The Warrant against Dwolla and Bitcoin: The Beginning of the End of Bitcoin

[dasein]

Some VC-backed exchange with fancy lawyers will inevitably emerge with the proper MSB licenses.

[1714821832]

1714821832

[1714821832]

1714821832

[dasein]

Everyone calm down and read the warrant (page 2, emphasis added):

"As part of the account opening process, Wells Fargo required Karpeles [GOX owner] and Mutum Sigillum LLC [GOX sub] to complete a "Money Services Business (MSB) Accounts, Identification of an MSB Customer" form. That document was completed on May 20, 2011, and identified Mutum Sigillum LLC as a business not engaged in money services. The application asks several questions; to include, "Do you deal in or exchange currency for your customer?" and "Does your busienss accept funds from customers and send the funds based on customer's instructions (Money Transmitter)?" Karpeles answered these questions "no," indicating that Mutum Sigillum LLC does not deal in or exchange money, and that it does not send funds based on customer instructions."

Gox appears to have misrepresented themselves in the forms they submitted to Wells Fargo, and failed to comply with the basic MSB FinCEN regs that are already on the books. This is not a bitcoin gov takedown, just enforcement of basic MSB regs due to Gox incompetency.

I think Karpeles thought these questions through, and just got too tricky for his own good.

"Do you deal in or exchange currency for your customer?" - No.  Gox exchanges money - and only in Japan.  Mutum Sigillum just sends money to people.

"Does your busienss accept funds from customers and send the funds based on customer's instructions (Money Transmitter)?" - No.   Mutum Sigillum has no customers - nobody pays it anything for its services.  It takes Gox money and sends it to people - but those people are not customers, because they pay Mutum Sigillum nothing.

I'd be willing to bet that those are the thoughts that went through Karpeles' head as he was filling out his answers to those questions.

I agree, you can be clever while BTC is below the rader, but that reasoning is way too cute when you're the biggest exchange and BTC market cap reaches $1 billion.

[BTC Books]

I agree, you can be clever while BTC is below the rader, but that reasoning is way too cute when you're the biggest exchange and BTC market cap reaches $1 billion.

Yeah.  And - in passing - I'll add that Mutum Sigillum translates contextually as "Silent Shield".  Clever.

[superduh]

so is bitcoin a currency or a commodity? if it's a commodity would the same rules apply?

[silverback]

I do believe that the US Government, in particular, the Department of Homeland Security, is frightened of bitcoin and has been looking for anyway possible to destroy it.

Bitcoin is no more of a threat to the US dollar than the Euro or the British pound. It is not legal tender and it cannot be used to pay taxes. The Feds probably give a rat's ass about bitcoin.

[dasein]

so is bitcoin a currency or a commodity? if it's a commodity would the same rules apply?

"The definition of a money transmitter does not differentiate between real currencies and convertible virtual currencies. Accepting and transmitting anything of value that substitutes for currency makes a person a money transmitter under the regulations implementing the BSA." - http://www.fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html

[BTC Books]

so is bitcoin a currency or a commodity? if it's a commodity would the same rules apply?

I think the US government will carefully avoid defining bitcoin as either a commodity or a currency for as long as possible.  That will make it easy for them to apply whatever rules they choose, in whatever circumstance a given definition is the most advantageous.

[Stampbit]

so is bitcoin a currency or a commodity? if it's a commodity would the same rules apply?

"The definition of a money transmitter does not differentiate between real currencies and convertible virtual currencies. Accepting and transmitting anything of value that substitutes for currency makes a person a money transmitter under the regulations implementing the BSA." - http://www.fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html

Accepting anything of value? So everyone who accepts any form of money is a money transmitter?

[nebulus]

You are being paranoid or just attention whoring...

Per law, MTGOX are going to get either a fine or 5 years in jail for what they've done (non-compliance with money-transmitting laws).
Sounds like a hell of a break to me vs shutdown/seizure.

[chowderman]

The Warrant is a fake....look at my post on page 1 and see the difference between a real US District Court Warrant and that crap people are passing around, SO VERY FAKE.

[QuantPlus]

Some VC-backed exchange with fancy lawyers will inevitably emerge with the proper MSB licenses.

This times 1,000,000...
And they will run a proper exchange.

This is just a prelude to criminal charges against Principals of MtGox...
It couldn't happen to a sleazier bunch of people...
Just a replay of Full Tilt Poker taken over by Poker Stars.

Here are the laws they broke...
It's not about filling out a form incorrectly:

http://www.law.cornell.edu/uscode/text/18/1960

This is the judge that signed the warrant:

http://msa.maryland.gov/msa/mdmanual/39fed/04usmag/html/msa13415.html

Virtually everything I've ever heard from MtGox = BS...
Like they REALLY first knew of this by "reading it on the internet"?

IMO, the Bitcoin Universe will be a lot better off without them...
These assholes have done everything possible to CENTRALIZE Bitcoin...
Not to mention releasing Ripple to replace BTC.

Many here have Stockholm Syndrome because Gox has you by the nuts.

Please support the smaller exchanges...
1000s of small exchanges distributed world wide = decentralization.

[dasein]

so is bitcoin a currency or a commodity? if it's a commodity would the same rules apply?

"The definition of a money transmitter does not differentiate between real currencies and convertible virtual currencies. Accepting and transmitting anything of value that substitutes for currency makes a person a money transmitter under the regulations implementing the BSA." - http://www.fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html

Accepting anything of value? So everyone who accepts any form of money is a money transmitter?

