Money Services Business and AML necessary for small amounts?

[Drifter]

According to IRS.gov, as long as you do not exchange more than $1,000 with the same person in the same day, you do not need to register as a Money Services Business

Businesses that are considered MSBs for registration purposes are those that act in one or more of the following capacities: as an issuer, seller or redeemer of money orders or traveler’s checks; as a provider of check cashing services, or as a currency dealer or exchanger, and conduct more than $1,000 in money services business activity with the same person (in one type of activity) on the same day. In addition, all businesses that provide money transfer services in any amount are considered MSBs and are required to register.

http://www.irs.gov/businesses/small/article/0,,id=158384,00.html

As far as I know, staying under this limit should also keep you free of any anti-money laundering registration.
It's unclear as to what is considered a money transfer service, though. My presumption is that a person looking to transfer money to another individual is what is considered a money transfer. As long as it is a single individual only looking to exchange or buy currency with another peer, it should not be considered this.

By these definitions, it should be legal for any single person within the United States to buy/sell/trade Bitcoins as they please as long as they do not sell more than $1000 to a certain individual in one day. Of course, any income would still need to be reported, but you should not require any business registration for peer to peer exchange. Trading markets and exchangers might have it much worse off considering they could be considered a money transfer service.

Someone please correct me if I'm wrong.

[FreeMoney]

You can't tell if trades with 15 different address are one person or 15 and neither can the IRS.

[Drifter]

That's beside the point. As a single peer, you would not be committing the crime but the individual with 15 addresses(If they go over the 10,000 without providing proper ID). Just because I cannot tell does not determine that I would need to register as a Money Services Business, anyway. At least, not this point in time.

According to what I have quoted above, as long as you stay under those limits, it is not your responsibility to collect and report private data of the individual you're trading with in regards to anti money laundering.


Take Bitcoin off the table. Let's say I agree to do currency exchanges for less than $1000 for cash in mail. I receive $1,000, from 15 different addresses with 15 different names. According to the IRS I can do so free without any business registration, because I am staying within my limits for every individual. But what if all those truly came from the same person, with 14 other fake addresses and names? There's no possible way I could be held accountable for that, as I had no previous knowledge of the other individual doing so.

[FreeMoney]

Right, all I was saying is that $1000/person/day really means "Keep all transactions under $1000".

[jgarzik]

I think money transfer services involve transmittal of money from Alice to Bob, where Alice knows Bob.

When using an exchange like mtgox, you don't know with whom you're trading, so you are not knowingly sending money to Bob.

[jgarzik]

While doing research for Bitcoin Store, I came across the following adminstrative guidance:

     http://www.fincen.gov/statutes_regs/guidance/html/fin-2009-r001.html

[Drifter]

Excellent, jgarzik! Thanks for the share. There's some other things I found interested as well. Accroding to that link, bitcoin itself could possibly not even be considered a money transmitting service or a currency for that matter. Just like these prepaid stored value cards, bitcoin is only a stored amount of data and value, making this - at most, a merchant sale and not a money transmission.