Bitcoin and Illinois

[mobile4ever]

Saw this in techcrunch:

Headline:

Square Slapped With Cease And Desist By Illinois State Department Of Financial Regulation

The quoted law:

We’re not lawyers but the scuffle appears to be over an Illinois state law, the Transmitters of Money Act. According to the Statute, No person may engage in this State in the business of selling or issuing payment instruments, transmitting money, or exchanging, for compensation, payment instruments or money of the United States government or a foreign government to or from money of another government without first obtaining a license under this Act.

Is Bitcoin covered by this law?


How would you ever know if you were dealing with someone who lived in Illinois anyway?

[1715224223]

1715224223

[ArticMine]

IANAL. As far as I can see the statue requires that the money be issued by a government, so it would not apply to money that is not issued by a government.  This would include Bitcoin, but also Gold, Silver, Linden Dollars, Ithaca hours etc.

[Stephen Gornick]

No person may engage in this State in the business of selling or issuing payment instruments, transmitting money, or exchanging, for compensation, payment instruments or money of the United States government or a foreign government to or from money of another government without first obtaining a license under this Act.

And specifically with Square it appears that as soon as they made available a "redeemable code" (gift certificate that can be redeemed by the bearer of the QR code) then they are falling under this category of being an issuer.

I was wondering if these would cause a problem.  When I pay with Square, Square draws from my credit (or debit) card account and delivers the money (less their fee) to the merchant.  I have my goods and services and the transaction is complete.   But when I buy one of these gift cards, the money is drawn from me and paid (less the fee) to the merchant right away but it could be months or longer before I redeem it to get my goods and services.  So this is like issuing credit to the merchant, who later "repays" the loan by letting me the customer make a purchase from the merchant using that gift card.  But that's not what the problem is apparently.  The problem addressed in the complaint is that the code is a method to transmit money.  It can change hands before it is redeemed, so in that manner it is like issuing a form of currency.

[Edited, the order doesn't define these codes as being currency, but does say a money transmitter license is needed to issue them.]

[mobile4ever]

No person may engage in this State in the business of selling or issuing payment instruments, transmitting money, or exchanging, for compensation, payment instruments or money of the United States government or a foreign government to or from money of another government without first obtaining a license under this Act.

And specifically with Square it appears that as soon as they made available a "redeemable code" (gift certificate that can be redeemed by the bearer of the QR code) then they are falling under this category of being an issuer.

I was wondering if these would cause a problem.  When I pay with Square, Square draws from my credit (or debit) card account and delivers the money (less their fee) to the merchant.  I have my goods and services and the transaction is complete.   But when I buy one of these gift cards, the money is drawn from me and paid (less the fee) to the merchant right away but it could be months or longer before I redeem it to get my goods and services.  So this is like issuing credit to the merchant, who later "repays" the loan by letting me the customer make a purchase from the merchant using that gift card.  But that's not what the problem is apparently.  The real problem is that the code can change hands before it is redeemed, so in that manner it is like issuing a form of currency.

The words, "payment instruments" covers the part that is not currency. People exchanging "redeemable codes" would be blatant breakers of this law. Sounds like a banker created it.

[Phinnaeus Gage]

No person may engage in this State in the business of selling or issuing payment instruments, transmitting money, or exchanging, for compensation, payment instruments or money of the United States government or a foreign government to or from money of another government without first obtaining a license under this Act.

And specifically with Square it appears that as soon as they made available a "redeemable code" (gift certificate that can be redeemed by the bearer of the QR code) then they are falling under this category of being an issuer.

I was wondering if these would cause a problem.  When I pay with Square, Square draws from my credit (or debit) card account and delivers the money (less their fee) to the merchant.  I have my goods and services and the transaction is complete.   But when I buy one of these gift cards, the money is drawn from me and paid (less the fee) to the merchant right away but it could be months or longer before I redeem it to get my goods and services.  So this is like issuing credit to the merchant, who later "repays" the loan by letting me the customer make a purchase from the merchant using that gift card.  But that's not what the problem is apparently.  The real problem is that the code can change hands before it is redeemed, so in that manner it is like issuing a form of currency.

