Filed a request for an administrative ruling with FinCEN this morning.

[DeathAndTaxes]

Filed a request for an administrative to FinCEN this morning.  It is something which has been in the works for the last month and is overshadowed by other news today but I thought some Bitcoin related enterprises would be interested. The administrative ruling seeks clarification on if certain scenarios require registration as an MSB.  FinCEN guidance on virtual currencies (FIN-2013-G001) includes a number of confusing and contradictory statements.

c.   De-Centralized Virtual Currencies

            A final type of convertible virtual currency activity involves a de-centralized convertible virtual currency (1) that has no central repository and no single administrator, and (2) that persons may obtain by their own computing or manufacturing effort.

            A person that creates units of this convertible virtual currency and uses it to purchase real or virtual goods and services is a user of the convertible virtual currency and not subject to regulation as a money transmitter. By contrast, a person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter. In addition, a person is an exchanger and a money transmitter if the person accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency.

Issue #1: Who creates Bitcoins?
The first area I asked clarification on was the creation of Bitcoins.  It is "strange" that Fincen makes creators of Bitcoins a special case.  I believe FinCEN has an incomplete understand of what mining is and how it work.  Who exactly creates Bitcoins in the Bitcoin network?  Is it the entity which produces and broadcasts a new block?  Is it the entity that has ownership of the address in the coinbase transactions?   If the case of "pool mining" are the "miners" which only paid for contributing computing resources to a pool operator the creator?  Is the pool operator the creator?  Or is neither?  

In the administrative ruling I provided an explanation of the Bitcoin block generation process and the scenario where individuals don't directly mine blocks, rather they attempt to potential solutions provided by a pool operator who receives newly "minted coins".  The "miners" which I deemed "Computing Power Providers" or CPPs are merely contracting to provide computing power to the pool operator.  The key point is that when a solution is found and a new block broadcast that block's newly minted coins are transferred to an address under the control of the operator not the CPPs.

The mining pool operator contracts with CPPs and pays them an agreed upon amount (either a preset about per unit of work or a % of any rewards found based on computing power).  The CPPs never receive newly generated coins (yes there are exceptions but they were not included in this scenario).  I asked FinCEN to provide clarification on who is the creator.   I also included the scenario where a mining pool operator pays these CPPs directly in real currency.  I stated that by the guidance the pool operator wouldn't be considered an exchanger.  The pool operator is paying for computing power and while that computing power may produce Bitcoins that is distinct from actually exchanging BTC for USD.

There are a lot of potential scenarios on exactly who is the creator. All of these are plusible but FinCEN just leaves the question open with a vague "creator" reference:
a) "Satoshi" as a result of the protocol providing entities that solve a block a preset amount of subsidy
b) nobody - the protocol defines the compensation for miners and miners merely collect it
c) the entity in charge of pool mining that creates the blockheader to be hashed.
d) everyone contributing computing power to a pool reward
e) the entity which has ownership & control  of the address in coinbase tx (generally today this is the same as c but it doesn't have to be)

If FinCEN indicates the creators selling virtual currency for real currency are regulated they have an obligation to provide specific and exact guidance on exactly what make one the "creator" and thus potentially under regulation.  Otherwise the regulation is vague, arbitrary, capricious, and overbroad.

Issue #2: What is the exchanger doesn't involve a "another person"?
The reason I started taking a closer look at "creators" of virtual currency is because FincEN makes creators of virtual currency who exchange it for real currency a "special case"..  Why?  If indeed Fincen is stating in the guidance that any EXCHANGER of virtual currency for real currency is regulated then why also mention creators?.  If the creator exchanges virtual currency for real currency they would already fall under the commonly accepted (and IMHO incorrect) "exchanger" anyways.  While define them seperately.  There is no additional restriction on them no enhanced oversight.  Both "exchangers" and "creators who exchange virtual currency for real currency" both are subject to exactly the same definition and oversight.

Hopefully this provides some clarity:
All persons* who exchange virtual currency for real currency are regulated (unless an exception applies).
All creators who  exchange virtual currency for real currency are regulated (unless an exception applies).
All creators are persons.

* persons generally means any real person, corporation, partnership, or other legal construct given "personhood" under existing law.  The law rarely makes a distinction between a "real person" (a human being) and a corporation for example.

