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Author Topic: FinCEN addresses Bitcoin  (Read 28110 times)
virtuallylaw
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March 19, 2013, 11:51:23 PM
 #181

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

No. FinCEN seems to be focusing on the exchange of virtual currency (bitcoin) for "real money". The direct exchange of bitcoin for goods and/or services was specifically excluded from FinCEN registration requirements.
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March 19, 2013, 11:55:26 PM
 #182

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"?

I think if it just says "currency", they are referring to the FinCEN definition of currency, which excludes "virtual currency".
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March 19, 2013, 11:58:26 PM
 #183

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

Patrick, do we also run up against the issue of people laying themselves open to sanctions if they take intermediate steps to avoid these provisions - such as purchasing something with BTC they have mined but then selling their purchases?  As the original source of the BTC isn't a "serious crime" or predicate offence (which is key in relation to how FATF defines money laundering), then it's hard to argue such a strategy is money-laundering per se and yet my instinct is that taking such steps could well be an offence in its own right (especially if done repeatedly).

All I can say is that this is Bitcoin. I don't believe it until I see six confirmations.
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March 20, 2013, 12:10:23 AM
 #184

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

No. FinCEN seems to be focusing on the exchange of virtual currency (bitcoin) for "real money". The direct exchange of bitcoin for goods and/or services was specifically excluded from FinCEN registration requirements.

Great! So a purely Bitcoin sub-economy is still OK. Although, presumably if your earnings are purely in Bitcoin, you'd have to exchange some of them into USD to pay income tax.
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March 20, 2013, 12:14:13 AM
 #185

Although, presumably if your earnings are purely in Bitcoin, you'd have to exchange some of them into USD to pay income tax.

Why bother? If you only use BTC for payments you can stay anonymous enough to be safe from govt extortion.
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March 20, 2013, 12:21:04 AM
 #186

A US business selling goods for BTC is a vital element of the BTC economy. The business must convert the BTC to USD.
1. does converting it at a registered exchange solve the FinCEN requirements (apparently NOT! getting USD for BTC MAY require registration and this would kill the BTC economy)
2. is mtgox registered at FinCEN (or any other exchange) ?
Bitco
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March 20, 2013, 12:23:22 AM
 #187

Well the problem is the rules aren't clear.  The guidance simply says (simplified) virtual currency exchangers are money transmitters.  Ok well the problem is the pages and pages of documents related to money transmitters have absolutely nothing to do with buying and selling virtual currencies.

One example.  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.  Of course even complying with the regulation becomes impossible if as it doesn't even make sense in this case.  Is the MT both the MT AND the sender?  Are you the sender and receiver?  Who knows.  Get it wrong and you could be fined up to $250,000 for each inaccuracy.

The "guidance" is nothing of the sort.  It is more like "Um you guys are money transmitters and stuff no figure out how to be compliant or go to jail".

You have a reasonable argument that you are not a money transmitter.

Quote
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.

Since you refuse to pay third parties, the only way it could be claimed that you are a money transmitter is if the money is sent to another location.  Is depositing money into someone's bank account transmitting money to another location?  If so, arguably it is the bank that is transmitting the money and not you.

Maybe if you mail out checks, you could insist on only sending to the customer's primary residence, and to no other location.

OTOH, localbitcoins sellers are in the clear, as the money doesn't go to any other location during an in-person exchange.

bam91
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March 20, 2013, 12:28:46 AM
 #188

http://www.fincen.gov/news_room/rp/rulings/pdf/fincenruling2003-9.pdf

This is interesting:

Quote
To the extent that you are exchanging and transporting your own money on behalf of yourself, you are not doing business as a money transmitter or a currency dealer or exchanger for purposes of the BSA, and thus, are not required to register with FinCEN as an MSB.


Does this still hold true?
Bitco
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March 20, 2013, 12:34:15 AM
 #189

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"?

I think if it just says "currency", they are referring to the FinCEN definition of currency, which excludes "virtual currency".

Yeah, because "currency" here means US and foreign currency.  This is a limitation of 31 USC § 5312 (a)(3).  They can not just throw "virtual currency" in there.  They really deserve to get slapped for trying.

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March 20, 2013, 12:40:36 AM
 #190

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"?

I think if it just says "currency", they are referring to the FinCEN definition of currency, which excludes "virtual currency".

Yeah, because "currency" here means US and foreign currency.  This is a limitation of 31 USC § 5312 (a)(3).  They can not just throw "virtual currency" in there.  They really deserve to get slapped for trying.

Ok, that makes things more clear.

But what is meant by "value that substitutes for currency"?

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marcus_of_augustus
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March 20, 2013, 12:44:25 AM
 #191

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.

That's good, Silk Road can ignore FinCEN then.

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March 20, 2013, 12:53:28 AM
 #192

How is "real money" defined? Are store credits considered "real money" ? Is jewelry considered "real money"? (Jewelry can be used as an interim barter item before it becomes "real money" and setting a fixed price on such jewelry.) People have suggested valuable metals like gold or silver but not as "real money".

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acoindr
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March 20, 2013, 12:54:55 AM
 #193

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"?

I think if it just says "currency", they are referring to the FinCEN definition of currency, which excludes "virtual currency".

