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

[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.