FinCEN addresses Bitcoin

[BitcoinINV]

I was just looking at some of the fines for failure to register

IV. CIVIL MONEY PENALTY
FinCEN may impose civil money penalties against a money transmitter, or any person who
owns or controls a money transmitter, for violations of money services business registration
requirements.14 FinCEN may assess a civil money penalty for failure to register as a money
transmitter, in an amount up to $5,000 per violation. Each day a violation continues constitutes a
separate violation. FinCEN may assess civil money penalties against a money transmitter, or any
partner, director, officer, or employee thereof, for each willful violation of anti-money laundering
program requirements. A penalty of $25,000 per day may be assessed for failure to establish and
implement an adequate written anti-money laundering program.
15 A separate violation occurs for
each day the violation continues.

[Severian]

I was just looking at some of the fines for failure to register

Good luck tracking a crypto-currency.

[acoindr]

Disclaimer: I am not a lawyer.

tl;dr - if you people want to say your thing has value, and swap that amongst yourselves, then our hands are off. However, if you want to say your thing can be traded for our thing then we regulate that.
------------

First, note this applies to the U.S., but Bitcoin is global. So any one govt's reaction to it never affects all of Bitcoin.

The U.S. reaction I think can be viewed in simple terms: use of Bitcoin in its own economy is fine and not subject to regulation. The govt appears to concede it can't prohibit people bartering with bitcoins if they choose to. That's huge.

At the same time, the govt isn't going to stand idly by while bitcoin merges with its own monopolistic hold on "real" currency. Therefore, the reaction appears to target the two points at which this, in their view, happens: mining (bringing bitcoins into existence) which sucks away USD value into bitcoins; and exchanges which allow the trade of bitcoins for things of financial value, thus establishing their value.

[nwbitcoin]

This is bad, bad news.

First they got your attention, then they regulate, then they take over.

Then they kill it.

I think the real freedom is going to be found on the BTC-e exchange with the Russians and the Chinese. At least you know you can't trust them!
With the US making noises, the EU will copy them, and before you know it, bitcoin will be rebuilt, minus the bits that made it a threat to governments.

Oh well, lets just ride this sucker until it runs out of steam!

It's not too late to buy back in.......

I'm just going to milk what I have.

Having seen how the libertarian ideal of the internet of the early 90s got regulated to hell, I'm not holding out much hope for bitcoin, but I'm not selling until I have enough to buy some land!

[Stephen Gornick]

Excerpt from prepared remarks of

Jennifer Shasky Calvery,
Director,
Financial Crimes Enforcement Network

She gave the keynote in Miami this morning for today's session of the MoneyLaundering.com's 18th annual AML conference.

To date, FinCEN’s analysts have explored and produced reference products for law enforcement on many traditional and emerging payment systems. These include: cross border funds transfers and correspondent accounts, money transmitters, online payment systems, prepaid cards, and mobile payments. FinCEN’s analysts then follow up this work by providing in-person analysis and training to thousands of investigators each year.

In addition to developing products to help law enforcement follow the financial trails of emerging payments methods, FinCEN also develops guidance for the financial industry to clarify their regulatory responsibilities as they relate to emerging areas.

In fact, just yesterday, FinCEN issued interpretive guidance to clarify the applicability of BSA regulations to virtual currencies. The guidance responds to questions raised by financial institutions, law enforcement, and regulators concerning the regulatory treatment of persons who use virtual currencies or make a business of exchanging, accepting, and transmitting them.

FinCEN’s rules define certain businesses or individuals as money services businesses (MSBs) depending on the nature of their financial activities. MSBs have registration requirements and a range of anti-money laundering, recordkeeping, and reporting responsibilities under FinCEN’s regulations. The guidance considers the use of virtual currencies from the perspective of several categories within FinCEN’s definition of MSBs.

The guidance explains how FinCEN’s “money transmitter” definition applies to certain exchangers and system administrators of virtual currencies depending on the facts and circumstances of that activity. Those who use virtual currencies exclusively for common personal transactions like receiving payments for services or buying goods online are not affected by this guidance. Those who are intermediaries in the transfer of virtual currencies from one person to another person, or to another location, are money transmitters that must register with FinCEN as MSBs unless an exception applies. Some virtual currency exchangers are already registered with FinCEN as MSBs, though not necessarily as money transmitters. The guidance clarifies definitions and expectations to ensure that businesses engaged in similar activities are aware of their regulatory responsibilities.

 - http://www.fincen.gov/news_room/speech/pdf/20130319.pdf
 - http://bit.ly/YpohMG  <-- PDF Viewer in Google Docs.

