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Author Topic: full picture on US MSB regs, state and federal  (Read 4658 times)
adpinbr
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June 11, 2013, 10:15:04 AM
 #41

Also I would like to know the legal statues of pre-paid debit cards, and gift cards. What has to be done in order to issue a pre paid debit card or gift card?
Why can't bitcoins be considered a gift card? you can only purchase certain items with them. If I were willing to buy Amazoncoins from you and send you dollars in return, does that make amazon coins a digital currency that has to follow all Fincen and MSB regulation. It makes no sense to me.
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June 11, 2013, 04:22:03 PM
 #42

Also I would like to know the legal statues of pre-paid debit cards, and gift cards. What has to be done in order to issue a pre paid debit card or gift card?

At the federal level issuers of prepaid cards and gift cards are MSBs under the category "prepaid access".  The previous term was "stored value" and they are essentially similar.
Just about every state regulated issuers of stored value and requires pretty massive bonds and licensing requirements.  For that reason almost no retailer actually issuers their own gift cards.  They are issued (read small print on back of one) by a handful of companies which specialize in that business (and have licensing in all states). 

The reason is stored value is a promise to pay in the future.  If starbucks issues you a $100 starbucks card although you may hand Starbucks the cash today, that cash doesn't below to Starbucks.  Starbucks technically hasn't generated any profit yet.  They add $100 to their prepaid account (asset) but the also gain a $100 liability (accounts payable).  Only when you make a purchase with that card is the liability removed.  The company is prohibited from using, spending, even comingling any of the funds on prepaid cards that haven't yet been redeemed.  States regulate this heavily because imagine what happens if a company sells $50M in gift cards and then the CEO wires it to a non extradition treaty country and hops a plane.  Ooops.  Your stored value is worthless piece of plastic.

Bitcoin isn't stored value for a whole host of what should now be very obvious reasons but if it were the regulatory requirements at the state level are just as high for stored value issuers.

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If I were willing to buy Amazoncoins from you and send you dollars in return, does that make amazon coins a digital currency that has to follow all Fincen and MSB regulation. It makes no sense to me.

Amazoncoins are a virtual currency under FinCEN guidance.  If you ran a business converting USD to AMZ or the reverse (which you can't because AMZ prohibits all such activity) then you would under FinCEN guidance be a MSB.
Of course if you sell "traditional" gift cards instead you would still be an MSB (or required to be an agent of an existing MSB).  Take GreenDot for example.  They are an MSB however lots of places (wallmart, 7-11, etc) sell MoneyPaks which aren't MSBs.  An MSB can choose to make a third party an agent of that MSB and the agent is not required to be licensed or registered as long as they are acting only in the capacity of an agent of an existing MSB.
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June 11, 2013, 04:28:08 PM
 #43

Above we see exemption clauses. 3 questions.
1) As I read the law, Bitpay should fall into the exemption clause of ii (B). However later it is stated that the clause is an exemption only if it is done infrequently and not for profit. So are Bitpay playing by the book, or are the purposely playing stupid?

It does not state that.  There is ANOTHER exemption for entities who's activity who's activity otherwise meets the MSB requirements but the activity is only done infrequently and not for profit.  For example if you one time sell your friend some BTC technically you meet the requirements as an MSB and would need to register however you could claim that you are not regulated under the "infrequently and not for profit" exemption.

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(Cool Limitation. For the purposes of this section, the term “money services business” shall not include:

(i) A bank or foreign bank;

(ii) A person registered with, and functionally regulated or examined by, the SEC or the CFTC, or a foreign financial agency that engages in financial activities that, if conducted in the United States, would require the foreign financial agency to be registered with the SEC or CFTC; or

(iii) A natural person who engages in an activity identified in paragraphs (ff)(1) through (ff)(5) of this section on an infrequent basis and not for gain or profit.

The exemption in (Cool(iii) is independent of the one in (5)(ii)(B)

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(ii) Facts and circumstances; Limitations. Whether a person is a money transmitter as described in this section is a matter of facts and circumstances. The term “money transmitter” shall not include a person that only:

...

