Everyone Panic. There's a lawyer among us. [FinCEN Walkthrough on p2]

[MSantori]

Hi everyone. I'm a business attorney in New York City.  I've been involved in cryptocurrency for some time now.  I hope I can be of some help on this board.  I can't give you legal advice via posts, but if you PM me, we may be able to discuss the particulars of your business.

Full disclosure: There's no such thing as an expert or specialist in bitcoin law, and I am certainly not one.  I'm an attorney with experience in securities, civil fraud and other financial matters with particular emphasis in the tech realm.  There is almost zero judicial and legislative guidance out there for us practitioners, so many of us are trying to keep ourselves out in front of every new development as they arise.

I'm daily fascinated by what bitcoin is and what it can become, and I'm looking forward to becoming part of the community!

[1715346693]

1715346693

[Bitcoinorama]

Hi everyone. I'm a business attorney in New York City.  I've been involved in cryptocurrency for some time now.  I hope I can be of some help on this board.  I can't give you legal advice via posts, but if you PM me, we may be able to discuss the particulars of your business.

Full disclosure: There's no such thing as an expert or specialist in bitcoin law, and I am certainly not one.  I'm an attorney with experience in securities, civil fraud and other financial matters with particular emphasis in the tech realm.  There is almost zero judicial and legislative guidance out there for us practitioners, so many of us are trying to keep ourselves out in front of every new development as they arise.

I'm daily fascinated by what bitcoin is and what it can become, and I'm looking forward to becoming part of the community!

This maybe of intertest for you; https://bitcointalk.org/index.php?topic=187683.new#new

[greyhawk]

I want to see NYCesquire and Nolo get into anime style Phoenix Wright inspired slapfights.

[MSantori]

This maybe of intertest for you; https://bitcointalk.org/index.php?topic=187683.new#new

Thanks. I've posted there actually.

[oakpacific]

This question I think you can answer: do you take bitcoins?

[MSantori]

Nope.  My posts are gratis 

[bitcoinstarter]

Shaking in my boots! 

[yacoin]

Do ya think bitcoin will be banned or regulated?

[MSantori]

Speaking at least in the United States, bitcoin will not be banned.  It is and will continue to be regulated on the state and federal level.

Regulation is a good thing. It is the inevitable consequence of widespread adoption and acceptance.  We want regulation: careful, competent regulation.

[Zeke_Vermillion]

Speaking at least in the United States, bitcoin will not be banned.  It is and will continue to be regulated on the state and federal level.

Regulation is a good thing. It is the inevitable consequence of widespread adoption and acceptance.  We want regulation: careful, competent regulation.

I think "we" would prefer no regulation. However, given the inevitability of regulation, it is better to take the initiative and propose a regime that is workable. This is the classic lobbying technique of most well-organized industries. Voluntarily submit to regulation that you propose, to head off more draconian approaches from entrepreneurial politicians.

[TheButterZone]

Or give an inch, and googolplex light years are taken, as with every absolute power.

[Kluge]

Hey! Wanna play, uh... five-ish sometimes-loaded questions? (just as speculation, not legal advice)

If MtGox were to become compliant, do you think they'd need both federal and state FinCEN/MSB compliance (assuming they don't latch onto a national bank/CU somehow)? Most people seem under the impression you can just register with FinCEN and it's done - woohoo, you're fully compliant, and this is the "compliance" most BTC MSBs seem to be talking about. But, these companies do business in all 50 states, and all these states have their own laws, licenses, and usually crazy-expensive fees.

Am I wrong, or is federal FinCEN registration as a MSB not enough?

Do you know of any US-serving exchanges which you believe probably are fully compliant?

Do you believe the USG (particularly, the courts) will accept Bitcoin being treated as a currency, and do you think that premise they're seizing Gox due to should be legally challenged? If you think it should be challenged, who should be challenging it? In an niche economy of startups, maybe we should all chip-in for a legal team to challenge the definition of BTC as a currency?

For almost all of us, we've treated Bitcoin as a commodity rather than a currency for tax purposes - especially relevant because complying with tax regulations as a miner would be an enormous, practically unfeasible pain in the ass. Still, AFAIK nobody's really bringing this up. The implications of letting FinCEN and other bureaucracies call Bitcoin a currency seem pretty unexplored, and there are people just saying "it won't affect me, I'm in the UK" when the US has a tendency for its precedents/definitions to be adopted elsewhere. Do you think the Bitcoin community has under-reacted to the likely changes in definition of Bitcoin will bring, or is it appropriate just to wait until we're explicitly told by a government we're doing something wrong (IF we're doing something wrong)?

[MSantori]

Hey! Wanna play, uh... five-ish sometimes-loaded questions? (just as speculation, not legal advice)

Sure.

If MtGox were to become compliant, do you think they'd need both federal and state FinCEN/MSB compliance (assuming they don't latch onto a national bank/CU somehow)? Most people seem under the impression you can just register with FinCEN and it's done - woohoo, you're fully compliant, and this is the "compliance" most BTC MSBs seem to be talking about. But, these companies do business in all 50 states, and all these states have their own laws, licenses, and usually crazy-expensive fees.

Yes.  Based on my understanding of how MtGox handles money, it and it's subsidiaries are - under the current statutory regime, required to register with FinCEN, together with every state in which they are transmitting money under that state's MSB laws.  Depending upon how they do their business, they are likely required to register in every state with an MSB statute.

Am I wrong, or is federal FinCEN registration as a MSB not enough?

You are correct.

Do you know of any US-serving exchanges which you believe probably are fully compliant?

Not a single one.

Do you believe the USG (particularly, the courts) will accept Bitcoin being treated as a currency, and do you think that premise they're seizing Gox due to should be legally challenged? If you think it should be challenged, who should be challenging it? In an niche economy of startups, maybe we should all chip-in for a legal team to challenge the definition of BTC as a currency?

BTC will be considered a currency or a commodity depending upon the particular regulatory framework applied.  Generally speaking, for tax purposes, BTC is treated as a sort of commodity.  Income is realized when BTC is converted to fiat, goods or services.  I believe this will change once BTC is more widely-accepted in exchange for goods and services.  But for MSB purposes, BTC has its feet planted firmly in currency, and the entire money transmitter regulatory framework applies.  As to challenging this designation, well, where to start?  The bar for challenging an administrative rule is a very high one: the rule must be "arbitrary and capricious".  These rules don't strike me as such.  In any event, the cost of challenging the rules would likely top a million dollars for competent litigators in the field to bring such a case to completion.

For almost all of us, we've treated Bitcoin as a commodity rather than a currency for tax purposes - especially relevant because complying with tax regulations as a miner would be an enormous, practically unfeasible pain in the ass. Still, AFAIK nobody's really bringing this up. The implications of letting FinCEN and other bureaucracies call Bitcoin a currency seem pretty unexplored, and there are people just saying "it won't affect me, I'm in the UK" when the US has a tendency for its precedents/definitions to be adopted elsewhere. Do you think the Bitcoin community has under-reacted to the likely changes in definition of Bitcoin will bring, or is it appropriate just to wait until we're explicitly told by a government we're doing something wrong (IF we're doing something wrong)?

I think the regulators are really struggling with this issue.  If I had my way, the larger players in the BTC community would fund a competent industry group that would begin a dialogue with the appropriate policy makers.

[Jobe7]

I think the regulators are really struggling with this issue.  If I had my way, the larger players in the BTC community would fund a competent industry group that would begin a dialogue with the appropriate policy makers.

Bitcoin Foundation, not quite yet, but possibly soon (given that 'soon' is a undecided time period)

[MSantori]

I think the regulators are really struggling with this issue.  If I had my way, the larger players in the BTC community would fund a competent industry group that would begin a dialogue with the appropriate policy makers.

Bitcoin Foundation, not quite yet, but possibly soon (given that 'soon' is a undecided time period)

I've actually reached out to them, but haven't had much experience with them yet.  The foundation looks right up my alley.

[twobits]

Hey! Wanna play, uh... five-ish sometimes-loaded questions? (just as speculation, not legal advice)

Sure.

Am I wrong, or is federal FinCEN registration as a MSB not enough?

You are correct.

I am curious why it is required to get the license in all the states that require them.  Why does it not require a nexus like sales tax currently does as the Quill case decided?

[Bitco]

But for MSB purposes, BTC has its feet planted firmly in currency, and the entire money transmitter regulatory framework applies.  As to challenging this designation, well, where to start?  The bar for challenging an administrative rule is a very high one: the rule must be "arbitrary and capricious".  These rules don't strike me as such.  In any event, the cost of challenging the rules would likely top a million dollars for competent litigators in the field to bring such a case to completion.

What is your basis for this?  The definition of currency in 31 CFR 1010.100 clearly refers to legal tender.  Bitcoin is not legal tender in any country.

Are you supposing that a future change to the regulations could expand the definition of currency to include bitcoin, and then, at that point, someone might challenge that designation?

The definition of 'virtual currency' in the recent FinCEN guidance is not part of any law of regulation.  It's not really clear to me that this guidance has much legal weight, except possibly in relation to the scienter requirement of 18 USC section 1960.  If one follows the guidance, and is accused of breaking the law, they can argue that they did not knowingly do so.  Does the guidance have any applicability beyond that?

[MSantori]

But for MSB purposes, BTC has its feet planted firmly in currency, and the entire money transmitter regulatory framework applies.  As to challenging this designation, well, where to start?  The bar for challenging an administrative rule is a very high one: the rule must be "arbitrary and capricious".  These rules don't strike me as such.  In any event, the cost of challenging the rules would likely top a million dollars for competent litigators in the field to bring such a case to completion.

The definition of currency in 31 CFR 1010.100 clearly refers to legal tender.  Bitcoin is not legal tender in any country.

...18 USC section 1960.

I think that most of your post is on the right track.  Even in the portion above, you identified the correct provision (18 USC 1960).  Indeed, you've identified the provision that proscribes unlicensed money transmitting. But you haven't connected the definition of "currency" to that provision, or even identified why that that definition is relevant.  Let's take it step by step and we can get to an answer

[Bitco]

I think that most of your post is on the right track.  Even in the portion above, you identified the correct provision (18 USC 1960).  Indeed, you've identified the provision that proscribes unlicensed money transmitting. But you haven't connected the definition of "currency" to that provision, or even identified why that that definition is relevant.  Let's take it step by step and we can get to an answer

The prohibition of unlicensed money transmitting businesses is 18 USC § 1960.  This section makes reference to the registration requirements of 31 USC § 5330.  The definition of "money transmitting business" therein makes reference to the reporting requirements of 31 USC § 5313.

The MSB regulations are in 31 CFR 1010.  This part cites 31 USC 5311 et seq (among other sections) as its statutory authority.

Yes, this is all fairly convoluted.  It's certainly possible that I've missed something.

[Viceroy]

The mods evicted my OP from currency exchange and I've found myself here:

https://bitcointalk.org/index.php?topic=217709.0

[MSantori]

Let's take the federal regime step by step together.  I've wanted to do this on the forum so everyone can have a better picture of the federal regs as I understand them.  As with all of my posts on this forum, nobody should take the following as legal advice.  If you need legal advice, then you need a lawyer, and I am not your lawyer.  Nonetheless, I'd love to hear your feedback on whether you think I'm right!  I'm going to chop up some of the Code for the sake of brevity.

19 U.S.C. 1960 states:

Whoever knowingly conducts, controls, manages, supervises, directs, or owns all or part of an unlicensed money transmitting business, shall be fined in accordance with this title or imprisoned not more than 5 years, or both.

The term “unlicensed money transmitting business” means a money transmitting business which affects interstate or foreign commerce in any manner or degree and... fails to comply with the money transmitting business registration requirements under section 5330 of title 31, United States Code, or regulations prescribed under such section.