The words, "payment instruments" covers the part that is not currency. People exchanging "redeemable codes" would be blatant breakers of this law. Sounds like a banker created it.

This could be serious, for it doesn't stipulate where one must be to not be in compliance: at a restaurant; in a cab; in a back alley; or sitting in your underwear at home. It's all the same.

[mobile4ever]

This could be serious, for it doesn't stipulate where one must be to not be in compliance: at a restaurant; in a cab; in a back alley; or sitting in your underwear at home. It's all the same.

I saw another bit of "news" on California as well:

Repeal the California Money Transmission Act

A complete lockdown on financial instruments would be bad and good. Good for bitcoin. ☺

[Mike Hearn]

Is Bitcoin covered by this law?

A couple of years ago I spent a lot of time reading up on AML laws. They're "the same but different" around the world.

My conclusion is that simply using Bitcoin does not make you a money transmitter because the exchanges of value are person to person, direct, with no middlemen or intermediaries. All these laws are written on basically two assumptions:

1) Finance takes place through institutions
2) Currencies are issued by institutions

Bitcoin violates both those assumptions and by doing so, falls outside the money transmission regulations.

Exchanges are an obvious exception, as are any other institutions that let you hold a deposit and can give it to someone other than the depositor.

The best way to avoid problems with these laws is to build P2P networks and systems that involve no intermediaries. AML can still screw you if you go over the transaction size thresholds and don't do your ID verification homework, but the thresholds are quite high. Unless you routinely sell cars or houses for Bitcoins it's not likely to be a problem.

How would you ever know if you were dealing with someone who lived in Illinois anyway?

You can't know that, which is one of many reasons why these laws are stupid. US sales tax laws are even worse, they can vary by city and some states expect you to verify the street address of everyone you sell something to and mail them a cheque.

The internet generally messes up any law of the form "to sell X to people in place Y you must register with a local authority in y".

[mobile4ever]

Bitcoin violates both those assumptions and by doing so, largely falls outside the money transmission regulations.

Awesome answer. Until the legal definition of bitcoin becomes "money", bitcoin will never be under these types of laws.

Exchanges are an obvious exception, as are any other institutions that let you hold a deposit and can give it to someone other than the depositor.



The best way to avoid problems with these laws is to build P2P networks and systems that involve no intermediaries.

You and I must be on the same channel:

https://bitcointalk.org/index.php?topic=145389.0;all

[Mike Hearn]

Not quite on the same channel

My determination has nothing to do with whether Bitcoin is money or not. It clearly is money. I don't understand the fascination in these forums with trying to define Bitcoin as not money. That strategy is doomed to failure.

For something to be covered by the money transmitter laws in the USA, it must obviously involve money (true) and transmitters (false, in our case).

Likewise, Bitcoin is not covered by EU "e-money" laws because, despite being money, it has no issuer.

[mobile4ever]

Not quite on the same channel

But... close enough.
 

The big guys who make the regs say gold is not money:


http://www.youtube.com/watch?v=2NJnL10vZ1Y&t=4m58s


I am sure you would say it is.

For something to be covered by the money transmitter laws in the USA, it must obviously involve money (true) and transmitters (false, in our case).

Likewise, Bitcoin is not covered by EU "e-money" laws because, despite being money, it has no issuer.

I enjoy being a part of using the terms of the "enemies of humanity" against them.

[sunnankar]

Bitcoin violates both those assumptions and by doing so, largely falls outside the money transmission regulations.

Awesome answer. Until the legal definition of bitcoin becomes "money", bitcoin will never be under these types of laws.

Exactly. And to boot like in Bernstein v. US Bitcoin may be protected under First Amendment grounds