[crazy_rabbit]

This is good news. With clear rules the economy can really begin to prosper. For the paranoid among us: ASIC IS YOUR SAVIOR.

[virtuallylaw]

Apparently anyone selling any type of virtual currency on ebay or craiglist is now a money transmitter, and as such a MSB, and as such now in violation of FinCEN interpretation if they haven't registered as an MSB.

There has to be some lawyer out there who is interested in Bitcoins and who can offer their interpretation on this matter.

Yes, me. I wrote up a quick take for the Bitcoin Foundation here: https://bitcoinfoundation.org/blog/?p=152

[virtuallylaw]

Excerpt from prepared remarks of

Jennifer Shasky Calvery,
Director,
Financial Crimes Enforcement Network

She gave the keynote in Miami this morning for today's session of the MoneyLaundering.com's 18th annual AML conference.

Thanks for finding this, interesting follow-up.

[willphase]

Yes, me. I wrote up a quick take for the Bitcoin Foundation here: https://bitcoinfoundation.org/blog/?p=152

Good blog, thanks for the write up.

2. If a person receives real money in exchange for their bitcoin they MAY have to register with FinCEN.

I read the "guidance" as being this type of individual would have to register with FinCEN since they would be "a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency.” (depending, as you say, on the definition of 'engaged as a business').

Why do you come to the alternative conclusion of MAY rather than MUST - is it just the uncertainty around the definition of 'engaged as a business'?

Will

[repentance]

It's probably worth pointing out that the requirement to register with US Treasury also applies to those outside the US who do business as a money transmitter in the US.

(2) Foreign-located money services business. Each foreign-located person doing business, whether or not on a regular basis or as an organized or licensed business concern, in the United States as a money services business shall designate the name and address of a person who resides in the United States and is authorized, and has agreed, to be an agent to accept service of legal process with respect to compliance with this chapter, and shall identify the address of the location within the United States for records pertaining to paragraph (b)(1)(iii) of this section.

http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&sid=532af3285642b30728036e7a8059b718&rgn=div8&view=text&node=31:3.1.6.1.6.3.5.9&idno=31

This provision doesn't require that you act as a money transmitter on a regular basis or that you be an organised/licensed business concern.  It has a lot of potential to be interpreted very broadly.

[virtuallylaw]

I read the "guidance" as being this type of individual would have to register with FinCEN since they would be "a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency.” (depending, as you say, on the definition of 'engaged as a business').

Why do you come to the alternative conclusion of MAY rather than MUST - is it just the uncertainty around the definition of 'engaged as a business'?

Will

Thanks Will. I said "May" rather than "Must" for a couple of reasons.

1. "Engaged as a business" is a whole can of worms that FinCEN left untouched for now. As you correctly pointed out.

2. This "Guidance" is FinCEN's way of identifying a few common facts and circumstances that they definitively view as money transmission. They don't directly say that receipt of money would place you in the category of "Exchanger" but one could easily infer that from rest of the guidelines. Therefore, I went with "may" be required to register not "must". I try to use my "musts" sparingly

[DeathAndTaxes]

This is good news. With clear rules the economy can really begin to prosper.

The problem is the rules aren't clear.  The guidance simply says (simplified) virtual currency exchangers are money transmitters.  Well that is all well and good except the guidance doesn't provide any guidance on complying with the BSA.  Just registering as a MSB is easy.  Anyone (company or individual) can do it in about five minutes by filling out a 4 page form. 

The problem is compliance.  Registering is saying "yes I am in compliance" and if you aren't well that is lose all your money or jail time.  The problem is that "compliance" isn't possible if you can figure out how to comply. 

Just on example of the inconsitencies and vagueness of applying money transmitter rules/requirements to currency exchangers. Money transmitters are required to collect and record information on money transmissions in excess of $3,000.  If I buy 100 BTC from you and pay you $5,000 by bank wire.  Who is the sender?  Who is the receiver?  In a classic money transmitter scenario (the one in all FinCEN courses, and documents) the money transmitter is the middle man.   Sender -> Money Transmitter -> Receiver.  The MT records the information both both entities.  Is the MT both the MT AND the sender?  Are you the sender and receiver?  Are we both MT and one of the roles?  Who knows.  There are some plausible "guesses" but get it wrong and you could be fined up to $250,000 for each inaccuracy.

The "guidance" is nothing of the sort.  Paraphrased version of FinCEN "guidance":

Um you guys are money transmitters and stuff, so figure out how what we expect you to do without us telling you what we expect you to do and BTW if you get it wrong or we later change our mind and decide you got it wrong well you go to jail.