...The term “money transmitting” includes transferring funds on behalf of the public by any and all means

So, to trigger this provision, the defendant must satisfy both of two requirements. It must:

1) engage in money transmitting, which includes "transferring funds on behalf of the public by any and all means"; and
2) fail to comply with the money transmitting business registration requirements under section 5330 of title 31

Since pretty much every bitcoin business satisfies (1), let's look to 31 USC 5330 to see if we satisfy (2).

That provision states: Any person who owns or controls a money transmitting business shall register the business (whether or not the business is licensed as a money transmitting business in any State) with the Secretary of the Treasury.

Okay, we still need to know what is a "money transmitting business".  Reading a little farther down:

The term “money transmitting business” means any business other than the United States Postal Service which--
(A) provides check cashing, currency exchange, or money transmitting or remittance services, or issues or redeems money orders, travelers' checks, and other similar instruments or any other person who engages as a business in the transmission of funds, including any person who engages as a business in an informal money transfer system or any network of people who engage as a business in facilitating the transfer of money domestically or internationally outside of the conventional financial institutions system;
(B) is required to file reports under section 5313; and
(C) is not a depository institution (as defined in section 5313(g)).

So to trigger this provision, the defendant must satisfy (A), (B) and (C).  Nearly every bitcoin business will satisfy (A) and (C) above, so we're kicked out again to another definition: someone who is required to file reports under 31 USC 5313.

When must someone file a report under that provision?  Let's read:

When a domestic financial institution is involved in a transaction for the payment, receipt, or transfer of United States coins or currency (or other monetary instruments the Secretary of the Treasury prescribes), in an amount, denomination, or amount and denomination, or under circumstances the Secretary prescribes by regulation, the institution and any other participant in the transaction the Secretary may prescribe shall file a report on the transaction at the time and in the way the Secretary prescribes

This tells us that a defendant must file whenever the Secretary of the Treasury's regulations say they must file.  As such, someone is a money transmitter subject to 18 USC 1960 whenever the Secretary of the Treasury's regulations say he must file.  So, what do the regulations say?

Primarily, 31 CFR 1010.310 et seq say that "financial institutions" must file.  One kind of "financial institution" under 31 CFR 1010.100 is a "money services business".

One kind of "money services business" that a bitcoin business might be is a "money transmitter", defined in 31 CFR 1010.100 as:

Any person, whether or not licensed or required to be licensed, who engages as a business in accepting currency, or funds denominated in currency, and transmits the currency or funds, or the value of the currency or funds, by any means 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, or an electronic funds transfer network; OR

and here's the kicker:

...Any other person engaged as a business in the transfer of funds.

So, to complete the thought: someone is a money transmitter subject to 18 USC 1960 whenever that person is engaged in the business of the transfer of funds.  The definition of currency is certainly relevant, but it is not necessary to the analysis.

For any particular defendant, this statutory analysis is only the beginning.  There are additional definitions that might be applicable to your particular business, and a competent attorney will be able to analyze the case law to determine just how this very general road map might apply to you.

I hope this helps!

[acs26]

Welp, time to shit my pants.
I personally think Attorneys are awesome, will definitely ask you questions about law.
(Also, like your replies to the 'bitcoin ban' thing.)

[Bitco]

and here's the kicker:

...Any other person engaged as a business in the transfer of funds.

So, to complete the thought: someone is a money transmitter subject to 18 USC 1960 whenever that person is engaged in the business of the transfer of funds.  The definition of currency is certainly relevant, but it is not necessary to the analysis.

Okay so far, but we're not done.  Section 1010.100(w) defines "funds transfer" as follows:

The series of transactions, beginning with the originator's payment order, made for the purpose of making payment to the beneficiary of the order. The term includes any payment order issued by the originator's bank or an intermediary bank intended to carry out the originator's payment order. A funds transfer is completed by acceptance by the beneficiary's bank of a payment order for the benefit of the beneficiary of the originator's payment order. Funds transfers governed by the Electronic Fund Transfer Act of 1978 (Title XX, Pub. L. 95-630, 92 Stat. 3728, 15 U.S.C. 1693, et seq. ), as well as any other funds transfers that are made through an automated clearinghouse, an automated teller machine, or a point-of-sale system, are excluded from this definition.

Note that ACH payments (eg Dwolla) are excluded from this definition.  And bitcoin transactions are not "completed by acceptance by the beneficiary's bank".

For any particular defendant, this statutory analysis is only the beginning.  There are additional definitions that might be applicable to your particular business, and a competent attorney will be able to analyze the case law to determine just how this very general road map might apply to you.

All of this leaves me wondering just what it is that Mutum Sigillum allegedly did wrong.  Clear as mud, eh?

[Elwar]

So, considering you are in good company in the United States thinking that regulation is a good thing. Would it be wise for bitcoin businesses to completely bipass the United States if they do not have to deal in government money? Say, like moving the website to the Bahamas and set up a corporation down there. Or would that bring some legal risk to the owner if they were a US citizen?

[MSantori]

All of this leaves me wondering just what it is that Mutum Sigillum allegedly did wrong.  Clear as mud, eh?

Clear as mud indeed. You identified one of the "additional definitions" that I hinted at in my post.  I'm not sure that the definition of "funds transfer" is the same as "transfer of funds."  Taking a literal approach, the defined term "funds transfer" does not appear in the definition of "money services" business, so it doesn't apply to it.  It likely pops up somewhere else in this chapter, but I am in no mood to go digging.  Nonetheless, you are right that it could be relevant.  I'm still sticking to my interpretation, that FinCEN got the interpretation (my interpretation) right.  I can't wait to see how they defend their actions, and just how far down the regulatory rabbit hole they will go.

[MSantori]

So, considering you are in company in the United States that regulation is a good thing. Would it be wise for bitcoin businesses to completely bipass the United States if they do not have to deal in government money? Say, like moving the website to the Bahamas and set up a corporation down there. Or would that bring some legal risk to the owner if they were a US citizen?

So many variables, so little detail!

[Elwar]

So, considering you are in company in the United States that regulation is a good thing. Would it be wise for bitcoin businesses to completely bipass the United States if they do not have to deal in government money? Say, like moving the website to the Bahamas and set up a corporation down there. Or would that bring some legal risk to the owner if they were a US citizen?

So many variables, so little detail!

Of course, because I am not seeking legal advice from you on a public forum. I am just asking for a general sense.

Like all of these bitcoin gambling websites, certainly if they were running in the United States there would eventually be legal hurdles to deal with but if they choose another country to run their servers are they safe, even as legal citizens.

As someone who is opening up a website that could potentially put a powerful dent in government itself (my sig), I have considered ways of bipassing the meddlesome US government and the potential destruction that it tends to do to businesses that do not have 24/7 lobbyists in DC.

[MSantori]

So, considering you are in company in the United States that regulation is a good thing. Would it be wise for bitcoin businesses to completely bipass the United States if they do not have to deal in government money? Say, like moving the website to the Bahamas and set up a corporation down there. Or would that bring some legal risk to the owner if they were a US citizen?

So many variables, so little detail!

Of course, because I am not seeking legal advice from you on a public forum. I am just asking for a general sense.

Like all of these bitcoin gambling websites, certainly if they were running in the United States there would eventually be legal hurdles to deal with but if they choose another country to run their servers are they safe, even as legal citizens.

As someone who is opening up a website that could potentially put a powerful dent in government itself (my sig), I have considered ways of bipassing the meddlesome US government and the potential destruction that it tends to do to businesses that do not have 24/7 lobbyists in DC.

Okay, fair point.   Then, speaking very generally, if you are servicing US customers, you will likely be subject to the US' regulations in the money services context.

[Elwar]

Okay, fair point.   Then, speaking very generally, if you are servicing US customers, you will likely be subject to the US' regulations in the money services context.

Ahh, that makes sense. Which would be the reason MtGox, a Japanese company, ran into legal trouble serving US customers on the government currency side of things.

Thanks.

[Tekkna]

Welcome MSantori, a lawyer will be very useful around these parts

2.5 questions,

1: Suppose someone hacks bitcoin, and steals large amounts of coins from everyone, this person, if identified, would be sued because he has stolen a "commodity", correct? What if he hacks bitcoin in such a way that does not explicitly steal from people (but kinda does because it would destroy confidence/ and or devalue BTC). Is BTC a sort of commons?

2: What paperwork should I be filing for mining, this has kind of been bugging me, what taxes should I file? Assuming I withdraw monthly into USD.

[romerun]

[Bitco]

All of this leaves me wondering just what it is that Mutum Sigillum allegedly did wrong.  Clear as mud, eh?

Clear as mud indeed. You identified one of the "additional definitions" that I hinted at in my post.  I'm not sure that the definition of "funds transfer" is the same as "transfer of funds."  Taking a literal approach, the defined term "funds transfer" does not appear in the definition of "money services" business, so it doesn't apply to it.  It likely pops up somewhere else in this chapter, but I am in no mood to go digging.  Nonetheless, you are right that it could be relevant.  I'm still sticking to my interpretation, that FinCEN got the interpretation (my interpretation) right.  I can't wait to see how they defend their actions, and just how far down the regulatory rabbit hole they will go.

It's badly written, but it would be hard to argue that "transfer of funds" means something else.  Moreover, the exclusion is not arbitrary.  Recall that the statutory basis for the money transmitting regulations is 31 USC § 5313, which relates to reports on domestic coins and currency transactions.  Since ACH transfers aren't coins and currency, it makes sense to exclude this from the "funds transfer" definition.

I would also be very interested to see how the feds defend their action against Mutum Sigillum.  It's not clear that we'll get to, as there's more going on in that case than the DHS action.  An open question is why MS still had a Dwolla account as of May 14, since they had announced the outsourcing of their US operations to CoinLab.  We know that didn't occur as planned, but the facts are still unclear.  If Mt.Gox really does want to get out of the US market, they'll be inclined to settle the case rather than take it to trial.

[dan99]

Glad that we have a lawyer here, a couple more will even be better, cheers 

The LR fiasco really concern or worries some of us here ..

[twobits]

I am curious why it is required to get the license in all the states that require them.  Why does it not require a nexus like sales tax currently does as the Quill case decided?

This was meant as a real question.   Is your skipping it a way of saying it was too dumb to merit and answer, or that you don't know the answer?

[MSantori]

I am curious why it is required to get the license in all the states that require them.  Why does it not require a nexus like sales tax currently does as the Quill case decided?

This was meant as a real question.   Is your skipping it a way of saying it was too dumb to merit and answer, or that you don't know the answer?

Sorry twobits! I didn't mean to skip you at all. You are correct to question why a license is required in all states.  In fact, a nexus is required.  Many state regulators, like in New York, have already published guidance that they believe doing business with their citizens is a sufficient nexus.  From a legal perspective, this does seem to pass constitutional muster, and other states are expected to follow suit.  So, speaking generally, an MSB falls under a state's regulatory jurisdiction if it actually performs money services for that state's residents, regardless of where the business is physically located.  Obviously, to determine whether your business in particular needs to register in any state, I'd need to know more about your business and then take a close look at the state's regulations to apply the latter to the former.

Hope that helps.

[kjj]

In regards to the gox thing, at the conference, in the legal/regulatory track, it was mentioned several times that the AML/KYC type laws typically are concerned with changes of ownership.  This is an odd way to look at "money transmission", but one that at least makes a little sense.

They don't care about the armored car that hauls entity A's money from place B to place C.  Nor do they care about the bank that "transmits" the same money electronically from branch D to branch E.  What they do care about is the service that collects funds from entity F, and transfers ownership of those funds to entity G.