Yeah, because "currency" here means US and foreign currency.  This is a limitation of 31 USC § 5312 (a)(3).  They can not just throw "virtual currency" in there.  They really deserve to get slapped for trying.

Ok, that makes things more clear.

But what is meant by "value that substitutes for currency"?

Yeah, I focused in on the "value that substitutes for currency" too. I think that was intentionally included to give themselves broad interpretation. I think context is the key. FinCEN deals with finance related items. Precious metals can be used to finance buying things, so that would qualify as "value that substitutes for currency" IMO.

What's most interesting though is that virtual currencies themselves might eventually be used to finance buying things (if they became popular enough); at that point they would also qualify as "value that substitutes for currency" so an exchange that transacted no fiat, but only well established crypto-currencies might also then be targeted.

They basically want to regulate exchange of currencies; and currencies, by definition, become currency when a large number of people accept them as such.
Bitco
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March 20, 2013, 12:57:45 AM
 #194

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"?

I think if it just says "currency", they are referring to the FinCEN definition of currency, which excludes "virtual currency".

Yeah, because "currency" here means US and foreign currency.  This is a limitation of 31 USC § 5312 (a)(3).  They can not just throw "virtual currency" in there.  They really deserve to get slapped for trying.

Ok, that makes things more clear.

But what is meant by "value that substitutes for currency"?

Presumably the other "monetary instruments" that they are allowed to regulate under section 5311 et seq: travelers’ checks, bearer negotiable instruments, bearer investment securities, bearer securities, stock on which title is passed on delivery, and similar material.

But who knows really...  If they actually try to enforce these regulations, these definitions will probably be argued in court sooner or later.

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March 20, 2013, 01:05:18 AM
 #195

Quote
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"?

"Currency" is quite well-defined:
Quote
FinCEN's regulations define currency (also referred to as "real" currency) as "the coin and paper money of the United States or of any other country that is designated as legal tender and that [ii] circulates and [iii] is customarily used and accepted as a medium of exchange in the country of issuance."

So, let me translate this from legalese (but remember that I am not a lawyer) to Bitcoin in practical terms:

Quote
c. Bitcoin

            A final type of convertible virtual currency activity involves bitcoin, a virtual currency (1) that has no central repository and no single administrator, and (2) that persons may mine.

            A miner that uses bitcoin 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 miner that sells bitcoins to another person for fiat 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 bitcoin from one person and transmits it to another person as part of the acceptance and transfer of fiat.

This practically effects:

1) Exchanges, but they already knew that.
2) Middlemen that convert bitcoin to USD, like BitPay.
3) Mining pools that directly allow you to cash out in USD.

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March 20, 2013, 01:12:11 AM
 #196


Quote
c. Bitcoin

            A final type of convertible virtual currency activity involves bitcion, a virtual currency (1) that has no central repository and no single administrator, and (2) that persons may mine.

            A miner that uses bitcoin 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 miner that sells bitcoins to another person for fiat 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 bitcoin from one person and transmits it to another person as part of the acceptance and transfer of fiat.

This practically effects:

1) Exchanges, but they already knew that.
2) Middlemen that convert bitcoin to USD, like BitPay.
3) Mining pools that directly allow you to cash out in USD.

Now here's a thought...

According to the way I read this:

Quote
"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."

...the bitcoin mixers and laundry sites are not on the hook as money launderers.  Does it look like that to you?

Dankedan: price seems low, time to sell I think...
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March 20, 2013, 01:14:27 AM
 #197

It's worth remembering that this was pretty much expected and that enterprises have been preparing for it.  

The thing which was largely unexpected is miners themselves being regarded as money transmitters if they sell their BTC.  


All I can say is that this is Bitcoin. I don't believe it until I see six confirmations.
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March 20, 2013, 01:15:03 AM
 #198

A reasonable way to test how these guidelines work in practice would be to inform FinCEN about suspected illegal activity of the "Linden Lab's currency brokerage" and monitor what happens then.
I am not sure if asking FinCEN about interpretations will bring us further. I have no idea how vague official clarifications are in US, but in Poland You get 4 different (contradictory) official opinions and none of them tells You the answer to your questions. Provoking court decisions was always a slow but more reliable alternative.
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March 20, 2013, 01:56:08 AM
 #199

...
Maybe everyone who has ever sold a Bitcoin for money should start sending FinCEN their registration information and asking for guidance?  ...

The following I think helps clarify.

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.

Quote
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.


It sounds like they're interested specifically in exchanges.
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March 20, 2013, 02:02:54 AM
 #200

tl;dr...  bitcoins are legal


And you need a +$1million dollar worth money transmitter license if you want to mine and sell them for fiat  Roll Eyes

So, the way I read this, only mining pool operators or solo miners would need to do this.  If you're just participating in a mining pool, you're not technically engaged in mining yourself, you are just selling a computational service of processing work units and producing shares.  Only the mining pool operator is actually producing new Bitcoins (putting the new block together); you as an individual pool contributor aren't.

If all the sovereign non-cryptocurrencies will eventually collapse from hyperinflation, you can't afford *not* to invest in Bitcoin...  See my blog at http://minetopics.blogspot.com/ .

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