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Author Topic: [TU.SILVER] FinCEN compliance report  (Read 1180 times)
usagi
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March 19, 2013, 03:09:34 AM
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As you may or may not be aware, on March 18th, FinCEN (the Financial Crime Enforcement Network) published a paper detailing it’s stance on virtual currencies.The full FinCEN report is here.

The following excerpt relates directly to the sale and trade of Bitcoin precious metals:

     a. E-Currencies and E-Precious Metals

            The first type of activity involves electronic trading in e-currencies or e-precious metals.13 In 2008, FinCEN issued guidance stating that as long as a broker or dealer in real currency or other commodities accepts and transmits funds solely for the purpose of effecting a bona fide purchase or sale of the real currency or other commodities for or with a customer, such person is not acting as a money transmitter under the regulations.14

            However, if the broker or dealer transfers funds between a customer and a third party that is not part of the currency or commodity transaction, such transmission of funds is no longer a fundamental element of the actual transaction necessary to execute the contract for the purchase or sale of the currency or the other commodity. This scenario is, therefore, money transmission.15 Examples include, in part, (1) the transfer of funds between a customer and a third party by permitting a third party to fund a customer's account; (2) the transfer of value from a customer's currency or commodity position to the account of another customer; or (3) the closing out of a customer's currency or commodity position, with a transfer of proceeds to a third party. Since the definition of a money transmitter does not differentiate between real currencies and convertible virtual currencies, the same rules apply to brokers and dealers of e-currency and e-precious metals.


As TU.SILVER stocks all the silver it sells, it is now the only legal coin shop in the community. Any coin shop which operates in conjunction with a third party or drop ships, is now illegal. Further, as ownership of TU.SILVER shares represent silver which has been reserved for shipping to customers on a fully allocated, 100% backed-by-stocked-silver basis, TU.SILVER is now the only legal precious metals “fund” in the community. All other "funds" which do not do this (which have no direct backing and redemption policy) are now illegal.
While we are sure that all existing coin shops and precious metals funds will act quickly to register with the proper authorities, we must point out now that it is a risk to deal with them until this situation is resolved.

For more information on TU.SILVER and how to protect your money in today’s crazy BTC market, please visit the TU.SILVER page on BitFunder:
https://bitfunder.com/asset/TU.SILVER
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March 19, 2013, 03:11:24 AM
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As TU.SILVER stocks all the silver it sells, it is now the only legal coin shop in the community.

False. 
usagi
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March 19, 2013, 03:14:50 AM
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As TU.SILVER stocks all the silver it sells, it is now the only legal coin shop in the community.

False.  

IANAL but according to the quote, it appears illegal to use Bitcoin to buy USD from a third party on behalf of a customer. The point seems to be, they've separated the transaction into two parts (the currency transaction and the sale of the metal) and said "Wait a minute, you're exchanging money on behalf of other people, you need to register". Or am I reading that wrong?

Again, I'm sure this will be no big deal. I am sure existing coin shops and funds will act quickly to rectify their non-compliance. For example, there's over 40,000 licensed money transmitters in the US already, and it only costs $1000 to register in Washington state ([12:32] <Bugpowder> http://mortgage.nationwidelicensingsystem.org/slr/PublishedStateDocuments/WA-Currency-Exchange-Company-New-App-Checklist.pdf).

tl;dr...  bitcoins are legal
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March 19, 2013, 04:31:14 AM
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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.

Is silver an "other value that substitutes for currency"?

I'm not a Coinbase fan -- I placed a buy order, they took the funds out of my account, then a week later the price went up and they canceled the buy and closed my account.  You've been warned.  Use a different exchange.
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March 19, 2013, 06:32:27 AM
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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.

Is silver an "other value that substitutes for currency"?

I don't know.

I read it to state that if you're selling metal you own, it's okay, but if you are exchanging to USD in order to complete the sale with a third party, it's illegal.

Looking it over quite a few times I'm now convinced that "funds" such as GOLD are not targeted by this report. They don't violate section 1, 2 or 3, which is to say there is no "third party that is not part of the currency or commodity transaction".

A few people on IRC were commenting that, basically, things will be OK so long as you never mix bitcoins with "legal tender". I'd add to that "on behalf of someone else". So a fund would just need to be careful about how they buy and sell precious metals. Basically don't buy in BTC from any coin shop that is not a registered money transmitter and which performs a currency conversion on your behalf in order to complete your order. This means any kind of shop which drop shops, or orders from a third party supplier after you send them bitcoins. As a fund, you wouldn't be able to get around this by doing the conversion yourself and then ordering from, say APMEX. Because then you would be doing a currency conversion and would need to be a registered money transmitter yourself.