In this view, it clicks a bit better.  A bitcoin exchange is a place where funds come in under one person's name, and then leave under a different person's name.  They view it as a black box because they don't have visibility inside.  They can just see that money has been transmitted (using their newspeak version of "transmitted").

The problem is that this is fundamentally no different from a consignment shop.  And yet, I've never heard of a general requirement that all such black boxes be required to register.  In a world with justice, that similarity, and the resulting selectivity of enforcement, would be important, perhaps even crucial.  In practice, maybe not so much.

MSantori:  Am I wrong about that?  Are physical consignment shops required to register as money transmitters?  Why don't internet consignment shops exist?  Bitcoin exchanges appear to be the only example of such a thing that I can think of.  They accept merchandise (BTC) on account of customer A, and cash on account of customer B, then facilitate the sale of A's BTC for B's cash while pocketing a commission.  Ebay/paypal comes to mind as another example, but they operate at arm's length.

[MSantori]

How did you get a photo of me?!

[MSantori]

In regards to the gox thing, at the conference, in the legal/regulatory track, it was mentioned several times that the AML/KYC type laws typically are concerned with changes of ownership.  This is an odd way to look at "money transmission", but one that at least makes a little sense.

They don't care about the armored car that hauls entity A's money from place B to place C.  Nor do they care about the bank that "transmits" the same money electronically from branch D to branch E.  What they do care about is the service that collects funds from entity F, and transfers ownership of those funds to entity G.

In this view, it clicks a bit better.  A bitcoin exchange is a place where funds come in under one person's name, and then leave under a different person's name.  They view it as a black box because they don't have visibility inside.  They can just see that money has been transmitted (using their newspeak version of "transmitted").

This is an excellent explanation.

The problem is that this is fundamentally no different from a consignment shop.  And yet, I've never heard of a general requirement that all such black boxes be required to register.  In a world with justice, that similarity, and the resulting selectivity of enforcement, would be important, perhaps even crucial.  In practice, maybe not so much.

MSantori:  Am I wrong about that?  Are physical consignment shops required to register as money transmitters?  Why don't internet consignment shops exist?  Bitcoin exchanges appear to be the only example of such a thing that I can think of.  They accept merchandise (BTC) on account of customer A, and cash on account of customer B, then facilitate the sale of A's BTC for B's cash while pocketing a commission.  Ebay/paypal comes to mind as another example, but they operate at arm's length.

There is at least one major difference: consignment shops require the transfer of goods.  BTC is not goods, but currency, from this particular FinCEN perspective.  Still, you raise a good point.  This is an example of regulatory line-drawing.  They have to draw the line somewhere.  But when drug dealers and terrorists start funneling their money through consignment shops, and then get caught doing it, you can be they'll move the line.

[Kluge]

The problem is that this is fundamentally no different from a consignment shop.  And yet, I've never heard of a general requirement that all such black boxes be required to register.  In a world with justice, that similarity, and the resulting selectivity of enforcement, would be important, perhaps even crucial.  In practice, maybe not so much.

MSantori:  Am I wrong about that?  Are physical consignment shops required to register as money transmitters?  Why don't internet consignment shops exist?  Bitcoin exchanges appear to be the only example of such a thing that I can think of.  They accept merchandise (BTC) on account of customer A, and cash on account of customer B, then facilitate the sale of A's BTC for B's cash while pocketing a commission.  Ebay/paypal comes to mind as another example, but they operate at arm's length.

There is at least one major difference: consignment shops require the transfer of goods.  BTC is not goods, but currency, from this particular FinCEN perspective.  Still, you raise a good point.  This is an example of regulatory line-drawing.  They have to draw the line somewhere.  But when drug dealers and terrorists start funneling their money through consignment shops, and then get caught doing it, you can be they'll move the line.

It may be within the next year or two this'll need to be more closely examined by regulatory authorities. There are a few people in the Bitcoiniverse looking to start Bitcoin-oriented pawnshops where items can be turned into coins, and it'd be the perfect place for a BTC ATM. I don't think BTC consignment shops (whether online or B&M) are far off at all.

[kjj]

There is at least one major difference: consignment shops require the transfer of goods.  BTC is not goods, but currency, from this particular FinCEN perspective.  Still, you raise a good point.  This is an example of regulatory line-drawing.  They have to draw the line somewhere.  But when drug dealers and terrorists start funneling their money through consignment shops, and then get caught doing it, you can be they'll move the line.

I personally don't see much difference between goods and currencies, from this point of view.

I know that various types of brokerages have to follow the same KYC laws as banks.  Does anyone know if they have to register as money transmitters too?  They perform the same function (money arrives in one pocket, magic happens, money leaves in a different pocket).  Seems a bit silly if they do,   Perhaps the answer to that question may point to a more sensible regulatory scheme for exchanges.

[Saman]

Hi,

I am a bit confused about the "all 50 states" assumption. I understand that this is state law and that a US business might or might not need to register in all 50 states. But for a non US business as MtGox - they would have to apply for licenses in all 50 states? What if they have a bank account in one state and clients from all 50 states ACH or wire money to the account. Is accepting payments from the other 49 states considered "doing business" there?

PS: Great to have you here!

[MSantori]

Hi,

I am a bit confused about the "all 50 states" assumption. I understand that this is state law and that a US business might or might not need to register in all 50 states. But for a non US business as MtGox - they would have to apply for licenses in all 50 states? What if they have a bank account in one state and clients from all 50 states ACH or wire money to the account. Is accepting payments from the other 49 states considered "doing business" there?

PS: Great to have you here!

Thanks!

Many state regulators have explicitly stated that a transmitter is subject to their laws if the transmitter solicits or services their residents.  The location of the bank account isn't determinative.  Other states are expected to follow suit.

[JonSnow]

What MSantori has posted is pretty much in line with what my attorney has said as well.  Since I can't afford the MT licensing, I've had no choice but to dissolve my bitcoin-selling business, in spite of being fully registered with FinCEN.  Sad times. 

[MSantori]

What MSantori has posted is pretty much in line with what my attorney has said as well.  Since I can't afford the MT licensing, I've had no choice but to dissolve my bitcoin-selling business, in spite of being fully registered with FinCEN.  Sad times.  

Are you sure that your business actually requires licensing under the relevant state laws?  One of the services I can provide (Spam Alert!) is analyzing your business closely under any or all of the states and determining whether you really do require licensing.  Your business (whatever it is) likely does not require licensing in every state.

One of the ways that a new business can find success is doing a "rollout" by offering services to customers in foreign countries and ten or fifteen "safe states" in which it would not require a license.  It develops an operating history, revenue, cachet, etc in those states, and then rolls out into the next group of states when it can afford the license for those states.  Also, by then, many states will probably have given more guidance on BTC businesses.

Entrepreneurs can make money because they think big.  But if there's one thing I've learned representing them over the years, it's that the ones who actually do make money don't forget how to think small, too.

In my opinion, that's the path to profit.

[MSantori]

JonSnow, are you talking about CryptoCurrent?  If all you did was exchange BTC for USD, I'm surprised you didn't look into a "safe state" rollout.

[Saman]

....But for a non US business as MtGox - they would have to apply for licenses in all 50 states?...
PS: Great to have you here!

Many state regulators have explicitly stated that a transmitter is subject to their laws if the transmitter solicits or services their residents.  The location of the bank account isn't relevant.  Other states are expected to follow suit.

I looked through some of the states rules and procedures to obtain licenses - all I saw demand bonds and presence in the state. So this means that any MtGox would have to set up 50 local branches, one in each state and have them obtain a license?

Is that how.... say Paypal... operates?

-SM

PS: Would you mind to mention some of the states that do not demand a license? The one you mentioned under "small rollout"...

[Bitco]

Is that how.... say Paypal... operates?

Yeah, pretty much.  See https://www.paypal-media.com/state_licenses.cfm

PS: Would you mind to mention some of the states that do not demand a license? The one you mentioned under "small rollout"...

AFAIK, Montana and South Carolina do not require licenses for money transmitters.

Some other states (eg New Mexico, Pennsylvania) only regulate negotiable instruments such as money orders, and not electronic transfers.

Other states have broader laws, but still only apply to a third-party business holding the money, so sending bitcoins between two parties isn't regulated.

It really depends on what you're planning to do, and the exact wording of the laws.

[MSantori]

It really depends on what you're planning to do, and the exact wording of the laws.

Bingo, Bitco.

[ktttn]

How illegal could this possibly be? Any comment appreciated.
https://bitcointalk.org/index.php?topic=223930.msg2354682#msg2354682

http://peopleslibrary.wordpress.com/2013/04/09/media-round-up-ows-v-bloomberg-settlement/
I'm beginning to work on obtaining consensus from folks involved in the Occupy Wall Street People's Free Library about converting the USD won from the recent settlement into BTC in a shared wallet.

If you have a BTC offer for what may turn out to be a lump sum of around $47,000, please post ITT.
The BTC is likely to be donated to organizations of the librarians' choosing.

If you have advice about how to go about doing any of this, please share. I for one, am new to this.

I will post updates as the internal conversation develops.

To be clear, I do not officialy represent the opinions and decisions of the OWSL and I will not be handling the exchange or providing escrow. The purpose of this thread is to network, gather information about the process, gauge the enthusiasm of potential buyers, and inform the btc community about the possibility of this move. I am acting on my own accord to facilitate communication.
Anyone interested in how the OWSL won this money, or other related subjects should ask away

[MSantori]

Why do you think it might be illegal?

[ktttn]

Why do you think it might be illegal?

Liability?
Federal reserve notes are frightening.
Paranoia. Needing perspective check.
Mabye its obviously illegal in tons of ways I cant tell.
How might one make it out to be illegal?

[MSantori]

If you're asking "Is it illegal to convert USD to BTC when not operating as a business?" I think the answer is clearly no.  If you're asking "Is it illegal to donate BTC to an organization?" I think the answer is still no.

I'd need more information to give a less vacuous response.

[solex]

One of the ways that a new business can find success is doing a "rollout" by offering services to customers in foreign countries and ten or fifteen "safe states"..

Good suggestion, but I am intrigued. Which are the 10 or 15 safe states, and is there a ranking list which can be maintained publicly on this forum for BTC-trading businesses to be aware of? It might help new start-ups to get going knowing they have lower red tape hurdles in their jurisdiction.

Or, would such a list be info (professional advice) which needs paying for...?

[MSantori]

One of the ways that a new business can find success is doing a "rollout" by offering services to customers in foreign countries and ten or fifteen "safe states"..

Good suggestion, but I am intrigued. Which are the 10 or 15 safe states, and is there a ranking list which can be maintained publicly on this forum for BTC-trading businesses to be aware of? It might help new start-ups to get going knowing they have lower red tape hurdles in their jurisdiction.

Or, would such a list be info (professional advice) which needs paying for...?

Thanks!

Yes, such info would need paying for, but not (just) because I'm a greedy capitalist-type.  It's because the question of a "safe state" is not one that can be answered generally.  It is a highly fact-specific inquiry.  I would need a very detailed rundown of your business model to apply each state's law to that model.  For (almost) every business model, there are some states wherein that model does not trigger the licensing requirements, some states in which it might, and maybe even some states in which it certainly does.

Bitcoin businesses are new, unwieldy creatures for most states' law, and even a close analysis by a professional will yield, at best, a risk assessment.  There are no absolute answers in this area of the law.

[solex]

Understood. That makes a lot of sense.

[Viceroy]

You are up to 10-15 states that you'd roll out in?  I'm almost ready to take you up on that free initial consult...

Tell me:

What would it cost to become licensed as a money transmitter in:

Cali, NY, PA, TX and i dunno...  WA

I value your service but I need to know what it realistically costs.