The second definition is redundant by scope. This is "strange".  Regulations rarely define already completely inclusive subclasses.  The selective service laws don't both say "all males over 18 need to register" and "all males over 18 which have brown hair need to register".  The first class is inclusive of the second.  There is no need to even mention it.  If this doesn't seem strange to you please reread the section above as it is important to understand the basis for the rest.  

What if not all trades involving virtual currency and real currency meet the definition of an "exchanger" then it would make more sense to define the "special case" for issuers if FinCEN wanted (dubious as it may be) to hold them to a higher standard.  The "accepted" interpretation of FinCEN guidance is that anyone who exchanges virtual currency for real currency is an "exchanger" (unless an exception applies as defined by existing MSB & MT regulations).  

However the actual text of the guidance does NOT say that:

In addition, a person is an exchanger and a money transmitter if the person accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency.

Now guidance isn't law, but by the letter of the guidance a trade of BTC for USD between two individuals is not an exchanger. You will notice in the definition above there are three distinct entities.  The regulated entity, the entity that it accepts Bitcoins from AND the entity that it transmits Bitcoins to.  FinCEN is clear to say "one person" and "another persons".  Per the quote above it is accepting BTC from person A AND transmitting it to person B combined with the acceptance of real currency which makes one a regulated entity.

Thus by the letter of the guidance above this would be a regulated entity
BTC:  Person A -----> Exchanger ----> Person B
USD:  Person B -----> Exchanger ----> Person A
Here there is an acceptance of BTC from on person and transmission of BTC BTC to another person.

However by the guidance as written above, the following would not be regulated entity:
BTC: Person A ----> Buyer
USD: Buyer ----> Person A
There is acceptance of virtual currency by the buyer but no transmission to another person.  If this looks familiar to a certain company business model well that is the point.

I also brought up the scenario of operating an eWallet which involve only a single virtual currency and no real currency:
BTC: Person A -----> Wallet Provider -----> Person B
USD:  None

Lastly this would clarify some nagging inconsistencies about the accepted definition of "exchangers".  I have seen a lot that people have made claims that FinCEN doesn't regulate people who exchange virtual currency for real currency on a regulated exchange.   While in may make common sense, FinCEN made no except for an entity which exchanges virtual currency using a regulated money transmitter.  IF ALL exchanges of USD->BTC or BTC->USD are regulated entities by the letter of the guidance it wouldn't matter if a person exchanged with a regulated entity they would STILL need to be a regulated entity themselves.  Now I am not arguing that is the case, I am arguing that this weird scenario exists because the accepted definition of "exchanger" is incorrect.

However if the mere act of trading virtual currency for real currency wasn't the regulated activity then it would make sense that for example the users/clients of MtGox (or any other exchanger) would not be regulated entities themselves.  While they are trading virtual currency for real currency they don't meet the definition of an acceptance of virtual currency and transmission of that virtual currency to another party. Anyways it will be at least 30 days and possibly 90 before I get a response but I thought people might want to start thinking about the issue and looking closer at the guidance.  I am not saying this "is" the proper interpretation but rather that people should take an independent look at the guidance and existing regulations.


DISCLAIMER:  The post is not legal counsel.  You should not rely on it for legal advice.  The definitive response will come from FinCEN or the courts in a legal challenge. The point of an administrative ruling to to ask FinCEN to provide clarification when existing guidance isn't clear.   I believe that existing guidance isn't clear in these two scenarios.  Lastly I believe the second scenario only exists because FinCEN chose to use existing MSB/MT regulation rather than ask Congress to give them regulatory oversight over "virtual currency" brokers as they do with real currency brokers.  However "brokers of foreign currency" while regulated as an MSB are not MT and generally are not regulated at the state level so even that would be a marginal win.





  

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[Stephen Gornick]

I also brought up the scenario of operating an eWallet which involve only a single virtual currency and no real currency:
BTC: Person A -----> Wallet Provider -----> Person B
USD:  None

That's the question I had, since the guidance states:

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.

[acoindr]

I also brought up the scenario of operating an eWallet which involve only a single virtual currency and no real currency:
BTC: Person A -----> Wallet Provider -----> Person B
USD:  None

That's the question I had, since the guidance states:

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.

It doesn't matter if no "real" currency is handled. The more recently released comments from FinCEN say it a bit more clearly:

https://bitcointalk.org/index.php?topic=181708.0

Those who are intermediaries in the transfer of virtual currencies from one person to
another person, or to another location, are money transmitters that must register with FinCEN as
MSBs unless an exception applies. Some virtual currency exchangers have already registered
with FinCEN as MSBs, though they have not necessarily identified themselves as money
transmitters.

