guarantee of future value.

FinCEN regulations only requires that you transmit "currency, funds, or other value that substitutes for currency". Transferring Bitcoins to the buyer transmits currency (or value that substitutes for currency).

This has nothing to do with Bitcoin.  Bitcoins can't be regulated, because they come with no implied guarantees of future value, no backing and thus no counter-party risk to regulate.

But *selling* Bitcoins has counter-party risk for the buyer. The seller might take his money and not provide him the Bitcoins. This is precisely the reason (or at least, the supposed reason) money transmitters are regulated.

[optimator]

Once again, the legal position of Bitcoin is very simple.  "Money" is that which has future value.  "Currency" is that which has current value.  Bitcoin is a currency, with no guarantee of future value.

FinCEN regulations only requires that you transmit "currency, funds, or other value that substitutes for currency". Transferring Bitcoins to the buyer transmits currency (or value that substitutes for currency).

[/quote]

Why isn't gold regulated in this manner? (Especially, since you even have legal tender gold coins...)

[JoelKatz]

Why isn't gold regulated in this manner? (Especially, since you even have legal tender gold coins...)

They are. Thanks to the Patriot Act, gold dealers are financial institutions and are subject to FinCEN AML regulations.

[optimator]

Why isn't gold regulated in this manner? (Especially, since you even have legal tender gold coins...)

They are. Thanks to the Patriot Act, gold dealers are financial institutions and are subject to FinCEN AML regulations.

Thanks, I should have googled first. A quick google search reveals there's a threshold of $50,000 for gold / jewelry dealers to be covered by the regulations. I'm not sure if this has since be amended.

http://www.fincen.gov/statutes_regs/guidance/html/faq060305.html

[JoelKatz]

Why isn't gold regulated in this manner? (Especially, since you even have legal tender gold coins...)

They are. Thanks to the Patriot Act, gold dealers are financial institutions and are subject to FinCEN AML regulations.

Thanks, I should have googled first. A quick google search reveals there's a threshold of $50,000 for gold / jewelry dealers to be covered by the regulations. I'm not sure if this has since be amended.

http://www.fincen.gov/statutes_regs/guidance/html/faq060305.html

I believe there are similar exceptions for small business of various kinds. There might even be one for small money transmitters that might make selling bitcoins as a small business perfectly fine.

[benjamindees]

Joel, you aren't using the word "transmit" according to its legal definition.  It doesn't mean the same thing as "trade".  It means something like "trade via a third party."  It is not the traders who are regulated.  It is the third party "transmitter" who is regulated, for the benefit of the traders.

Sorry if I did not make this clear in my examples, but that's the reason I chose MtGox codes.  In the case of MtGox codes, BitInstant acts as a third party "transmitter" between MtGox and the purchaser.  In the case of Bitcoin, well, there is no third party since Bitcoin is just a communications protocol.  The two parties, the buyer and seller, are simply engaging in trade, which the US at least has no jurisdiction to regulate.

[JoelKatz]

Joel, you aren't using the word "transmit" according to its legal definition.  It doesn't mean the same thing as "trade".  It means something like "trade via a third party."  It is not the traders who are regulated.  It is the third party "transmitter" who is regulated, for the benefit of the traders.

Sorry if I did not make this clear in my examples, but that's the reason I chose MtGox codes.  In the case of MtGox codes, BitInstant acts as a third party "transmitter" between MtGox and the purchaser.  In the case of Bitcoin, well, there is no third party since Bitcoin is just a communications protocol.  The two parties, the buyer and seller, are simply engaging in trade, which the US at least has no jurisdiction to regulate.

Here is the full regulation (emphasis added):

Money transmitter:

(i) In general.

(A) A person that provides money transmission services. The term “money transmission services” means the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means. “Any means” includes, but is not limited to, through a financial agency or institution; a Federal Reserve Bank or other facility of one or more Federal Reserve Banks, the Board of Governors of the Federal Reserve System, or both; an electronic funds transfer network; or an informal value transfer system; or

(B) Any other person engaged in the transfer of funds.

(ii) Facts and circumstances; Limitations. Whether a person is a money transmitter as described in this section is a matter of facts and circumstances. The term “money transmitter” shall not include a person that only:

(A) Provides the delivery, communication, or network access services used by a money transmitter to support money transmission services;

(B) Acts as a payment processor to facilitate the purchase of, or payment of a bill for, a good or service through a clearance and settlement system by agreement with the creditor or seller;

(C) Operates a clearance and settlement system or otherwise acts as an intermediary solely between BSA regulated institutions. This includes but is not limited to the Fedwire system, electronic funds transfer networks, certain registered clearing agencies regulated by the Securities and Exchange Commission (“SEC”), and derivatives clearing organizations, or other clearinghouse arrangements established by a financial agency or institution;

(D) Physically transports currency, other monetary instruments, other commercial paper, or other value that substitutes for currency as a person primarily engaged in such business, such as an armored car, from one person to the same person at another location or to an account belonging to the same person at a financial institution, provided that the person engaged in physical transportation has no more than a custodial interest in the currency, other monetary instruments, other commercial paper, or other value at any point during the transportation;

(E) Provides prepaid access; or

(F) Accepts and transmits funds only integral to the sale of goods or the provision of services, other than money transmission services, by the person who is accepting and transmitting the funds.