[MSantori]

The 10-15 state number is a hypothetical number for a hypothetical business.  I have no way of knowing which -if any- states are low, medium and high risk for any particular business without knowing what that business is.

Feel free to reach out to my privately if you want to share your business details greater confidence.

[Viceroy]

I'm wondering what it might cost for a hypothetical business, hypothetically, to operate as an exchange in Cali, NY, PA, TX and perhaps WA. ..  

What does it cost for an exchange like gox to become licensed as a money transmitter in the biggest five states in the union? (In ballpark non-committal I don't intend to hold anyone to the cost kind of "back of the napkin" ballpark price type pricing sorts of terms).

[MSantori]

I'm wondering what it might cost for a hypothetical business, hypothetically, to operate as an exchange in Cali, NY, PA, TX and perhaps WA. ..  

What does it cost for an exchange like gox to become licensed as a money transmitter in the biggest five states in the union? (In ballpark non-committal I don't intend to hold anyone to the cost kind of "back of the napkin" ballpark price type pricing sorts of terms).

Sorry if I'm not being clear, Viceroy.  The costs depends greatly upon the business.  Taking New York, for example the cost of registration as a money transmitter could include:

$3,000: "investigation" fee paid to the state
$5,000-$55,000: bonding fee paid to bonding agent yearly (depends largely upon credit and prior dealings)
$Varies: Fingerprinting and background checks for control persons
$Varies: Auditing financial statements (unless a new business)
$Varies: State fees and legal fees associated with creating a legal entity and associated agreements (varies depending upon business structure)
$Varies greatly: Legal fees associated with developing agency policies and pro forma agency contract, preparation of organizational charts, review of specimens and other exhibits submitted by the applicant, development and review of AML, KYC, physical and network security, assembly and review of application, etc.

I know that a "ballpark" estimate would be helpful.  There's just no such thing.  There are some fixed costs and there are costs that vary greatly.  Unfortunately, the ones that vary greatly are the high ones. I can't stress enough how fact-dependent this pricing would be.  I will only say this: to take on the obligations of money transmission, you should be well-funded.  Most tend to have access to OPM.

[Viceroy]

Most tend to have access to OPM.

You make me almost want to go to tradeFortress and ask for an illegal bitcoin business funding loan. 

[MSantori]

I looked at Coinlenders, and it isn't the loaning that worries me.  It's the depository products.  I'm not a banking attorney, and I don't know the details of his offerings, but I can't believe that Coinlenders isn't acting as a depository institution.

[darkmule]

As to challenging this designation, well, where to start?  The bar for challenging an administrative rule is a very high one: the rule must be "arbitrary and capricious".  These rules don't strike me as such.  In any event, the cost of challenging the rules would likely top a million dollars for competent litigators in the field to bring such a case to completion.

Do you think the recent Arlington v. FCC decision increases this deferential standard of review, or just extends it to an agency's interpretation of its jurisdiction, and in either event, does it have any likely relevance to Bitcoin regulations?

[Bitco]

Do you think the recent Arlington v. FCC decision increases this deferential standard of review, or just extends it to an agency's interpretation of its jurisdiction, and in either event, does it have any likely relevance to Bitcoin regulations?

Arlington v. FCC challenged the agency's interpretation of "a reasonable period of time” as 90 to 150 days.  The court held that this was reasonable.

You may want to contrast this with American Library Association v. FCC in which the DC Circuit held that the agency exceeded its authority.  The law did not allow the FCC to rule on copyright and recording devices, even if it was related to broadcast TV.

[dwolfman]

I do have a question, as a result of another thread.

I had noticed that in parts of the FinCEN guidelines it mentions the phrase "engaged as a business" in various places.

I take this to mean that if my bitcoin activities are not a primary (or even secondary) business activity for myself, that I likely don't need to register anywhere.

Currently I do mine bitcoins, but with such limited hardware (only have about 500 MHash/s worth) that it's not worth it in terms of profit.  I plan on just buying bitcoins as a type of savings account, and doing some limited trading on CampBX to try and make it grow at least a little.  More than likely I'll stop mining soon, as it's costing more in electricity than what I'm getting back in bitcoins.

Anyway, thoughts?  Does it sound like I'm interpreting that right?

[Viceroy]

I don't think you are.  If you are mining coins and holding them then you are a money transmitter.  If you are mining coins and using them to pay for your bills you are not a money transmitter.

I am not a lawyer and even if I were I'm not sure I'd be right with my answer but that is my "take" on it.

[MSantori]

I don't think you are.  If you are mining coins and holding them then you are a money transmitter. 

No, this is a common misconception.  Only those engaged as a business in mining and then converting the BTC to fiat are money transmitters.

[Viceroy]

I don't think you are.  If you are mining coins and holding them then you are a money transmitter.  

No, this is a common misconception.  Only those engaged as a business in mining and then converting the BTC to fiat are money transmitters.

Isn't that the same thing?  If a miner is mining to pay his bills that is not engaging in business.  If the miner is producing coins and selling them for money which the miner then places into the bank he is engaging in business and therefore a money transmitter.

My "take" comes from this:

FinCEN’s position as it relates to bitcoin can be summed up as follows:

A person may spend money to purchase bitcoin or mine bitcoin and then exchange the currency for goods and/or services without having to register with FinCEN as an MSB.
If a person receives real money in exchange for their bitcoin they MAY have to register with FinCEN.
If a miner exchanges their mined bitcoin for real money they MUST register with FinCEN.
Anyone transacting bitcoin on someone else’s behalf MUST register with FinCEN.

https://bitcoinfoundation.org/blog/?p=152

[dwolfman]

Pretty sure there is a BIG difference, legally, between "engaging IN business" and "engaging AS A business". 

Am I right MSantori?

At least it sounds like I'm understanding the info correctly, based on your response.

[btceic]

I don't think you are.  If you are mining coins and holding them then you are a money transmitter. 

No, this is a common misconception.  Only those engaged as a business in mining and then converting the BTC to fiat are money transmitters.

What is the definition of "as a business"?

At what point does my hobby become a business?

[MSantori]

As I read the guidance, operating as a business is a predicate to enforcement, but I'm probably in the minority. Let's dissect it:

"This guidance refers to the participants in generic virtual currency arrangements, using the terms "user," "exchanger," and "administrator".

So, a participant in a virtual currency arrangement is either a user, exchanger, administrator, or some some combination of those three (according to the footnote).

"A user is a person that obtains virtual currency to purchase goods or services."

"A user of virtual currency is not an MSB under FinCEN's regulations and therefore is not subject to MSB registration, reporting, and recordkeeping regulations."

"However, an administrator or exchanger is an MSB under FinCEN's regulations, specifically, a money transmitter"

"An exchanger is a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency. An administrator is a person engaged as a business in issuing (putting into circulation) a virtual currency, and who has the authority to redeem (to withdraw from circulation) such virtual currency"

So, to be an MSB, one must be at least an exchanger or administrator, but to be an exchanger or money transmitter, one must be engaged in a business.  

We could stop here, but we wouldn't be getting the full picture - and the problem with my (or anyone's) analysis.  Moving on:

"FinCEN has reviewed different activities involving virtual currency and has made determinations regarding the appropriate regulatory treatment of administrators and exchangers under three scenarios: brokers and dealers of e-currencies and e-precious metals; centralized convertible virtual currencies; and de-centralized convertible virtual currencies."

FinCEN then sets forth the circumstances under which administrators and exchangers are MSBs.  One of those circumstances is when an exchanger or administrator:

"creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent"

FinCEN did something funny here, though.  It didn't explicitly say that only "exchangers and administrators" who do this are MSBs.  It said any "person" who does this is an MSB, without regard to whether that person is an exchanger or administrator.  It's something of an oddity, since the three preceding headings and literally all of the language within them assume that only exchangers or administrators can be MSBs.  Thus, if you take this language literally, and forget about the rest of the guidance, then FinCEN has created a fourth category of persons: a person who is neither a user, exchanger nor administrator!  That interpretation can't be right, because it would contradict the very first premise FinCEN gave us to work with.  My theory: FinCEN didn't mean to say "person".  It meant to say "administrators" or "exchangers or administrators", just like it did in every preceding paragraph.  Ultimately, I believe enforcement will turn on your specific circumstances.

I realize I may be in the minority here, and I may just be dead wrong.  That's the sad state of affairs afflicting this industry.

TL;DR: Santori thinks you've got to be engaged in a business to be an MSB under the guidelines, but he may be wrong, and you shouldn't bank on him being right without giving him the chance to really understand the facts of your case.

[MSantori]

What is the definition of "as a business"?

At what point does my hobby become a business?

I believe the relevant inquiry is generally whether you are doing it "for profit", but the CFR or BSA may actually include it as a defined term.     Your strikes me as a pretty important question.  I will look into it.

[dwolfman]

I understand that we may be all wrong on this until FinCEN and others really weigh in on this.  For right now this will be my guiding idea, that I won't worry about it since I can't make a profit at this right now anyway and I'm not running it as a business either. 

So far this is just a hobby of mine so that's how I'll treat it for all the legal side of this.

However, I'll definitely look at the legal side again once I start saving money like it's a savings account and doing some trading with a bot to generate the "interest" I would have gotten with it in a bank.

See, I'm going about it like this since I'm pretty sure the banks that foreclosed on me a few years ago would garnish anything I put into a regular savings account.  Hopefully, this will let me get enough together so I can pay for a bankruptcy to clear all that up and let me start over again.

[Bitco]

What is the definition of "as a business"?

At what point does my hobby become a business?

I believe the relevant inquiry is generally whether you are doing it "for profit", but the CFR or BSA may actually include it as a defined term.     Your strikes me as a pretty important question.  I will look into it.

It's a tough question, but it's more than just profit.

If I bought gold and made a profit, does that make me a precious metals dealer?  No.
If I bought shares of AMZN and made a profit, does that make me a securities dealer?  No.
If I bought bitcoins a year ago, does that make me a money transmitting business?

[btceic]

Possibly relevant, a UK city is using local currency, which is akin to what we are doing except it is digital only and worldwide

https://bitcointalk.org/index.php?topic=236424

[btceic]

Moved from another thread:

so to sum things up as far as your interpretation of the current guidelines is; anybody in the us that mines will be required to be licenced?

No, quite the opposite.  My (unpopular) position is that only miners operating as a business must register according to the guidance.  I believe that the guidance is unclear, and that I may certainly be wrong about this position.  It's just my interpretation of an imperfect document.

Ok,
Which brings me back to the "as a business" definition.

Here is what I found in a ~10 minute search on the subject:
http://www.irs.gov/uac/Business-or-Hobby%3F-Answer-Has-Implications-for-Deductions

<snip/>................. Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit.

In order to make this determination, taxpayers should consider the following factors:

• Does the time and effort put into the activity indicate an intention to make a profit?
• Does the taxpayer depend on income from the activity?
• If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business?
• Has the taxpayer changed methods of operation to improve profitability?
• Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?
• Has the taxpayer made a profit in similar activities in the past?
• Does the activity make a profit in some years?
• Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity?

In my case:

• Yes
• No, but I would like it to be
• Possibly
• Possibly
• Yes
• No
• Yes
• Yes if the value of BTC goes up, less the deductions for depreciating mining equipment if any

The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year — at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses.

[MSantori]

Typically, the rules of statutory interpretation dictate that we look first to the definitions contained in the statute itself.  Your reference the Internal Revenue Code (IRC) would in most cases be a wrong turn.  As far as I can tell, though, there is no definition of "business" or "as a business" in 103.11.  So, you're not crazy to look to other guidance, and the IRC strikes me as a good a guide as any.  That particular piece of guidance you quoted follows the IRC, which in turn follows many of the common-law factors for determining whether a person is engaged in a business for a variety of purposes.