Below is the regulation in question, now figure out what needs to be recorded.  

(e) Nonbank financial institutions. Each agent, agency, branch, or office located within the United States of a financial institution other than a bank is subject to the requirements of this paragraph (e) with respect to a transmittal of funds in the amount of $3,000 or more:

(1) Recordkeeping requirements. (i) For each transmittal order that it accepts as a transmittor's financial institution, a financial institution shall obtain and retain either the original or a microfilm, other copy, or electronic record of the following information relating to the transmittal order:

(A) The name and address of the transmittor;

(B) The amount of the transmittal order;

(C) The execution date of the transmittal order;

(D) Any payment instructions received from the transmittor with the transmittal order;

(E) The identity of the recipient's financial institution;

(F) As many of the following items as are received with the transmittal order: 1

1  For transmittals of funds effected through the Federal Reserve's Fedwire funds transfer system by a domestic broker or dealers in securities, only one of the items is required to be retained, if received with the transmittal order, until such time as the bank that sends the order to the Federal Reserve Bank completes its conversion to the expanded Fedwire message format.

( 1 ) The name and address of the recipient;

( 2 ) The account number of the recipient; and

( 3 ) Any other specific identifier of the recipient; and

(G) Any form relating to the transmittal of funds that is completed or signed by the person placing the transmittal order.

(ii) For each transmittal order that it accepts as an intermediary financial institution, a financial institution shall retain either the original or a microfilm, other copy, or electronic record of the transmittal order.

(iii) For each transmittal order that it accepts as a recipient's financial institution, a financial institution shall retain either the original or a microfilm, other copy, or electronic record of the transmittal order.

(2) Transmittors other than established customers. In the case of a transmittal order from a transmittor that is not an established customer, in addition to obtaining and retaining the information required in paragraph (e)(1)(i) of this section:

(i) If the transmittal order is made in person, prior to acceptance the transmittor's financial institution shall verify the identity of the person placing the transmittal order. If it accepts the transmittal order, the transmittor's financial institution shall obtain and retain a record of the name and address, the type of identification reviewed, and the number of the identification document ( e.g., driver's license), as well as a record of the person's taxpayer identification number ( e.g., social security or employer identification number) or, if none, alien identification number or passport number and country of issuance, or a notation in the record of the lack thereof. If the transmittor's financial institution has knowledge that the person placing the transmittal order is not the transmittor, the transmittor's financial institution shall obtain and retain a record of the transmittor's taxpayer identification number ( e.g., social security or employer identification number) or, if none, alien identification number or passport number and country of issuance, if known by the person placing the order, or a notation in the record of the lack thereof.

(ii) If the transmittal order accepted by the transmittor's financial institution is not made in person, the transmittor's financial institution shall obtain and retain a record of the name and address of the person placing the transmittal order, as well as the person's taxpayer identification number ( e.g., social security or employer identification number) or, if none, alien identification number or passport number and country of issuance, or a notation in the record of the lack thereof, and a copy or record of the method of payment ( e.g., check or credit card transaction) for the transmittal of funds. If the transmittor's financial institution has knowledge that the person placing the transmittal order is not the transmittor, the transmittor's financial institution shall obtain and retain a record of the transmittor's taxpayer identification number ( e.g., social security or employer identification number) or, if none, alien identification number or passport number and country of issuance, if known by the person placing the order, or a notation in the record of the lack thereof.

(3) Recipients other than established customers. For each transmittal order that it accepts as a recipient's financial institution for a recipient that is not an established customer, in addition to obtaining and retaining the information required in paragraph (e)(1)(iii) of this section:

(i) If the proceeds are delivered in person to the recipient or its representative or agent, the recipient's financial institution shall verify the identity of the person receiving the proceeds and shall obtain and retain a record of the name and address, the type of identification reviewed, and the number of the identification document ( e.g., driver's license), as well as a record of the person's taxpayer identification number ( e.g., social security or employer identification number) or, if none, alien identification number or passport number and country of issuance, or a notation in the record of the lack thereof. If the recipient's financial institution has knowledge that the person receiving the proceeds is not the recipient, the recipient's financial institution shall obtain and retain a record of the recipient's name and address, as well as the recipient's taxpayer identification number ( e.g., social security or employer identification number) or, if none, alien identification number or passport number and country of issuance, if known by the person receiving the proceeds, or a notation in the record of the lack thereof.

(ii) If the proceeds are delivered other than in person, the recipient's financial institution shall retain a copy of the check or other instrument used to effect payment, or the information contained thereon, as well as the name and address of the person to which it was sent.