Is it the end of unregistered exchanges?

This makes it more of a pain in the rear to operate any kind of Bitcoin/crypto-currency (or other virtual currency) exchange if you're based in the U.S., at least in a complying above ground way.

Still, I think this quote deserves emphasis:

The guidance explains how FinCEN’s “money transmitter” definition applies to certain exchangers and system administrators of virtual currencies depending on the facts and circumstances of that activity. Those who use virtual currencies exclusively for common personal transactions like receiving payments for services or buying goods online are not affected by this guidance.

Since Bernanke doesn't consider gold to be money I imagine buying gold coins online with bitcoins is not affected by the FinCEN guidance.

[TippingPoint]

Nice work.

Possible minor edit:
Issue #2: What isf the exchanger doesn't involve a "another person"?

[BitCoinNewGuy]

I actually called the IRS and asked about having to be registered as a money transmitter.

There response was that ANYONE who buys, then re-sells, etc IS A MONEY TRANSMITTER AND MUST FILE IF EXCHANGE OVER $1,000.

If you report your BitCoin income, then audited, and not registered you will be in trouble.

[stayeduptolate]

Nice work!!

[bitrick]

#1: Answer: Who creates the bitcoins is irrelevant to the transmission and exchange functions. The special case of "creating and selling" is really a subcase of exchanging and probably was unnecessary to call out as it is already covered by other guidance. Regardless, it does not seem to apply to bitcoin miners unless they are in the business of selling their bitcoins for currency.

Miners who create currency and keep it or buy things are not covered in the guidance, as far as I can tell. A lot of your post seems confused by that issue and seems to be fishing for different definitions in order to understand how the act of creating the currency, by itself, is regulated. But it isn't. That is not the money transmission or exchange function that FinCen is interested in.

#2: Answer: If you don't sell the units to another person, then you are NOT covered by this clause: "a person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter." BUT YOUR MAY BE COVERED BY OTHER CLAUSES.

Based on the following it does not seem like you are reading the entire guidance:

The "accepted" interpretation of FinCEN guidance is that anyone who exchanges virtual currency for real currency is an "exchanger" (unless an exception applies as defined by existing MSB & MT regulations).  

However the actual text of the guidance does NOT say that:

In addition, a person is an exchanger and a money transmitter if the person accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency.

You seem fixated on the definitions within the Decentralized Virtual Currency section. What about the definitions that are present elsewhere, like this one:

"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."

[acoindr]

I actually called the IRS and asked about having to be registered as a money transmitter.

There response was that ANYONE who buys, then re-sells, etc IS A MONEY TRANSMITTER AND MUST FILE IF EXCHANGE OVER $1,000.

If you report your BitCoin income, then audited, and not registered you will be in trouble.

You're talking about something different. The IRS is not FinCEN.

Registering as a money transmitter is necessary to comply with anti-money laundering and other regulations.

Income and capital gains taxes is another matter.

[jimbobway]

Perhaps you should also include in your request the possibility of bitcoin autonomous agents that send and receive bitcoins who have no human persons controlling them and see how they respond.  These autonomous agents could buy bitcoins with litecoin or ripple and could potentially be MSBs.

https://en.bitcoin.it/wiki/Agents

[DeathAndTaxes]

You seem fixated on the definitions within the Decentralized Virtual Currency section. What about the definitions that are present elsewhere, like this one:

"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."

Well that is the entire point.  This "guidance" on virtual currencies is incompatible (or at least illogical) with the specific guidance given for decentralized virtual currencies (which of the three subclasses is the only one even remotely applicable to Bitcoin). It is possible since this is just a guidance letter than the phrasing used in the "section c" is an error however it warrants clarification from FinCEN rather than an assumption.  However the general definition is overly broad.  It would by the letter of the guidance make anyone an "exchanger" even if they use a licensed "exchanger" maybe that is FinCEN intent but once again it seems excessive and vague.  

If FinCEN wants to define regulation then they are obligated to provide clear and exact lines.  Regulation which is vague, arbitrary, capricious, and overbroad is generally overtuned.  Now FinCEN may lack sufficient understanding of the mechanics of Bitcoin to properly define those lines and hence provide conflicting and confusing guidance but if they intend to regulate it they damn better understand it in order to answer very exact questions on which activities fall inside or outside of their scope.