I know, it's not a satisfying answer.  There are very few of those to be found in this area of the law.

[flavius]

what does the law have to do with bitcoin.....? why are you even here

[MSantori]

What MSantori has posted is pretty much in line with what my attorney has said as well.  Since I can't afford the MT licensing, I've had no choice but to dissolve my bitcoin-selling business, in spite of being fully registered with FinCEN.  Sad times. 

What approximate level of money does "can't afford" involve.

Hi profmac.  There is a post at the bottom of page 3 of this thread that lays this out.

[ProfMac]

What MSantori has posted is pretty much in line with what my attorney has said as well.  Since I can't afford the MT licensing, I've had no choice but to dissolve my bitcoin-selling business, in spite of being fully registered with FinCEN.  Sad times. 

What approximate level of money does "can't afford" involve.

Hi profmac.  There is a post at the bottom of page 3 of this thread that lays this out.

Thanks.  I've now read the entire thread, and deleted my post.

[MSantori]

Hah!  Glad to see someone else finds this stuff interesting!

[JohnyBigs]

Hi Santori,

This was what I was wondering also where it mentions any user that exchanges coins for fiat is an MSB. Does that mean that businesses who accept BitCoin and then exchange them for Fiat are MSB's?

For example businesses using BitPay are having BitPay do this on their behalf therefore they would still be considered MSB's. Maybe FinCen doesn't really care about users but just about the Exchanges.

Is it possible you being a lawyer to ask for some clarification on this specific paragraph of FinCens guidance? Can users who exchange their currency through an exchange are they exempt from MSB laws, or are they covered under MSB's licenses of the exchanges?

Also send you a PM about another topic

Thanks and this Thread as been wonderful to read, makes me think sometimes I should become a lawyer haha.

[MSantori]

Hi Johny,

FinCEN's guidance states that persons who accept BTC in payment for goods or services - even as a business - are not MSBs.  

BitPay's position is that it falls under the "payment processor" exemption to MSB registration.

Does that help?

[Nagle]

Let's take a look at Mt. Gox's legal status.

Mt. Gox has now registered with FinCen. They have a registered agent in Delaware. So, can they now be sued in Delaware courts? 

Japan regulates payment services under the Payment Services Act. This allows non-banks to engage in payment services, and most of the wireless carriers in Japan now offer payment systems. There's a registration requirement, and various audit and capital requirements. Does Mt. Gox need to register?  Have they?

[Viceroy]

FinCEN's guidance states that persons who accept BTC in payment for goods or services - even as a business - are not MSBs.  

Isn't it true that if my "good" is $US Dollars and I accept bitcoin payments for them then I'm an MSB by definition right?

[MSantori]

Let's take a look at Mt. Gox's legal status.

Mt. Gox has now registered with FinCen. They have a registered agent in Delaware. So, can they now be sued in Delaware courts? 

Japan regulates payment services under the Payment Services Act. This allows non-banks to engage in payment services, and most of the wireless carriers in Japan now offer payment systems. There's a registration requirement, and various audit and capital requirements. Does Mt. Gox need to register?  Have they?

I can't speak to Japanese law.  As to US law, there are two levels of money transmission regimes: state and federal.  In practice, registration with the federal government (via FinCEN) is a fairly ministerial act: fill out a form, click a button.  The more interesting question is whether MtGox will register with any or all of the states.
 
Registration as a money transmitter with the states is required for any state in which the business has a physical presence.  More and more state are stating explicitly, however, that even soliciting or servicing their citizens makes you a money transmitter in that state.  Thus, MtGox will have to register under state law as well.  This is a financially burdensome and time-consuming process that can cost millions and take over eighteen months.  Each state has its own complex regulatory regime, including bonding requirements and personal financial investigation.  As such, MtGox might instead seek to team up with already-existing money transmitters in each state. That kind of agency relationship comes with its own costs to be paid to those money transmitters, and will likely cut into its bottom line.

So, I don't know whether Mt. Gox is compliant with Japanese law.  As to US law, I don't know whether they will seek state licenses.  That will be the test of how compliant it is willing to become.

[yu77889]

Hi Johny,

FinCEN's guidance states that persons who accept BTC in payment for goods or services - even as a business - are not MSBs.  

BitPay's position is that it falls under the "payment processor" exemption to MSB registration.

Does that help?

MSantori, thank you for offering guidance here.  In my mind, it is "chilling" and sadly squelching innovation by simply producing contextual uncertainty to any entrepreneurial assessment about future obligations. 

What does it mean when BitPay says it is "payment processor"?  What exemption is this?  Aren't they subject to MSB and MTB considerations in the US.  I think I heard the have over 8,000 companies using their platform. Aren't they are target for licensing within any of the 50 US states?

This thread does a good job dissecting some of the law and I think I am following it.  More specifically,  what is the law for a "payment processor" which might possibly be used for an exemption?  It seems many of us would like to sit in that exception.

[ProfMac]

While off topic, I posted this nonetheless.  The Vinklevoss Brothers have made an SEC filing.

There is a thread discussing this.

[darkmule]

Let's take a look at Mt. Gox's legal status.

Mt. Gox has now registered with FinCen. They have a registered agent in Delaware. So, can they now be sued in Delaware courts?

To the extent they were previously doing business in Delaware and had "sufficient minimum contacts" with the state, they could have been sued previously.  Having a registered agent just makes it easier to accomplish service and establish personal jurisdiction.  It seems they will probably have to register in other states as well if they want to do business, though I am not certain what penalties they face in each jurisdiction if they don't.

But generally, if a corporation is doing business with the people of a state, those people are generally going to be able to argue "specific jurisdiction," that is, they can take that corporation to court at least over their own business transactions, even if Joe Random who had an unrelated beef with the corporation couldn't.  That's a good general rule, even though it is possible to imagine exceptions:  i.e. you sign up with Gox in Delaware, give a Delaware bank account info, then move to Wyoming, where you are their only customer, and don't update your address.  (Of course if they run afoul of "Know Your Customer" rules by not keeping track of them there might be an issue there.)

[MSantori]

This thread does a good job dissecting some of the law and I think I am following it.  More specifically,  what is the law for a "payment processor" which might possibly be used for an exemption?  It seems many of us would like to sit in that exception.

I can give a thoughtful explanation of the payment processor exemption.  Or, I can relay on Bitpay to do it!  Check out this blog post:  http://blog.bitpay.com/2013/03/how-fincen-guidelines-affect-bitpay.html

Bitpay says it's a payment processor because it sits between the merchant and the customer, only accepting enough value from the customer to pay for the good or service purchased from the merchant.  It then transfers that, and only that, value to the merchant. therefore, Bitpay says, it is a mere payment processor.

I'm not saying Bitpay is right (in fact, I see one particular reason why they may not be a mere payment processor, but I won't get into that now).  I'm saying that this is the exemption upon which their business model is premised.

In any event, to rely upon that exemption, all a bitcoin business need do is facilitate the payment of a merchant's good or service, accepting funds only integral to that payment.

[sbfree]

Hello. Wondering if anyone has seen this beautiful piece of news with a link to actual letter sent to California DFI...

http://www.americanbanker.com/issues/178_127/bitcoin-group-to-california-you-have-no-jurisdiction-over-us-1060364-1.html

[TheButterZone]

Yes, and these are the redundant topics for discussing it: https://bitcointalk.org/index.php?topic=241314.0 https://bitcointalk.org/index.php?topic=248620.0

[Viceroy]

And here is the thread for discussing the foundations response:
https://bitcointalk.org/index.php?topic=248620.0

[MSantori]

There are a few threads on this, but I have posted here: https://bitcointalk.org/index.php?topic=241314.320

I believe that is the definitive thread.

[MSantori]

WARNING: Shameless plug ahead...

http://btcbible.com/law-firm-accepts-bitcoin/

[btceic]

WARNING: Shameless plug ahead...

http://btcbible.com/law-firm-accepts-bitcoin/

Congrats Marco!

The community thanks you for taking this bold step!

[NewLiberty]

WARNING: Shameless plug ahead...

http://btcbible.com/law-firm-accepts-bitcoin/

Nicely done counselor!  Welcome to the club, we'll make an honest man out of you yet. 

[RapidCoinz]

WARNING: Shameless plug ahead...

http://btcbible.com/law-firm-accepts-bitcoin/

Nice one mate!  Great to see!!  Take my hat off to you! 
Buena Suerte!!

[MikeMark]

Hey Marco!

Kudos on SPI. Nice work!

https://bitcointalk.org/index.php?topic=252474.0

Enjoy,  

-MikeMark

[QuantumQrack]

Interesting that a law firm crawls out of their fucking hole so soon after the FinCEN guidance.

Involved in cryptocurrency for a while you say?

You are just a benevolent community member, right?

What were the key words that convinced your law firm to accept bitcoin?

What a sad circus regulation and the law are.

[Viceroy]

Interesting that a law firm crawls out of their fucking hole so soon after the FinCEN guidance.

Involved in cryptocurrency for a while you say?

You are just a benevolent community member, right?

What were the key words that convinced your law firm to accept bitcoin?

What a sad circus regulation and the law are.

Go away criminal moron.  Yea, let's all live in in anarchy   

[ProfMac]

Interesting that a law firm crawls out of their fucking hole so soon after the FinCEN guidance.

Involved in cryptocurrency for a while you say?

You are just a benevolent community member, right?

What were the key words that convinced your law firm to accept bitcoin?

What a sad circus regulation and the law are.

Go away criminal moron.  Yea, let's all live in in anarchy   

I once lived in FQ/NOLA just off Bourbon street.  Every day, many thousands of people go there wanting to be lawless.  They are surprised when they are surrounded by people who are acting lawless.

[Viceroy]

I bet they are.  I once lived in a college town... then I grew up.

[ProfMac]

I bet they are.  I once lived in a college town... then I grew up.

I always live in college towns.  They are dynamic and hopeful, though with chaos and angst around the corners.  But you would expect that attitude from me, I suppose.  I even get respected as an elder.

But yes, anarchy is not a valid social plan.  Civilization is very nice.  I like it when cars don't menace me when I am walking across an intersection.  I like it that I can move across the country and still speak the same language.  I will keep good records and pay proper taxes on my bitcoin earnings.  I will administer my wallet so that many of my transactions have a good audit trail.

None of that is anti-bitcoin, and none of that is anti-individualism.

[Viceroy]

I should have clarified that it was a large state school.  University towns are awesome, but big state school towns are unlivable... for me at least. I prefer peace and quiet to drunken madness.  

And like our lawyer friend here who now takes bitcoin I am happy to live in a world where reason and bitcoin co-exist and thugs get arrested and tried when they kill unarmed and harmless young hoodie wearing kids.  

* Viceroy looks forward to the conviction, not *another* riot

[CoinEntropy]

Is a day trader who uses an exchange that doesn't realize any USD and leaves their coin/fiat all in the exchange until they're ready to withdraw required to register as an MSB?

[MSantori]

Is a day trader who uses an exchange that doesn't realize any USD and leaves their coin/fiat all in the exchange until they're ready to withdraw required to register as an MSB?

Hi CoinEntropy.  I'll try to give a fact pattern.  Johnny lives in NYC and has a day job.  At night, on breaks and on weekends, he trades crypto in high frequencies and volumes.  It is all for his own account, and all for personal investment purposes.  He does not accept anyone else's money, has no "customers" and uses a (fictional) fully-compliant exchange.  Is Johnny an MSB under the BSA as interpreted by FinCEN's March 2013 guidance?