It depends on what the money is being accepted for. If the money is being accepted for goods or services, then the person is not a money transmitter, but if the money is being accepted in exchange for transferring another form of money to another party, then the person is a money transmitter. Here's the full context:

"Definitions of User, Exchanger, and Administrator

            This guidance refers to the participants in generic virtual currency arrangements, using the terms "user," "exchanger," and "administrator." A user is a person that obtains virtual currency to purchase goods or services. 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.

Users of Virtual Currency

            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.

Administrators and Exchangers of Virtual Currency

            An administrator or exchanger that (1) accepts and transmits a convertible virtual currency or (2) buys or sells convertible virtual currency for any reason is a money transmitter under FinCEN's regulations, unless a limitation to or exemption from the definition applies to the person. FinCEN's regulations define the term "money transmitter" as a person that provides money transmission services, or any other person engaged in the transfer of funds. The term "money transmission services" means "the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means."

            The definition of a money transmitter does not differentiate between real currencies and convertible virtual currencies. Accepting and transmitting anything of value that substitutes for currency makes a person a money transmitter under the regulations implementing the BSA. 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."

[Cryptoman]

I'm persuaded that in the end the power of cryptography will pose society a stark choice between radical liberty or tyranny, as described here.

Thanks for the link.  I hadn't read that in years and miss Tim May the firebrand.

[k9quaint]

so is bitcoin a currency or a commodity? if it's a commodity would the same rules apply?

"The definition of a money transmitter does not differentiate between real currencies and convertible virtual currencies. Accepting and transmitting anything of value that substitutes for currency makes a person a money transmitter under the regulations implementing the BSA." - http://www.fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html

Dwolla a money transmitter since they transmitted money from a customer to Mutum Sigillum LLC.  
Mutum Sigillum LLC only deals in US dollars, so it is not an exchange entity.
Mutum Sigillum LLC has a account with Wells Fargo where their USD resides.
The warrant presumes that the USD in Mutum Sigillum LLC is then re-transmitted. Why would it need to be?
Mt. Gox can move USD from this account to anyone in the world via Dwolla or Wire Transfer in order to satisfy the service business of Mt. Gox proper in Tokyo.

It is clear that Mt. Gox LLC in Tokyo would be an exchange under US law, if it were in a US jurisdiction. However, it is not in a US jurisdiction so that should not matter.
Mt. Gox uses wire transfers to get customers their money, so whoever they initiate the wire with and the bank that holds their deposits are doing the actual transfer of funds and both of those institutions should be licensed money transmitters.
Mt. Gox uses Dwolla to get customers their money, they use Wells Fargo to hold their deposits for Dwolla transfer. In this case, the two transmitters are Dwolla and Wells Fargo.

Also, DHS is as dumb as a stick so they are probably just trying to make hay for some senator that was paid off by someone who doesn't like bitcoin.
If this was the SEC or Treasury I would be worried.
On the other hand, Mt. Gox employees could under go rendition and end up in Gitmo.  

I hope Canada conquers us.

[hdclover]

soon US will ban BItcoin, so what ?

[Luckybit]

This is not the beginning of the end of Bitcoin. It's not even the beginning of the coming battle against Bitcoin by the forces of statism. They are barely aware of the threat that Bitcoin poses - yet. This is just the government reacting to new ways of money laundering. The government doesn't see Bitcoin as an enemy - yet. That battle is coming however, and will take place on many fronts, and we should prepare ourselves.

Bitcoin doesn't pose a threat to technologically sophisticated governments.

[mmeijeri]

Bitcoin doesn't pose a threat to technologically sophisticated governments.

Well, for starters it will take away or greatly diminish their power to print money.

[WackyWilly]

All things considered, all of the rumbling when it comes to MtGox does not bode well for Bitcoin in the short term as it relies way too much upon the MtGox exchange.

Long term, BTC will definitely survive IMHO, but short term I would not be surprised to see a scenario being worked out by authorities to bring MtGox to its knees. Tomorrow another headline, stating the Japanese Government closed down all Japanese bank accounts of Mt.Gox? I mean: what's next?? It doesn't matter how you twist this thing: if we want mass adoption for Bitcoin, such a fucking up by Mt.Gox  or any other exchange won't bring it... (What on earth were they thinking on completing the bank forms??)

So if this continues any longer I would expect to see BTC prices collapse once more, be it temporarily.  The reason being: trust is currently FAR from present in the market - on the slightest hickup we see heavy price drops in BTC. Yes, it then rebounds, just waiting for the next "negative news". That's not a vote of confidence. I wouldn't be surprised to see double digits within a week if this shit keeps going on.

[Pale Phoenix]

The warrant presumes that the USD in Mutum Sigillum LLC is then re-transmitted. Why would it need to be?
Mt. Gox can move USD from this account to anyone in the world via Dwolla or Wire Transfer in order to satisfy the service business of Mt. Gox proper in Tokyo.

I like your argument, and indeed, as BTC Books said, I imagine that's similar to the reasoning Gox used when setting up the account with Wells Fargo.

But I wonder if the Feds saw money going into this Wells Fargo account via Dwolla, and then back out of the same account to other individuals via Dwolla, and have decided that this activity constitutes "transmitting." It's more like a clearing account, but it could appear from the outside that it was the very definition of money laundering.

Of course, rather than approach the company with questions, our government by the people, for the people, seizes everything and tarnishes their reputation with a criminal complaint, when a simple meeting could have brought Gox into compliance. That's just speculation, of course, but it would be typical of how bureaucrats work at the federal level.

[davidspitzer]

Firstly  - The Fincen Licensing requirement was very clear - One can argue the facts of whether MTGOX was truly a money changer in the US, but it is a moot point since the people who would make that call have done so

Secondly - The question I have is, why MTGOX thought it would not apply to them or did not seem to concern them

Thirdly - Coinlab has a golden opportunity if they do it right