[bitrick]

You seem fixated on the definitions within the Decentralized Virtual Currency section. What about the definitions that are present elsewhere, like this one:

"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."

Well that is the entire point.  This "guidance" on virtual currencies is incompatible with the specific guidance given for decentralized virtual currencies (which of the three subclasses is the only one even remotely applicable to Bitcoin).

It is possible since this is just a guidance letter than the phrasing used in the "section c" is an error however it warrants clarification from FinCEN rather than an assumption.  However the general definition is overly broad.  It would by the letter of the guidance make anyone an "exchanger" even if they use a licensed "exchanger" maybe that is FinCEN intent but once again it seems excessive and vague. 

If FinCEN wants to define regulation then they are obligated to provide clear and exact lines.  Regulation which is vague, arbitrary, capricious, and overbroad is generally overtuned.  Now FinCEN may lack sufficient understanding of the mechanics of Bitcoin to properly define those lines and hence provide conflicting and confusing guidance but if they intend to regulate it they damn better understand it in order to answer very exact questions on which activities fall inside or outside of their scope.

I disagree that the different sections of guidance are incompatible. If ANY of the definitions apply to you and there is no exception defined, then you are covered. You can't cherry pick parts of the guidance.

The guidance doesn't make "anyone" an exchanger because there is an explicit exemption for "users" purchasing goods and services who are not in the business of buying and selling currency, so I disagree on that point as well.

Also I disagree with your last point. The guidance is not that bad from my point of view. They are capturing the activity they want to regulate with language that is about as precise as I would expect from a regulation of this sort.

The only vague definiton in my view is whether a miner or mining pool who confirms transactions is a money transmitter. The question is whether a miner "accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency." It is hard to see how miners who confirm transactions avoid this definition. And they can't use the purchasing exemption that regular "Users" could to avoid regulation. You can ask for further clarification on this but you may not like the answer.

[frott]

I actually called the IRS and asked about having to be registered as a money transmitter.

There response was that ANYONE who buys, then re-sells, etc IS A MONEY TRANSMITTER AND MUST FILE IF EXCHANGE OVER $1,000.

If you report your BitCoin income, then audited, and not registered you will be in trouble.

You're talking about something different. The IRS is not FinCEN.

Registering as a money transmitter is necessary to comply with anti-money laundering and other regulations.

Income and capital gains taxes is another matter.

I believe the point was that if you report your income, then you get audited, that audit includes seeing if you were acting as a transmitter.

aka - you can't only be "partially legal" in a worst case scenario.



A lot of this hinges on the semantics of things, but one thing is clear: fincen has considered it a "convertible virtual currency" which means anyone on either end of the cash <-> bitcoin exchange was acting as a transmitter via:

"An administrator or exchanger that  ... (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."

They're using the terms administrator, exchanger and person interchangeably here. Are they? Everyone in the US that bought or sold bitcoins at all, directly or indirectly, is being considered? BUT the semantic issue is what are those "limitations to or exemptions from?" in that case?


TC states "If FinCEN wants to define regulation then they are obligated to provide clear and exact lines.  Regulation which is vague, arbitrary, capricious, and overbroad is generally overtuned. "

That's what's bizarre about the current wording. Last I checked someone going to a bank or currency exchange to exchange currency isn't considered a "money transmitter." Why would bitcoiners be now?

In a recent speech, Fincen Director Jennifer Shasky Calvery said the new guidance aims "to protect [digitial currency] systems from abuse and to aid law enforcement in ensuring that they are getting the leads and information they need to prosecute the criminal actors." She reiterated that the guidance does not apply to everyday users who pay or accept bitcoin for goods and services.



But what about paying bitcoin to buy a good, then selling the good for some other currency? And so on...

[bitrick]

I actually called the IRS and asked about having to be registered as a money transmitter.

There response was that ANYONE who buys, then re-sells, etc IS A MONEY TRANSMITTER AND MUST FILE IF EXCHANGE OVER $1,000.

If you report your BitCoin income, then audited, and not registered you will be in trouble.

You're talking about something different. The IRS is not FinCEN.

Registering as a money transmitter is necessary to comply with anti-money laundering and other regulations.

Income and capital gains taxes is another matter.

I believe the point was that if you report your income, then you get audited, that audit includes seeing if you were acting as a transmitter.

aka - you can't only be "partially legal" in a worst case scenario.