Unfortunately, there is no explicit exemption from the MSB classification for using a registered and licensed exchange.  This is one of the many curiosities to be found in the guidance, most of which result from the regulations themselves not accounting for digital currency (round peg-square hole).  Nonetheless, there is a threshold requirement for classification as an MSB under the March guidance: operating as a business.  There is no black and white definition that I'm aware of as to what constitutes a business. There are only factors. Here, in my mind, the factors weigh against classification as a business.  Johnny doesn't trade on behalf of any customers - only himself.  He has no investors.  He collects no fees for his services. In fact, he does have a job, and it isn't this.  He doesn't even trade during work hours.  Counting against this is the high volume and frequency of his trades.  It's not a slam dunk, and a court could disagree, but I would be comfortable arguing that Johnny is not operating as a business, and therefore not an MSB.  Hope that helps!

[CoinEntropy]

Is a day trader who uses an exchange that doesn't realize any USD and leaves their coin/fiat all in the exchange until they're ready to withdraw required to register as an MSB?

Hi CoinEntropy.  I'll try to give a fact pattern.  Johnny lives in NYC and has a day job.  At night, on breaks and on weekends, he trades crypto in high frequencies and volumes.  It is all for his own account, and all for personal investment purposes.  He does not accept anyone else's money, has no "customers" and uses a (fictional) fully-compliant exchange.  Is Johnny an MSB under the BSA as interpreted by FinCEN's March 2013 guidance?

Unfortunately, there is no explicit exemption from the MSB classification for using a registered and licensed exchange.  This is one of the many curiosities to be found in the guidance, most of which result from the regulations themselves not accounting for digital currency (round peg-square hole).  Nonetheless, there is a threshold requirement for classification as an MSB under the March guidance: operating as a business.  There is no black and white definition that I'm aware of as to what constitutes a business. There are only factors. Here, in my mind, the factors weigh against classification as a business.  Johnny doesn't trade on behalf of any customers - only himself.  He has no investors.  He collects no fees for his services. In fact, he does have a job, and it isn't this.  He doesn't even trade during work hours.  Counting against this is the high volume and frequency of his trades.  It's not a slam dunk, and a court could disagree, but I would be comfortable arguing that Johnny is not operating as a business, and therefore not an MSB.  Hope that helps!

We need more people like you in this world of crypto. Thank you.

[CoinEntropy]

Would, in this hypothetical scenario, this private day-trading investor be in best hands with a tax lawyer rather than a "business" lawyer?

[MSantori]

Would, in this hypothetical scenario, this private day-trading investor be in best hands with a tax lawyer rather than a "business" lawyer?

Well, if Johnny was concerned with his tax liability for those trades, my sense is he would go to a CPA first, and then a tax lawyer if that was necessary.

[CoinEntropy]

Would, in this hypothetical scenario, this private day-trading investor be in best hands with a tax lawyer rather than a "business" lawyer?

Well, if Johnny was concerned with his tax liability for those trades, my sense is he would go to a CPA first, and then a tax lawyer if that was necessary.

How much of an issue would it be if there can be found no definitive proof of buying BTC? Say Johnny bought MoneyPaks and threw away the receipt (cashloaded cards that have instant redeem-ability) to trade for someone's bitcoins? Months pass and he ends up with 10x as much BTC as he originally bought, but his original buy cannot be proved. '

Scenario 2: What if Johnny, instead of "cashing out," uses a service, such as amagimetals, to buy equivalent gold/silver directly for his bitcoin. Is this "realization?" I recall a quote from some government agency about virtual goods to real goods not needing to be... something.

[MSantori]

How much of an issue would it be if there can be found no definitive proof of buying BTC? Say Johnny bought MoneyPaks and threw away the receipt (cashloaded cards that have instant redeem-ability) to trade for someone's bitcoins? Months pass and he ends up with 10x as much BTC as he originally bought, but his original buy cannot be proved. '

Sorry, Entropy. That's not something I can help with, and certainly not on a public forum!

Scenario 2: What if Johnny, instead of "cashing out," uses a service, such as amagimetals, to buy equivalent gold/silver directly for his bitcoin. Is this "realization?" I recall a quote from some government agency about virtual goods to real goods not needing to be... something.

The tax professionals I work with are investigating something similar to that right now.  The question is whether trading one commodity for a dissimilar commodity is a taxable event. I'm not a tax lawyer, so I don't have anything intelligent to say about that.

[CoinEntropy]

How much of an issue would it be if there can be found no definitive proof of buying BTC? Say Johnny bought MoneyPaks and threw away the receipt (cashloaded cards that have instant redeem-ability) to trade for someone's bitcoins? Months pass and he ends up with 10x as much BTC as he originally bought, but his original buy cannot be proved. '

Sorry, Entropy. That's not something I can help with, and certainly not on a public forum!

Scenario 2: What if Johnny, instead of "cashing out," uses a service, such as amagimetals, to buy equivalent gold/silver directly for his bitcoin. Is this "realization?" I recall a quote from some government agency about virtual goods to real goods not needing to be... something.

The tax professionals I work with are investigating something similar to that right now.  The question is whether trading one commodity for a dissimilar commodity is a taxable event. I'm not a tax lawyer, so I don't have anything intelligent to say about that.

“A user who obtains convertible virtual currency and uses it to purchase real or virtual goods or services is not an MSB under FinCEN’s regulations. Such activity, in and of itself, does not fit within the definition of “money transmission services” and therefore is not subject to FinCEN’s registration, reporting, and recordkeeping regulations for MSBs”

[Jazkal]

“A user who obtains convertible virtual currency and uses it to purchase real or virtual goods or services is not an MSB under FinCEN’s regulations. Such activity, in and of itself, does not fit within the definition of “money transmission services” and therefore is not subject to FinCEN’s registration, reporting, and recordkeeping regulations for MSBs”

This guidance is only relevant for determining if you qualify as a MSB, this doesn't have anything to do with the IRS and what they consider a taxable event. Apples and Oranges.

[NewLiberty]

Scenario 2: What if Johnny, instead of "cashing out," uses a service, such as amagimetals, to buy equivalent gold/silver directly for his bitcoin. Is this "realization?" I recall a quote from some government agency about virtual goods to real goods not needing to be... something.

The IRS reporting requirements of precious metals varies with both the type of metal, quantity, and it's form according to the commodity futures trading commission (CFTC).
Oddly enough, if your precious metals purchases is something traded on an ETF, you probably have an IRS reporting requirement.

http://www.coinworld.com/Articles/ViewArticle/what-coins-are-reportable

There is no ETF for New Liberty Dollars, so all my customers are safe here.
Some but not all of Amagi's are also not IRS reportable depending on quantity.

Another gotcha: If you have had US$10K of "value" in a foreign account which you control (even if it is only Bitcoin).  There is a very serious reporting requirement, for which failure to report could cost you the whole account, or even more depending on how long you fail to report.
http://bitcoinmagazine.com/real-compliance-getting-your-way-by-giving-in/

"Control" of the account is measured by whether you can get the value out of the account while on foreign soil without going through a US financial entity.  This is a weird and not very well known requirement.  It is likely to be the single strongest weapon the IRS has to take bitcoins from US taxpayers who remain unaware of it.

----------
The foregoing is not to be construed as legal or tax advice.  Do your own research, and hire your own advisers upon which you may rely.

[kjj]

Scenario 2: What if Johnny, instead of "cashing out," uses a service, such as amagimetals, to buy equivalent gold/silver directly for his bitcoin. Is this "realization?" I recall a quote from some government agency about virtual goods to real goods not needing to be... something.

The IRS reporting requirements of precious metals varies with both the type of metal, quantity, and it's form according to the commodity futures trading commission (CFTC).
Oddly enough, if your precious metals purchases is something traded on an ETF, you probably have an IRS reporting requirement.

http://www.coinworld.com/Articles/ViewArticle/what-coins-are-reportable

There is no ETF for New Liberty Dollars, so all my customers are safe here.
Some but not all of Amagi's are also not IRS reportable depending on quantity.

Another gotcha: If you have had US$10K of "value" in a foreign account which you control (even if it is only Bitcoin).  There is a very serious reporting requirement, for which failure to report could cost you the whole account, or even more depending on how long you fail to report.
http://bitcoinmagazine.com/real-compliance-getting-your-way-by-giving-in/

"Control" of the account is measured by whether you can get the value out of the account while on foreign soil without going through a US financial entity.  This is a weird and not very well known requirement.  It is likely to be the single strongest weapon the IRS has to take bitcoins from US taxpayers who remain unaware of it.

----------
The foregoing is not to be construed as legal or tax advice.  Do your own research, and hire your own advisers upon which you may rely.

1. In order to determine whether or not the FBAR is required, all of the following must apply:
A. The filer is a U.S. person; (or person equivalent, partnership, corp, etc)
B. The U.S. person has a financial account(s);
C. The financial account is in a foreign country;
D. The U.S. person has a financial interest in the account or signature or other authority over the foreign financial account; and, (you have the password)
E. The aggregate amount(s) in the account(s) valued in dollars exceed $10,000 at any time during the calendar year.

Seems like a stretch.

[champbronc2]

and here's the kicker:

...Any other person engaged as a business in the transfer of funds.

So, to complete the thought: someone is a money transmitter subject to 18 USC 1960 whenever that person is engaged in the business of the transfer of funds.  The definition of currency is certainly relevant, but it is not necessary to the analysis.

Okay so far, but we're not done.  Section 1010.100(w) defines "funds transfer" as follows:

The series of transactions, beginning with the originator's payment order, made for the purpose of making payment to the beneficiary of the order. The term includes any payment order issued by the originator's bank or an intermediary bank intended to carry out the originator's payment order. A funds transfer is completed by acceptance by the beneficiary's bank of a payment order for the benefit of the beneficiary of the originator's payment order. Funds transfers governed by the Electronic Fund Transfer Act of 1978 (Title XX, Pub. L. 95-630, 92 Stat. 3728, 15 U.S.C. 1693, et seq. ), as well as any other funds transfers that are made through an automated clearinghouse, an automated teller machine, or a point-of-sale system, are excluded from this definition.

Note that ACH payments (eg Dwolla) are excluded from this definition.  And bitcoin transactions are not "completed by acceptance by the beneficiary's bank".

For any particular defendant, this statutory analysis is only the beginning.  There are additional definitions that might be applicable to your particular business, and a competent attorney will be able to analyze the case law to determine just how this very general road map might apply to you.

All of this leaves me wondering just what it is that Mutum Sigillum allegedly did wrong.  Clear as mud, eh?

Am I reading this right, or does that mean if you transfer BTC solely via the BTC network, it really isn't transfer?

edit: lol wishful thinking

[MSantori]

Just a quick note: I will be at the Inside Bitcoins conference here in NYC tomorrow.  If you see me, please tap me on the shoulder and say hello!

[MSantori]

Just a quick note: I will be at the Inside Bitcoins conference here in NYC tomorrow.  If you see me, please tap me on the shoulder and say hello!

Thank you to everyone who came up to me at the conference and introduced yourselves.  I was really overwhelmed by the outpouring of support and kindness.  Someone actually came up and said "you're Marco Santori?  Like, the Marco Santori from Bitcointalk?! I've learned a lot from your posts."  I was completely floored. Thank you all so much. I'm happy to do what I can to help out here.

I hope to see you all at the next Inside Bitcoins conference on December 11 in Las Vegas.  I believe I'll be one of the speakers this time around, giving a 30-45 minute talk.

[Bitcopia]

Just a quick note: I will be at the Inside Bitcoins conference here in NYC tomorrow.  If you see me, please tap me on the shoulder and say hello!