Read as you suggest, exceptions D  and F would make no sense.  A person who actually had more than a custodial interest in the currency wouldn't be a money transmitter, since they'd be moving their own money. Yet the exception specifically excepts only those who have a mere custodial interest -- that is, it excepts those who are moving other people's money but includes people who are moving their own money. And sale of goods or provision of services wouldn't be covered at all.

The regulations do cover people who take funds from one person and then deliver them to another person, even (in fact, especially) if the funds become theirs in the process. That's why it has to except the sale of goods and the provision of services.

[Malophor]

I wonder if it changes if you send a physical print out of a private key or mt. gox code.

[makomk]

They are. Thanks to the Patriot Act, gold dealers are financial institutions and are subject to FinCEN AML regulations.

Which is not the same as them being a money transmitter.

[kaerf]

apparently it's been formally documented now. http://www.fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html

if you mine and sell, you're an MSB, but if you mine and spend you're not... 

[repentance]

I wonder if it changes if you send a physical print out of a private key or mt. gox code.

Probably not.  "Real currency equivalent" is specifically mentioned and that would almost certainly apply to MtGox codes.

Selling someone the private keys would almost certainly be regarded as "transmission" as that recipient then has effective ownership of the "units of convertible currency".

[jgarzik]

apparently it's been formally documented now. http://www.fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html

if you mine and sell, you're an MSB, but if you mine and spend you're not... 

Respectfully, I disagree entirely with that interpretation.

If you mine and sell via an exchange that is MSB/MT-registered, seems like you are ok.

[kaerf]

apparently it's been formally documented now. http://www.fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html

if you mine and sell, you're an MSB, but if you mine and spend you're not...  

Respectfully, I disagree entirely with that interpretation.

If you mine and sell via an exchange that is MSB/MT-registered, seems like you are ok.

Hopefully, your interpretation is the correct one.

I'm concerned with

a person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter.
...
2 FinCEN's regulations define "person" as "an individual, a corporation, a partnership, a trust or estate, a joint stock company, an association, a syndicate, joint venture, or other unincorporated organization or group, an Indian Tribe (as that term is defined in the Indian Gaming Regulatory Act), and all entities cognizable as legal personalities." 31 CFR § 1010.100(mm).

Honestly, I don't see how it's practical/realistic to enforce it as my stated interpretation. Your interpretation is more realistic.

[DeathAndTaxes]

This guidance addresses "convertible" virtual currency. This type of virtual currency either has an equivalent value in real currency, or acts as a substitute for real currency.

Given that Bitcoin has no equivalent value in any "real currency"  The applicability hinges on the words "substitute for real currency".  It is beyond doubt that virtual "currencies" like Amazon Points or Facebook Credits fall under the guidelines but it is unfortunate that FinCEN didn't provide more guidance on the term "substitute for real currency".  Time to draft another request for administrative ruling.

[galambo]

So, now it's time for the OP to tell us what scenario he *actually* described to them.  Because this doesn't at all sound like "selling Bitcoins on my website."

Once again, the legal position of Bitcoin is very simple.  "Money" is that which has future value.  "Currency" is that which has current value.  Bitcoin is a currency, with no guarantee of future value.

FinCEN regulations only requires that you transmit "currency, funds, or other value that substitutes for currency". Transferring Bitcoins to the buyer transmits currency (or value that substitutes for currency).

This has nothing to do with Bitcoin.  Bitcoins can't be regulated, because they come with no implied guarantees of future value, no backing and thus no counter-party risk to regulate.

But *selling* Bitcoins has counter-party risk for the buyer. The seller might take his money and not provide him the Bitcoins. This is precisely the reason (or at least, the supposed reason) money transmitters are regulated.

What does this mean for Ripple?

[BitcoinINV]

I wonder if it changes if you send a physical print out of a private key or mt. gox code.

Probably not.  "Real currency equivalent" is specifically mentioned and that would almost certainly apply to MtGox codes.

Selling someone the private keys would almost certainly be regarded as "transmission" as that recipient then has effective ownership of the "units of convertible currency".

I kinda seen this coming hence moving my business offshore, As the first person to sell Bitcoin-Key's for credit card and latter copied by BTCquick, I talked to a informed member of the gov who warned me of this move. Of course If I would have said anything Like I did about the S.E.C. I would have been throwing fud or whatever you have it.
But I can tell you right now that
BTCquick
ZIGZAP
Cash for Bitcoins LCC
will all have to comply or cease operations, which sucks, cause its going to cost into the 5 to 6 digits to get all that crap sorted out and be in 100% compliance just ask Bitinstant. Doing this with in the 6 month period will be doable but we are in a sequestration right now and I am sure this will reflect on the processing time.
http://www.fincen.gov/financial_institutions/msb/msbrequirements.html

Now this brings up the states your U.S. registered company does business in, now they want a cut to. So every state you have customers you buy or sell to, you will need to be registered in that state as well, just like good ole paypal.
North Carolina Requires 500k capital
http://www.dfi.ca.gov/Licensees/money_transmitters/default.html
3,500 app fee lol
http://www.banking.state.tx.us/forms/forms.htm#msb
I know one of the companies listed above is a a Delaware company
http://banking.delaware.gov/services/applicense/tmvintro.shtml
http://delcode.delaware.gov/title5/c023/index.shtml
Its a little cloudy I just skimmed it quick

But it seems if you live in the USA and want to trade coin you are going to need more then 100k to do it.

[TheButterZone]

Cart before horse. Good luck getting a $100k small business loan. Endgame is practically all BTC exchangers go black market or shutter.