(B) Acts as a payment processor to facilitate the purchase of, or payment of a bill for, a good or service through a clearance and settlement system by agreement with the creditor or seller;


Simplified version:
A) if you infrequently exchange virtual currency for real currency and do so not for profit your activity would be exempt under the exemption in (Cool(iii)
B) If you operate a payment processing network to facilitate payments from consumers to merchants (aka a clone of BitPay) you would be exempt under exemption in (5)(ii)(B).
The two have nothing to do with each other.  You don't need to be a payment processor to gain the exemption in (Cool(iii) and you don't need to be not for profit to gain the exemption in (5)(ii)(B).
NOTE: the above if informational and should not be construed as legal counsel.  If you have a specific question about your specific activity you should retain legal counsel.

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2) Furthermore we see "(E) Provides prepaid access; or" as an exemption clause. I did not understand this. Exactly what falls under pre paid access? Why doesn't MtGox offer prepaid access to an count with funds in it?

This doesn't "help", banks are also exempt from Money Transmitter registration (see (Cool(i) above) because they are required to register under separate regulations.  Issuers of prepaid access are required to register as MSB just not under (ff)(5) "Money Transmitter" they do so under ff(4) "Provider of prepaid access".   Remember there are 7 categories on activity which require registering as an MSB.  Money Transmitter (#5) is just one of seven.  The regs make it difficult to follow because after they name on type they then go into multiple pages of exemptions, and other supporting regs.  Here is what it looks like stripping out all the supporting paragraphs:

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(ff) Money services business. A person wherever located doing business, whether or not on a regular basis or as an organized or licensed business concern, wholly or in substantial part within the United States, in one or more of the capacities listed in paragraphs (ff)(1) through (ff)(7) of this section. This includes but is not limited to maintenance of any agent, agency, branch, or office within the United States.

(1) Dealer in foreign exchange. A person that accepts the currency, or other monetary instruments, funds, or other instruments denominated in the currency, of one or more countries in exchange for the currency, or other monetary instruments, funds, or other instruments denominated in the currency, of one or more other countries in an amount greater than $1,000 for any other person on any day in one or more transactions, whether or not for same-day delivery.

(2) Check casher — In general. A person that accepts checks (as defined in the Uniform Commercial Code), or monetary instruments (as defined at § 1010.100(dd)(1)(ii), (iii), (iv), and (v)) in return for currency or a combination of currency and other monetary instruments or other instruments, in an amount greater than $1,000 for any person on any day in one or more transactions.

(3) Issuer or seller of traveler's checks or money orders. A person that Issues traveler's checks or money orders that are sold in an amount greater than $1,000 to any person on any day in one or more transactions; or Sells traveler's checks or money orders in an amount greater than $1,000 to any person on any day in one or more transactions.

(4) Provider of prepaid access — In general. A provider of prepaid access is the participant within a prepaid program that agrees to serve as the principal conduit for access to information from its fellow program participants. The participants in each prepaid access program must determine a single participant within the prepaid program to serve as the provider of prepaid access.

(5) Money transmitter — In general. (A) A person that provides money transmission services. 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. “Any means” includes, but is not limited to, through a financial agency or institution; a Federal Reserve Bank or other facility of one or more Federal Reserve Banks, the Board of Governors of the Federal Reserve System, or both; an electronic funds transfer network; or an informal value transfer system;

(6) U.S. Postal Service. The United States Postal Service, except with respect to the sale of postage or philatelic products.

(7) Seller of prepaid access. Any person that receives funds or the value of funds in exchange for an initial loading or subsequent loading of prepaid access if that person: Sells prepaid access offered under a prepaid program that can be used before verification of customer identification under § 1022.210(d)(1)(iv); or Sells prepaid access (including closed loop prepaid access) to funds that exceed $10,000 to any person during any one day, and has not implemented policies and procedures reasonably adapted to prevent such a sale.






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3) If the answer to question 1 was "bit pay is playing by the rules despite being for profit and on a frequent basis", could the clause stated in question 2 be used to escape regulation using pre paid vouchers?

No.  That isn't the reason Bitpay is "playing by the rules".  BitPay is a payment process which are exempt.  Period.  They don't need to meet any other criteria other than being a payment processor.  In the same respect VISA and MC are not MSBs they are payment processors.  
Be sure to read the regs multiple times, there are lots of categories and types.  Prepaid vouchers are "prepaid access" under MSB rules and are regulated.
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