Thank you to everyone who came up to me at the conference and introduced yourselves.  I was really overwhelmed by the outpouring of support and kindness.  Someone actually came up and said "you're Marco Santori?  Like, the Marco Santori from Bitcointalk?! I've learned a lot from your posts."  I was completely floored. Thank you all so much. I'm happy to do what I can to help out here.

I hope to see you all at the next Inside Bitcoins conference on December 11 in Las Vegas.  I believe I'll be one of the speakers this time around, giving a 30-45 minute talk.

Great to see you at the conference. It's definitely nice to have an attorney so active in the community. There aren't enough of you. I'm looking forward to seeing you speak in December!

[thezerg]

what's your interpretation of the buttonwood in-person exchanges?  Clearly, if you just show up and buy that's ok.  But what if you are willing to buy/sell a spread?  Not as a primary source of income, etc... but just to help disseminate the currency?

[MSantori]

what's your interpretation of the buttonwood in-person exchanges?  Clearly, if you just show up and buy that's ok.  But what if you are willing to buy/sell a spread?  Not as a primary source of income, etc... but just to help disseminate the currency?

This is a popular topic.  Speaking only to the FinCEN guidance, the threshold question in determining whether you are a Money Services Business is whether you are a businesses.  Sporadic and infrequent exchanging, under the regs, will weigh against being construed as a business. However, it is a highly fact-based, factor-weighing inquiry.

[darkmule]

what's your interpretation of the buttonwood in-person exchanges?  Clearly, if you just show up and buy that's ok.  But what if you are willing to buy/sell a spread?  Not as a primary source of income, etc... but just to help disseminate the currency?

This is a popular topic.  Speaking only to the FinCEN guidance, the threshold question in determining whether you are a Money Services Business is whether you are a businesses.  Sporadic and infrequent exchanging, under the regs, will weigh against being construed as a business. However, it is a highly fact-based, factor-weighing inquiry.

For the non-lawyers among us, this means there isn't a single "bright line" you cross to become a business, so it is possible to fall into this category inadvertently.

An example of another fact-based, factor-weighing inquiry is the fairly common case of adjudicating whether a person is a contractor or an employee, which often arises when a construction project goes awry and a plaintiff is suing both the person or company who actually screwed up as well as whoever hired them.  If the person whose hammer slipped is an employee, employer liability is almost automatic, whereas it becomes rather more difficult if the person is merely a contractor whose activities are not directly controlled by the person who hired him.  The issue also becomes very important in tax or unemployment compensation cases.

I chose this example because it's fairly common and you can find multi-factor analyses actually used by professionals.  For example, this is a 20 factor checklist which is or resembles the 20 factors often used by the IRS in making such determinations.

Just because factors like this are listed does not mean they are exhaustive.  Courts can (unless prohibited by statute or binding precedent) use their own tests, ignore or give little weight to some factors, or even consider factors not listed in the "standard" test, especially in unusual cases.

Bitcoin may tend to create situations where additional factors may need to be considered, or where the traditional weighting of factors is not applicable.  It may shake out that Bitcoin situations are actually pretty similar to other already adjudicated cases, but I wouldn't bet on it.

[MSantori]

Please allow myself to promote... myself:

http://www.coindesk.com/bitcoin-law-what-us-businesses-need-to-know/

[NewLiberty]

A busy start of the week for you. 
Looking forward to some words, when you get a chance to take a breath.

[MSantori]

Back from D.C.

What a trip!  De-briefing here:

https://bitcointalk.org/index.php?topic=282631.0

[MSantori]

From a business perspective, not a regulatory one (for once), I think that this is a great write up:

http://daslee.me/10-things-i-think-i-think-on-bitcoin

[tagbond]

Been reading your posts for a while now, all very interesting and informative. Quick question for you:

I have a startup operating outside of the USA (in Philippines), with all banking done here as well. The business units include a crypto exchange, digital wallets, and a rewards system. It deals with both crypto and fiat and definitely falls under the MSB licensing rules. We are registered with Fincen as MSB, but not with the individual states. I could just switch off the service to anyone in the USA, which seems a shame - we reached out to Meracord, who charge a minimum of $250,000 just to get started with them, but they said a flat no to us when we said our business involved Bitcoin. Do you know of a list of MTL operators with licenses in all states that would deal with startups like ours?.

One thought that had occurred to me was to approach various MTL entities in each state and offer to pay them a fee to work through their license...but I am pretty sure their surety bonds suppliers may not be too happy with it. We don't have the finance or the time to go through every state to get a license, although in Philippines we are going the process of becoming an EMI, which requires $2.5m in paid up capital, and we will probably do the same in Europe which requires about $500k in paid in capital. No major licensing fees in either case. In the US, I have read it would cost in the region of about $7m to go through all the states, and in the region of $250,000 a year in fees. At this stage, definitely cheaper to go through another licensed entity. Just have to find the best option, and wondered if you know of companies providing this service.

[MSantori]

Been reading your posts for a while now, all very interesting and informative. Quick question for you:

I have a startup operating outside of the USA (in Philippines), with all banking done here as well. The business units include a crypto exchange, digital wallets, and a rewards system. It deals with both crypto and fiat and definitely falls under the MSB licensing rules. We are registered with Fincen as MSB, but not with the individual states. I could just switch off the service to anyone in the USA, which seems a shame - we reached out to Meracord, who charge a minimum of $250,000 just to get started with them, but they said a flat no to us when we said our business involved Bitcoin. Do you know of a list of MTL operators with licenses in all states that would deal with startups like ours?.

One thought that had occurred to me was to approach various MTL entities in each state and offer to pay them a fee to work through their license...but I am pretty sure their surety bonds suppliers may not be too happy with it. We don't have the finance or the time to go through every state to get a license, although in Philippines we are going the process of becoming an EMI, which requires $2.5m in paid up capital, and we will probably do the same in Europe which requires about $500k in paid in capital. No major licensing fees in either case. In the US, I have read it would cost in the region of about $7m to go through all the states, and in the region of $250,000 a year in fees. At this stage, definitely cheaper to go through another licensed entity. Just have to find the best option, and wondered if you know of companies providing this service.

Hi Tagbond. Thanks for reaching out.  Unfortunately, most money transmitters are still in a holding pattern for Bitcoin businesses.  As you noted, Meracord, one of the larger licensees, is not currently considering Bitcoin agents.  The problem is not a legal one.  There's no legal reason why an existing licensee couldn't grant a certified agency to a bitcoin business.  A Bitcoin business can implement the licensee's AML policies just as well as any non-Bitcoin business.  The problem is one of perception.  Many existing money transmitters are unwilling to risk alienating their already-existing agency base by getting involved with Bitcoin, which has heretofore been known as a currency for criminals.  With the shutdown of Silk Road, the tide is turning in the media from "Bitcoin the drug money" to "Bitcoin the Future".  As that picks up steam, we will start to see a better, more accurate, public perception develop.

Edit: I should add that there are some money transmitters willing to work with certain Bitcoin businesses, depending upon the model.  I shan't go into detail, but they are out there.

[tagbond]

We can enable or disable transfers for each wallet type, or for each state/country. I think while the area is still fuzzy, we can leave those features in for Crypto, but still haven't decided to push the envelope and allow for USD as well.

Even though we are clearly an MSB and licensed with Fincen, it will be some time before we go through the creation of licenses in every state. If a state wants to come after us, they are welcome to come to the Philippines and take it up in the court system here... We are not planning on allowing anything illegal, ie: gambling or criminal use of funds, via our platform so I don't think they will issue a takedown notice for the domain name, but one can never be sure. If a state issues a cease and desist then we just turn off use of the wallet system for users in that state, until we get the license. It is going to be a fun ride, but i don't want to be hamstrung by the USA when in startup phase. Once we are growing and bigger we can tackle the issues of licensing.

I see you are involved with the BTC Global, Moneero - if you want to talk further about working together on the exchange side, let me know..:-)

[achillez]

so I assume we still haven't answered whether bitcoin miners are money transmitters (even small-time miners) ??

[darkmule]

so I assume we still haven't answered whether bitcoin miners are money transmitters (even small-time miners) ??

Unfortunately, that is what legal scholars would call an "interesting question" and spend upwards of six figures arguing about, should it ever come to a court case.

My personal opinion is no, but the opinions of the kind of idiots who would prosecute a case like this seems to be leaning the other direction.  And by idiot, I don't mean stupid people, that's just my term for people with whom I disagree.

[NewLiberty]

so I assume we still haven't answered whether bitcoin miners are money transmitters (even small-time miners) ??

Unfortunately, that is what legal scholars would call an "interesting question" and spend upwards of six figures arguing about, should it ever come to a court case.

My personal opinion is no, but the opinions of the kind of idiots who would prosecute a case like this seems to be leaning the other direction.  And by idiot, I don't mean stupid people, that's just my term for people with whom I disagree.

It may eventually hit a jury.

[Bitco]

A relevant case regarding the scope of 18 USC § 1960 is the US v. e-gold case in the United States District Court in the District of Columbia.

The court held that "money transmitting business" has a different meaning in section 1960 than in 31 USC § 5330.  That is, it is possible to be an "unlicensed money transmitting business" even if the business is not required to register as a money transmitting business under 31 USC § 5330.

The court also held that 5330(d)(2) applies even if the business never engaged in cash transactions over $10000, so long as the business would be required to file a currency transaction report in the event that it did receive more than $10000 in cash.

The district court did not specify exactly what would be considered a "business" under 18 USC section 1960, but held that hiring multiple employees and transferring over 145 million dollars constituted a "business".

[darkmule]

A relevant case regarding the scope of 18 USC § 1960 is the US v. e-gold case in the United States District Court in the District of Columbia.

The court held that "money transmitting business" has a different meaning in section 1960 than in 31 USC § 5330.  That is, it is possible to be an "unlicensed money transmitting business" even if the business is not required to register as a money transmitting business under 31 USC § 5330.

I guess I should look into this.  I hope it's not another example of hard cases making bad law.  Considering that the people supposed to obey these laws are held to their strict letter, it's somewhat perverse that prosecutors can get a court to do what seems like bending the law in favor of the government when it's vague.  It seems like they may be ignoring the general rule of lenity that is supposed to interpret ambiguous federal statutes in favor of the defendant.

The fact this is in the D.C. Circuit is also worrisome, because it is one of the more draconian circuits as far as criminal cases go.  At least, the damage would be limited to that circuit to some extent if other circuits disagree.  I'm not sure how seriously D.C. Circuit is taken on specifically financial crimes cases.  I'd imagine the Second (containing New York) or the Ninth (containing California and Silicon Valley) have more expertise in these areas.  There, I'm just speculating, though.

[Bitco]

I guess I should look into this.  I hope it's not another example of hard cases making bad law.  Considering that the people supposed to obey these laws are held to their strict letter, it's somewhat perverse that prosecutors can get a court to do what seems like bending the law in favor of the government when it's vague.  It seems like they may be ignoring the general rule of lenity that is supposed to interpret ambiguous federal statutes in favor of the defendant.

I think it's mostly reasonable except for the interpretation of 5330(d)(1)(B), as this is so broad as to make it meaningless.  Section 5313 could apply to anyone, in the event that they were to make such a transaction.  If everyone is potentially required to file reports under section 5313, then to whom does the limitation of 5330(d)(1)(B) apply?  It's meaningless if it applies to no one.

[erik777]

Speaking at least in the United States, bitcoin will not be banned.  It is and will continue to be regulated on the state and federal level.

Regulation is a good thing. It is the inevitable consequence of widespread adoption and acceptance.  We want regulation: careful, competent regulation.

Do you think that money laundering laws are overstepping their original intent?  When you read about someone being charged with it who has never had a prior connection to drugs, and the only connect is that an undercover officer suggested he might buy drugs with bitcoins, it seems like these laws have gone from targeting drug kingpins to good honest Americans who just want to trade bitcoins. 