I'd speculate there are two reasons why this is being done this way. One, they don't want anonymous people doing bitcoin transactions anymore. So they will de-anonymize it by causing everyone who performs money transactions to "know your customer" or lose their license. Second, bitcoin has become big enough that governments realize they can make money by taxing/regulating it. I suspect a $1,000 money transmitter license is just the beginning. I believe jgarzik's quote will become famous;

tl;dr...  bitcoins are legal

I think this is what will send bitcoin to $100. It's "legal" now. Big business can move in.
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March 19, 2013, 07:29:36 AM
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Are you a "coin shop", though?  Or are you offering unregistered securities to non-accredited investors?  FinCEN isn't the only agency in the US which those operating Bitcoin enterprises need to consider.

I'd be very careful about implying that your "coin shop" is legal given that you repeatedly describe it in terms of an investment fund. 

All I can say is that this is Bitcoin. I don't believe it until I see six confirmations.
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March 19, 2013, 07:36:34 AM
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Are you a "coin shop", though?  Or are you offering unregistered securities to non-accredited investors?  FinCEN isn't the only agency in the US which those operating Bitcoin enterprises need to consider.

I'd be very careful about implying that your "coin shop" is legal given that you repeatedly describe it in terms of an investment fund.  

Yes, we are a coin shop. We even let customers choose which coins they want us to send them. We post pictures and they can select which coins they want. Thanks for your concern. How we operate is similar to how many other businesses accross the world operate. I've covered this in several of the posts I've made last week as those issues have been raised.

Tradefortress on IRC just told me I was wrong about being the only legal coin shop. There is one in Europe which is not covered by these regulations, BitAurum.eu. There's also a BTC coin shop in Australia IIRC.

I think we (the people who are interested in PMs) should make a list of who it's ok to shop from for now. That would be constructive.
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March 19, 2013, 07:42:04 AM
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Is it illegal to shop from a US shop that doesn't comply with the FinCEN guidance, or is it just illegal for the shop owner?
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March 19, 2013, 10:46:56 AM
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I read it pretty much the opposite way to how Usagi does.

Nothing in the definition of third-parties exclude drop-shippers UNLESS the agreement with the purchaser includes reference to such a party.  Unless you actually mine the silver yourself there will ALWAYS be a third-party from whom the silver was obtained.  All that varies is the timing - whether you buy from the third-party before or after the customer orders from you.  And the regulations don't make any reference to time - as that isn't the (pretty obvious) purpose of them.

If you read what it says, the objective of those definitions is to prevent accepting, holding or transferring money from one party on behalf of another.  Unless there's an agreement between the purchaser and the third-party that can't happen (the agreement wouldn't have to be direct of course).  When a seller sends funds to the source they are NOT sending funds on behalf of the purchaser - they are sending funds on their OWN behalf so as to fulfil their obligation to the purchaser.  The purchaser has NO agreement with the third-party so there's no way funds can be sent on their behalf.  Where it WOULD get messy would be if instead of silver the seller was selling orders to be placed with a third-party.  But I've yet to see any PM site which works like that.

What puzzles me more is how usagi can honestly believe his fund is somehow more 'legal' than others.  Usagi's shares represent not just silver but a portion of profits - which very clearly makes them securities (Selling pieces of future profits is one of the key elements which defines something as a security).  That's WAY more on dodgy ground than selling PMs but not holding them in stock.  Pretending that buying such shares is somehow buying JUST silver fools noone.  Being possibly in accordance with one set of regulations whilst totally flouting others (TU.SILVER sells options and invests on behalf of its investors - which alone is sufficient to make it a business subject to regulation) is NOT a sound basis on which to claim to be whiter than white or more legal than your competition.

Do note that I run a fund myself (nothing to do with PMs) so would be on equally dodgy ground were I in the US.  But I'm not running around claiming I'm more 'legal' than my competition anyway.  Just mentioning that so as not to be accused of hypocrisy.
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March 20, 2013, 08:50:10 AM
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You are offering securities to the public which is more likely to be frowned upon than a store like Amagi Metals http://www.amagimetals.com/ which doesnt offer profit sharing.

usagi
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March 20, 2013, 01:45:08 PM
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You are offering securities to the public which is more likely to be frowned upon than a store like Amagi Metals http://www.amagimetals.com/ which doesnt offer profit sharing.

No, we're a silver store, and we don't operate in the US.
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