(4) Retrievability. The information that a transmittor's financial institution must retain under paragraphs (e)(1)(i) and (e)(2) of this section shall be retrievable by the transmittor's financial institution by reference to the name of the transmittor. If the transmittor is an established customer of the transmittor's financial institution and has an account used for transmittals of funds, then the information also shall be retrievable by account number. The information that a recipient's financial institution must retain under paragraphs (e)(1)(iii) and (e)(3) of this section shall be retrievable by the recipient's financial institution by reference to the name of the recipient. If the recipient is an established customer of the recipient's financial institution and has an account used for transmittals of funds, then the information also shall be retrievable by account number. This information need not be retained in any particular manner, so long as the financial institution is able to retrieve the information required by this paragraph, either by accessing transmittal of funds records directly or through reference to some other record maintained by the financial institution.

(5) Verification. Where verification is required under paragraphs (e)(2) and (e)(3) of this section, a financial institution shall verify a person's identity by examination of a document (other than a customer signature card), preferably one that contains the person's name, address, and photograph, that is normally acceptable by financial institutions as a means of identification when cashing checks for persons other than established customers. Verification of the identity of an individual who indicates that he or she is an alien or is not a resident of the United States may be made by passport, alien identification card, or other official document evidencing nationality or residence ( e.g., a foreign driver's license with indication of home address).

[Elwar]

c. De-Centralized Virtual Currencies

            A final type of convertible virtual currency activity involves a de-centralized convertible virtual currency (1) that has no central repository and no single administrator, and (2) that persons may obtain by their own computing or manufacturing effort.

            A person that creates units of this convertible virtual currency and uses it to purchase real or virtual goods and services is a user of the convertible virtual currency and not subject to regulation as a money transmitter. By contrast, 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. In addition, a person is an exchanger and a money transmitter if the person accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency.

This part gets ignored but I am a bit confused by it.

Everywhere else there is a distinction between virtual currency and real currency. This line just says "currency".   It is quite vaque in that it could say "if the person accepts (Bitcoin) from one person and transmits it(Bitcoin) to another person as part of the acceptance and transfer of...value (that substitutes for currency)."  Would that mean that every node on the network transferring bitcoins from one person to another is an "exchanger and a money transmitter"?

[Mosper]

That they are discussing bitcoin at all is a clear victory. People should be investing more than ever as they say no such thing as bad publicity. Bitcoin is going up so people hearing about it through any avenue and for any reason is a solid win as they will start paying attention and seeing it jump $10 is sure to get them involved.

[virtuallylaw]

It's probably worth pointing out that the requirement to register with US Treasury also applies to those outside the US who do business as a money transmitter in the US.

...

This provision doesn't require that you act as a money transmitter on a regular basis or that you be an organised/licensed business concern.  It has a lot of potential to be interpreted very broadly.

You're absolutely right, if you provide "Exchanger" services in the US you would come under FinCEN jurisdiction. Also, right that this rule could be and has been very broadly interpreted.

[evilpete]

The bottom line to all this is that bitcoin shouldn't be thought of as a means of evading the law.

"They" don't seem to care too much about what happens inside our sandbox - especially since the blockchain is public record - but they do care when it goes near fiat or out of public view (eg: into an exchange account for off-blockchain transactions or conversions).

Remember.. Cash is hard to track.  The blockchain as a transaction record in public view is a dream come true.

"They" are probably trying to figure this all out.

[Elwar]

Whenever I bring up Bitcoin to people most of them say something like "they'll find a way to make it illegal".

I can now say, "the US government has acknowledged Bitcoin and has put regulations in place for businesses exchanging dollars for bitcoins but are perfectly fine with people using bitcoins to buy and sell things"

[Mosper]

The bottom line to all this is that bitcoin shouldn't be thought of as a means of evading the law.

This is absolutely right but as a currency its only real uses (99% of the time. I am using bitcoins for legal purchases right now for my business but is a very specific and almost nonexistent circumstance) are for illegal things/evading the law. It offers no benefits to a consumer vs traditional money/ways to manage money (credit/debit cards).

No chargebacks is not a benefit to consumers. The transactions take way too long. The exchange rate is way too volatile/inconsistent. You are absolutely right that it shouldn't be but when is the community going to start modifying bitcoin to move it away from this?

[flug]

Just to clarify, is there anything in this that affects the direct exchange of bitcoins for goods and services?

[DeathAndTaxes]

Just to clarify, is there anything in this that affects the direct exchange of bitcoins for goods and services?

The guidance specifically states that is NOT a MSB or an activity regulated by FinCEN.