A lot of this hinges on the semantics of things, but one thing is clear: fincen has considered it a "convertible virtual currency" which means anyone on either end of the cash <-> bitcoin exchange was acting as a transmitter via:

"An administrator or exchanger that  ... (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."

They're using the terms administrator, exchanger and person interchangeably here. Are they? Everyone in the US that bought or sold bitcoins at all, directly or indirectly, is being considered? BUT the semantic issue is what are those "limitations to or exemptions from?" in that case?


TC states "If FinCEN wants to define regulation then they are obligated to provide clear and exact lines.  Regulation which is vague, arbitrary, capricious, and overbroad is generally overtuned. "

That's what's bizarre about the current wording. Last I checked someone going to a bank or currency exchange to exchange currency isn't considered a "money transmitter." Why would bitcoiners be now?

In a recent speech, Fincen Director Jennifer Shasky Calvery said the new guidance aims "to protect [digitial currency] systems from abuse and to aid law enforcement in ensuring that they are getting the leads and information they need to prosecute the criminal actors." She reiterated that the guidance does not apply to everyday users who pay or accept bitcoin for goods and services.



But what about paying bitcoin to buy a good, then selling the good for some other currency? And so on...

It's right there in the guidance, near the beginning, in clear language:

"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.8 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.9"

Perhaps folks are only aware of parts of the guidance for some reason, so here it the link to the entire document:

http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html

Some definitions have exemptions. It is easy to get the wrong impression if you only read parts of the guidance. The guidance should be read and understood in it's totality.

[DeathAndTaxes]

The guidance doesn't make "anyone" an exchanger because there is an explicit exemption for "users" purchasing goods and services who are not in the business of buying and selling currency, so I disagree on that point as well.

You miss the point.  Anyone who exchanges virtual currency for real currency is an exchanger is one way to interpret the guidance.   So say MtGox becomes a MSB.  Great now every on of MtGox clients would need to also.  They all are "exchanging virtual currency for real currency".  The guidance provides no exclusion that those exchanging with regulated exchangers are themselves exempt.  This would make anyone who ever has or ever will exchange real currency need to register as an MSB.  It seems implausible that is FinCEN intent however by the letter of the guidance it is what is stated.

The guidance is unclear, it is just my opinion but only clarity from FinCEN will resolve that lack of clarity for me.  That is the point of an administrative ruling. It certainly is possible that the AR will result in more clear guidance one that advises that the example in section c is not binding any such trade of BTC for USD constitutes an "exchanger".  The good news is it would remove ambiguity from the definition and force FinCEN to clean up their guidance.  Is it FinCEN intent that anyone who ever buys or sells Bitcoins for real currency needs to register as a MSB?  I really doubt it but if so the AR will require them to state so in black and white.

[bitrick]

The guidance doesn't make "anyone" an exchanger because there is an explicit exemption for "users" purchasing goods and services who are not in the business of buying and selling currency, so I disagree on that point as well.

You miss the point.  Anyone who exchanges virtual currency for real currency is an exchanger is one way to interpret the guidance.   So say MtGox becomes a MSB.  Great now every on of MtGox clients would need to also.  They all are "exchanging virtual currency for real currency".  The guidance provides no exclusion that those exchanging with regulated exchangers are themselves exempt.  This would make anyone who ever has or ever will exchange real currency need to register as an MSB.  It seems implausible that is FinCEN intent however by the letter of the guidance it is what is stated.

The guidance is unclear, it is just my opinion but only clarity from FinCEN will resolve that lack of clarity for me.  That is the point of an administrative ruling. It certainly is possible that the AR will result in more clear guidance one that advises that the example in section c is not binding any such trade of BTC for USD constitutes an "exchanger".  The good news is it would remove ambiguity from the definition and force FinCEN to clean up their guidance.  Is it FinCEN intent that anyone who ever buys or sells Bitcoins for real currency needs to register as a MSB?  I really doubt it but if so the AR will require them to state so in black and white.

OK, I did miss that point on virtual -> real currency exchanges (as opposed to real->virtual) as that would not be entitled to the "Users" exemption as written, but I also think the regulation is clear enough on that activity, as I shall explain.

Even if you sell bitcoins for dollars, whether on an exchange or in a park in NYC, I disagree that "Anyone" is a money transmitter for that reason. The wording is: "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.10"

You still have to be an "administrator" or "exchanger" to fit that definition. Those terms are defined near the top of the guidance and both definitions state the person is "engaged as a business". That is the core issue from a legal point of view.