Are there potential constitutional issues here?  Are there legal defences for this?  Could the suggestion of intent to purchase drugs be entrapment? 

Are there legal protections for interpersonal trading versus a commercial business? 
 

[erik777]

Please allow myself to promote... myself:

http://www.coindesk.com/bitcoin-law-what-us-businesses-need-to-know/

In there you say "A money transmission license is not a right, but a privilege."  Worded that way, it sounds believable.  But, considering they are applying it to person-to-person trading, is this really true?  Does the constitution protect our ability to trade between each other items that are not illegal? 

[ABISprotocol]

It doesn't matter what regulations you (or anyone else) propose(s), we'll just circumvent it.

Also, there will never be consensus for anything like Coinvalidation.

You need to brace yourselves for the eventual development of actual anonymity in bitcoin transactions, which presently does not exist, thus regulators can feel free to abuse their discretion at will.  It won't make any difference though, we are leveraging P2P, decentralization, and other mechanisms (which will include anonymity options now under development (no, this does not mean TOR)) to ensure that your collapsing house of cards ("legal" system, corporation-state "governmental" violence and coercion, etc., etc.) collapses faster.

Never let it be said that we don't care, though.  We are building structures that will enable people to function fine completely without any of the "government" that you have unfortunately come to know and love.  Word to the wise:  Don't keep knowing it.  Don't keep loving it.  Start learning to live without it.  

That time is coming and sooner than you think.

Cheers

Speaking at least in the United States, bitcoin will not be banned.  It is and will continue to be regulated on the state and federal level.

Regulation is a good thing. It is the inevitable consequence of widespread adoption and acceptance.  We want regulation: careful, competent regulation.

I think "we" would prefer no regulation. However, given the inevitability of regulation, it is better to take the initiative and propose a regime that is workable. This is the classic lobbying technique of most well-organized industries. Voluntarily submit to regulation that you propose, to head off more draconian approaches from entrepreneurial politicians.

[NewLiberty]

Please allow myself to promote... myself:

http://www.coindesk.com/bitcoin-law-what-us-businesses-need-to-know/

In there you say "A money transmission license is not a right, but a privilege."  Worded that way, it sounds believable.  But, considering they are applying it to person-to-person trading, is this really true?  Does the constitution protect our ability to trade between each other items that are not illegal? 

For US Constitutional support you can start with Article 1 Section 10:

SECTION 10.

No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money; emit bills of credit; make anything but gold and silver coin a tender in payment of debts; pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts, or grant any title of nobility.

No state shall, without the consent of the Congress, lay any imposts or duties on imports or exports, except what may be absolutely necessary for executing it's inspection laws: and the net produce of all duties and imposts, laid by any state on imports or exports, shall be for the use of the treasury of the United States; and all such laws shall be subject to the revision and control of the Congress.

No state shall, without the consent of Congress, lay any duty of tonnage, keep troops, or ships of war in time of peace, enter into any agreement or compact with another state, or with a foreign power, or engage in war, unless actually invaded, or in such imminent danger as will not admit of delay.

What two people contract amongst each other ought not be impaired by the state.

The state is relying on "guidance" from FinCEN here which is thin and untested in any court, so the thugs picked what they see as an easy mark to roll for the first impression.  Likely will get plead out like most in US federal.

[darkmule]

SECTION 10.

No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money; emit bills of credit; make anything but gold and silver coin a tender in payment of debts; pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts, or grant any title of nobility.

What two people contract amongst each other ought not be impaired by the state.

You're misinterpreting Art. I § 10, which is referring to the (currently 50) states.  Only Congress may "impair[] the obligation of contracts."  A legislative action doing such a thing is, for example, bankruptcy.  Even with respect to the states, the prohibition has never been absolute, and certainly is not now.

This section of the Constitution was drafted to prevent practices in which the states would either pass "private bills" relieving (usually) some wealthy person of his contractual obligations, or basically pass laws giving the property of foreigners to colonists, causing a fear by the Framers that this would scare away foreign capital.

Check Federalist No. 10 by Madison for a fuller explanation.

ETA:  Incidentally, not arguing your actual point, at least not here, just your citation.

[NewLiberty]

SECTION 10.

No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money; emit bills of credit; make anything but gold and silver coin a tender in payment of debts; pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts, or grant any title of nobility.

What two people contract amongst each other ought not be impaired by the state.

You're misinterpreting Art. I § 10, which is referring to the (currently 50) states.  Only Congress may "impair[] the obligation of contracts."  A legislative action doing such a thing is, for example, bankruptcy.  Even with respect to the states, the prohibition has never been absolute, and certainly is not now.

This section of the Constitution was drafted to prevent practices in which the states would either pass "private bills" relieving (usually) some wealthy person of his contractual obligations, or basically pass laws giving the property of foreigners to colonists, causing a fear by the Framers that this would scare away foreign capital.

Check Federalist No. 10 by Madison for a fuller explanation.

ETA:  Incidentally, not arguing your actual point, at least not here, just your citation.

Thanks for raising this.  Yes, little in the Constitution is absolute.  So much nuance and reinterpretations....

Its not so much a misinterpretation if you look at the question asked, though agree that it is very much a stretch.
Poster was looking for some general constitutional support for putting the breaks on this sort of FinCEN abuse, and there isn't much there on this matter.
So closest is Article 1 § 10, (which arguably limits the state part of FinCEN, even though congress authorized the Fed to delegate this to states),
Or 10th amendment, (which takes significantly more political action, rather than legal action)

This particular incident would not be one I'd pick to take to the supremes though, and constitutional matters end up there.

[grumpy619]

Just to be on  this..

[smith88]

Hi everyone. I'm a business attorney in New York City.  I've been involved in cryptocurrency for some time now.  I hope I can be of some help on this board.  I can't give you legal advice via posts, but if you PM me, we may be able to discuss the particulars of your business.

Full disclosure: There's no such thing as an expert or specialist in bitcoin law, and I am certainly not one.  I'm an attorney with experience in securities, civil fraud and other financial matters with particular emphasis in the tech realm.  There is almost zero judicial and legislative guidance out there for us practitioners, so many of us are trying to keep ourselves out in front of every new development as they arise.

I'm daily fascinated by what bitcoin is and what it can become, and I'm looking forward to becoming part of the community!

Welcome with open arms!  There are many among us and I am extremely happy to see folks working to gain a more authoritative stance on the legalities.  Most Bitcoiners (including myself) are tech/geek types (ok that is a sweeping statement but probably accurate)that have been developing hardware, software, ideas, science, math; their entire lives.  We are becoming business men & women; which is good but painful.  As you are probably aware.  I estimate 95% of the community is developing beautiful businesses and careers of some sort or another; all based upon cryptocurrency implementation.  The more wide spread acceptance in the US; the stronger the community will become.  I see legal advise extremely crucial in this time.  And thanks again.

[Bitco]

Its not so much a misinterpretation if you look at the question asked, though agree that it is very much a stretch.
Poster was looking for some general constitutional support for putting the breaks on this sort of FinCEN abuse, and there isn't much there on this matter.

What sort of FinCEN abuse?  What specifically have they done that violates someone's rights?

If you want a constitutional challenge, there would need to be something specific that you have a right to do, that FinCEN told you that you can't do.

[darkmule]

Its not so much a misinterpretation if you look at the question asked, though agree that it is very much a stretch.
Poster was looking for some general constitutional support for putting the breaks on this sort of FinCEN abuse, and there isn't much there on this matter.

What sort of FinCEN abuse?  What specifically have they done that violates someone's rights?

If you want a constitutional challenge, there would need to be something specific that you have a right to do, that FinCEN told you that you can't do.

Well, I'd say simply having to register to be able to sell BTC would be an issue.  FinCEN, as much as it has a lot of bad things at its disposal that it has not, in fact, done to date, has a fairly lengthy history of creating regulatory uncertainty and then suddenly prosecuting some practice that has been, to date, tolerated.  While I am not a full-bore anti-government loon by any stretch of the imagination, and in fact, FinCEN's public official statements to date have been actually pretty welcome and reasonable, there is still an environment of regulatory uncertainty.

In some senses, this is good.  Sometimes, you really don't want the government all that interested in what you're doing at the moment.  However, it makes it rather difficult for large-scale money and venture capital to make long term decisions when they are considering rolling out physical infrastructure and other things that can't be rolled back and turned back into money should the situation change.  A lot of the kind of tech necessary for large-scale investments in Bitcoin is going to be stuff that is useful for nothing other than Bitcoin.  Therefore, a big investment in this kind of stuff would be rendered worthless by sudden prohibitive actions by the government.  This scares away that kind of big money.

Personally, I don't think FinCEN has yet abused its position, with regard to Bitcoin anyway.  But the possibility of it doing so is always going to be a variable.

I think the probability that Congress would do something insanely stupid if it did anything with regard to Bitcoin is a reason to prefer the current situation.  But that doesn't eliminate the downside of regulatory uncertainty.

[Bitco]

Well, I'd say simply having to register to be able to sell BTC would be an issue.  FinCEN, as much as it has a lot of bad things at its disposal that it has not, in fact, done to date, has a fairly lengthy history of creating regulatory uncertainty and then suddenly prosecuting some practice that has been, to date, tolerated.  While I am not a full-bore anti-government loon by any stretch of the imagination, and in fact, FinCEN's public official statements to date have been actually pretty welcome and reasonable, there is still an environment of regulatory uncertainty.

AFAIK, FinCEN has never stated that you have to register to be able to sell BTC.

There have been some cases where people were charged with money laundering or running an unlicensed money transmitting business, and those cases involved selling BTC, but it wasn't alleged that selling BTC is illegal by itself.

There's a lot of nasty things that FinCEN potentially could do, but until they actually try it, there's not much basis to sue them.

[darkmule]

There's a lot of nasty things that FinCEN potentially could do, but until they actually try it, there's not much basis to sue them.

I certainly didn't suggest suing them.  Nobody I can think of would have standing to do it, since they haven't done anything and do not appear to be about to do anything.  I was just pointing out they're the 800 pound gorilla in the room.  May be calmly eating bananas at the moment, but you always worry maybe he'll decide to eat you instead.  So maybe you don't set up a lemonade stand 20 feet from him.

[c0dex]

There have been some cases where people were charged with money laundering or running an unlicensed money transmitting business, and those cases involved selling BTC, but it wasn't alleged that selling BTC is illegal by itself.

FWIW the guidance has, since last March - May, suggested that if you are selling BTC for USD as a business, you must register as an MSB with FinCen. Additionally, you might need the appropriate state licenses depending on the details.

If you're just doing small trades as a trader for yourself, and not as a business, you might not have to, but I would certainly talk to an attorney!

[darkmule]

If you're just doing small trades as a trader for yourself, and not as a business, you might not have to, but I would certainly talk to an attorney!

Attorneys charge money for talking with you.  Just this prices the cautious casual dealer out of the market, or forces them to charge exorbitant fees themselves.

Yet another example of the actual real-world costs of "regulatory uncertainty."  Such a vague-sounding phrase, but hits you right in the wallet in reality.

[Bitco]

I will point out that Tangible Cryptography (BitSimple) filed a request with FinCEN for an administrative ruling on the issue of whether an exchange between two individuals is money transmission, asserting that it is not.

https://bitcointalk.org/index.php?topic=224553.0

[darkmule]

I will point out that Tangible Cryptography (BitSimple) filed a request with FinCEN for an administrative ruling on the issue of whether an exchange between two individuals is money transmission, asserting that it is not.

https://bitcointalk.org/index.php?topic=224553.0

Thanks for pointing this out.  It is a good idea.  I hope it has good results.