If I sell some bitcoins for dollars occasionally on mt gox, I consider that a personal activity. I'm not engaged as a business when I perform these actions. This is also why selling some Euros to a friend after a vacation is not a felony. However, if I advertised and held an auction for my bitcoins to a group of exchanges every week, then I'd be a business and would be covered by regulation.

It comes down to the definition of "business" and FinCen seems pretty confident that these terms have sufficient legal precedent (see the following link). I tend to agree. I know I am not engaged as a business with respect to my bitcoin activities and am confident a judge or jury would agree.

As I stated earlier, it is not clear how miners escape these regulations and that is where further clarification might help. One could argue that they are engaged as a business.

http://www.americanbanker.com/issues/178_104/fincen-chief-q-and-a-what-we-expect-from-digital-currency-firms-1059485-1.html?zkPrintable=1&nopagination=1

[frott]

It's right there in the guidance, near the beginning, in clear language:

"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.8 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.9"

Perhaps folks are only aware of parts of the guidance for some reason, so here it the link to the entire document:

http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html

Some definitions have exemptions. It is easy to get the wrong impression if you only read parts of the guidance. The guidance should be read and understood in it's totality.

I know its right there, I'm saying that the point of the regulation is missed: they don't hinder what they're supposedly trying to stop from happening at all, and the wording is vague and unclear.


The portion of when a user becomes an exchanger only applies to "users" who "create coins." Some people have argued that "mining" isn't creating coins at all. How is anyone going to determine which coins were mined? This is why i brought up the purchase of goods.

bitcoins -> cash = no
bitcoins -> goods -> cash = ok

really? gosh, that'll stop all the crooks.


Here is the section on exemptions, from 31 CFR § 1010.100(ff)(1-7) which is cited...

Code:

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

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

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

(ii)  Facts and circumstances; Limitations. Whether a person is a check casher as described in this section is a matter of facts and circumstances. The term "check casher'' shall not include:

(A)  A person that sells prepaid access in exchange for a check (as defined in the Uniform Commercial Code), monetary instrument or other instrument;

(B)  A person that solely accepts monetary instruments as payment for goods or services other than check cashing services;

(C)  A person that engages in check cashing for the verified maker of the check who is a customer otherwise buying goods and services;

(D)  A person that redeems its own checks; or

(E)  A person that only holds a customer's check as collateral for repayment by the customer of a loan.

(3)  Issuer or seller of traveler's checks or money orders. A person that

(i)  Issues traveler's checks or money orders that are sold in an amount greater than $1,000 to any person on any day in one or more transactions; or

(ii)  Sells traveler's checks or money orders in an amount greater than $1,000 to any person on any day in one or more transactions.

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

(ii)  Considerations for provider determination. In the absence of registration as the provider of prepaid access for a prepaid program by one of the participants in a prepaid access program, the provider of prepaid access is the person with principal oversight and control over the prepaid program. Which person exercises "principal oversight and control'' is a matter of facts and circumstances. Activities that indicate "principal oversight and control'' include:

(A)  Organizing the prepaid program;

(B)  Setting the terms and conditions of the prepaid program and determining that the terms have not been exceeded;

(C)  Determining the other businesses that will participate in the prepaid program, which may include the issuing bank, the payment processor, or the distributor;

(D)  Controlling or directing the appropriate party to initiate, freeze, or terminate prepaid access; and

(E)  Engaging in activity that demonstrates oversight and control of the prepaid program.

(iii)  Prepaid program. A prepaid program is an arrangement under which one or more persons acting together provide(s) prepaid access. However, an arrangement is not a prepaid program if:

(A)  It provides closed loop prepaid access to funds not to exceed $2,000 maximum value that can be associated with a prepaid access device or vehicle on any day;

(B)  It provides prepaid access solely to funds provided by a Federal, State, local, Territory and Insular Possession, or Tribal government agency;

(C)  It provides prepaid access solely to funds from pre-tax flexible spending arrangements for health care and dependent care expenses, or from Health Reimbursement Arrangements (as defined in 26 U.S.C. 105(b) and 125) for health care expenses; or

(D) (1)  It provides prepaid access solely to:

(i)  Employment benefits, incentives, wages or salaries; or

(ii)  Funds not to exceed $1,000 maximum value and from which no more than $1,000 maximum value can be initially or subsequently loaded, used, or withdrawn on any day through a device or vehicle; and

(2)  It does not permit:

(i)  Funds or value to be transmitted internationally;

(ii)  Transfers between or among users of prepaid access within a prepaid program; or

(iii)  Loading additional funds or the value of funds from non- depository sources.

(5)  Money transmitter--(i) In general.

(A)  A person that provides money transmission services. The term "money transmission services'' means the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means. "Any means'' includes, but is not limited to, through a financial agency or institution; a Federal Reserve Bank or other facility of one or more Federal Reserve Banks, the Board of Governors of the Federal Reserve System, or both; an electronic funds transfer network; or an informal value transfer system; or

(B)  Any other person engaged in the transfer of funds.

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

(A)  Provides the delivery, communication, or network access services used by a money transmitter to support money transmission services;

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

(C)  Operates a clearance and settlement system or otherwise acts as an intermediary solely between BSA regulated institutions. This includes but is not limited to the Fedwire system, electronic funds transfer networks, certain registered clearing agencies regulated by the Securities and Exchange Commission ("SEC''), and derivatives clearing organizations, or other clearinghouse arrangements established by a financial agency or institution;

(D)  Physically transports currency, other monetary instruments, other commercial paper, or other value that substitutes for currency as a person primarily engaged in such business, such as an armored car, from one person to the same person at another location or to an account belonging to the same person at a financial institution, provided that the person engaged in physical transportation has no more than a custodial interest in the currency, other monetary instruments, other commercial paper, or other value at any point during the transportation;

(E)  Provides prepaid access; or

(F)  Accepts and transmits funds only integral to the sale of goods or the provision of services, other than money transmission services, by the person who is accepting and transmitting the funds.

(7)  Seller of prepaid access. Any person that receives funds or the value of funds in exchange for an initial loading or subsequent loading of prepaid access if that person:

(i)  Sells prepaid access offered under a prepaid program that can be used before verification of customer identification under § 1022.210(d)(1)(iv); or

(ii)  Sells prepaid access (including closed loop prepaid access) to funds that exceed $10,000 to any person during any one day, and has not implemented policies and procedures reasonably adapted to prevent such a sale.

(8)  Limitation. For the purposes of this section, the term "money services business'' shall not include:

(i)  A bank or foreign bank;

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

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

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

(7)  [Reserved].

(8)  Limitation. For the purposes of this section, the term "money services business'' shall not include:

(i)  A bank or foreign bank;

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

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

The portion relevant to "human individuals", is the exemption to them as "money service businesses."


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


So where is frequency and what "not for gain or profit" means 'clearly stated'?

Is it a sound defense that someone sold their bitcoins FOR FUN because "bitcoins are neato"! and they just happened to profit? Likewise purchasing? Even your statement of "its not a business, its a personal activity" is not so clear when you look at their definition of an MSB as applicable to btc.






 

[andrewsg]

Quick question, vaguely on topic - is it legal for two US citizens to exchange fiat currencies with each other? (e.g. pay USD receive EUR, etc)? Or is that technically illegal? Or does it require some sort of registration?

[Stephen Gornick]

Quick question, vaguely on topic - is it legal for two US citizens to exchange fiat currencies with each other? (e.g. pay USD receive EUR, etc)? Or is that technically illegal? Or does it require some sort of registration?

There is an exemption for transacting "infrequently".

Authority: 12 U.S.C. 1829b and 1951–1959; 31 U.S.C. 5311–5314, 5316–5332; title III, sec. 314, Pub. L. 107–56, 115 Stat. 307.
Subpart A—General Definitionstop
§ 1010.100 General definitions.
(ff) ( 8 ) (iii)

( 8 ) Limitation. For the purposes of this section, the term "money services business'' shall not include:
(iii) A natural person who engages in an activity identified in paragraphs (ff)(1) through (ff)(5) of this section on an infrequent basis and not for gain or profit.

And the "infrequent basis" threshold in a McGladrey paper shows "fives times or less" per year:
 - http://mcgladrey.com/pdf/review_florida_bankers_aml_conference.pdf

[galambo]

I'm glad you did this D&T. I hope they actually respond to this because it remains a head-scratcher. But, I'm not sure if they know the answer. Maybe they need the courts/congress to decide?

[Razick]

I will be looking forward to what they have to say. This could either be very good, or very bad.