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Author Topic: Would a US based escrow service be a Money Transmitter?  (Read 2282 times)
coderjeff
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August 16, 2013, 08:18:42 PM
 #1

Example Scenario (everyone US based):

User A wants to sell 1BTC for USD
User B wants is willing to purchase for USD cash
Company C offers an escrow service to protect both parties for a small fee

A sends 1BTC to C to hold in escrow and provides their bank account info
C provides the banking info to B
B deposits cash into A's bank account at a local branch and provides transaction details to C
C notifies A that B claims to have made the deposit and asks A to verify the funds
Upon verification from A, C transfers 0.98 BTC to B and keeps .02BTC (for example) as an escrow fee

Would a US-based company be able to provide this service without being considered a money transmitter?  Would the dollar amount of the transaction make a difference (say an escrow was limited to 4BTC max?)
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adub
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August 16, 2013, 08:32:15 PM
 #2

My take is no. They are just holding coins.

Quote
C provides the banking info to B

This is a nuance that might complicate things.

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astutiumRob
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August 16, 2013, 08:54:02 PM
 #3

Sounds more like a money-laundering setup than an escrow or a money-transmitter

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August 18, 2013, 12:38:46 AM
 #4

Would a US-based company be able to provide this service without being considered a money transmitter? 

http://www.coindesk.com/bitcoin-law-what-us-businesses-need-to-know/
Quote
Some aspects of the FinCEN guidance were comforting. Some were troubling. Some were death knells for otherwise successful businesses. Some could only be described as confusing. Here are the highlights:

  • Individuals who merely exchange bitcoin for goods and services (and vice versa) are merely “users” of a virtual currency, not money transmitters.
  • Businesses that accept bitcoin from one person and send it to another are money transmitters, and are not exempt from money transmission regulation simply because they do not deal in fiat currency.
  • Individual bitcoin miners who convert their “created” coins to fiat are money transmitters, even though they never act “as a business,” nor accept value from one person to transfer it to a third person.
  • Any business that exchanges fiat currency for virtual currency – or even one virtual currency for another – is a money transmitter.

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gweedo
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August 18, 2013, 12:40:46 AM
 #5

Would a US-based company be able to provide this service without being considered a money transmitter? 

http://www.coindesk.com/bitcoin-law-what-us-businesses-need-to-know/
Quote
Some aspects of the FinCEN guidance were comforting. Some were troubling. Some were death knells for otherwise successful businesses. Some could only be described as confusing. Here are the highlights:

  • Individuals who merely exchange bitcoin for goods and services (and vice versa) are merely “users” of a virtual currency, not money transmitters.
  • Businesses that accept bitcoin from one person and send it to another are money transmitters, and are not exempt from money transmission regulation simply because they do not deal in fiat currency.
  • Individual bitcoin miners who convert their “created” coins to fiat are money transmitters, even though they never act “as a business,” nor accept value from one person to transfer it to a third person.
  • Any business that exchanges fiat currency for virtual currency – or even one virtual currency for another – is a money transmitter.

This is exactly why I don't do escrows anymore. My legal team actually told me not to anymore.

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MSantori
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August 18, 2013, 03:17:06 AM
 #6

Would a US-based company be able to provide this service without being considered a money transmitter? 

http://www.coindesk.com/bitcoin-law-what-us-businesses-need-to-know/
Quote
Some aspects of the FinCEN guidance were comforting. Some were troubling. Some were death knells for otherwise successful businesses. Some could only be described as confusing. Here are the highlights:

  • Individuals who merely exchange bitcoin for goods and services (and vice versa) are merely “users” of a virtual currency, not money transmitters.
  • Businesses that accept bitcoin from one person and send it to another are money transmitters, and are not exempt from money transmission regulation simply because they do not deal in fiat currency.
  • Individual bitcoin miners who convert their “created” coins to fiat are money transmitters, even though they never act “as a business,” nor accept value from one person to transfer it to a third person.
  • Any business that exchanges fiat currency for virtual currency – or even one virtual currency for another – is a money transmitter.

The vivid prose!  The clever rhetoric! 

Marco Santori is a lawyer, but not your lawyer, and this is not legal advice.  If you do have specific questions, though, please don't hesitate to PM me.  We've learned this forum isn't 100% secure, so you might prefer to email me.  Maybe I can help!  Depending upon your jurisdiction, this post might be construed as attorney advertising, so: attorney advertising Smiley
Hfleer
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August 18, 2013, 06:32:50 PM
 #7

Sounds more like a money-laundering setup than an escrow or a money-transmitter

Would a US-based company be able to provide this service without being considered a money transmitter? 

http://www.coindesk.com/bitcoin-law-what-us-businesses-need-to-know/
Quote
Some aspects of the FinCEN guidance were comforting. Some were troubling. Some were death knells for otherwise successful businesses. Some could only be described as confusing. Here are the highlights:

  • Individuals who merely exchange bitcoin for goods and services (and vice versa) are merely “users” of a virtual currency, not money transmitters.
  • Businesses that accept bitcoin from one person and send it to another are money transmitters, and are not exempt from money transmission regulation simply because they do not deal in fiat currency.
  • Individual bitcoin miners who convert their “created” coins to fiat are money transmitters, even though they never act “as a business,” nor accept value from one person to transfer it to a third person.
  • Any business that exchanges fiat currency for virtual currency – or even one virtual currency for another – is a money transmitter.

Possibly Money Transmitter and Launderer.  The double whammy.

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bassjoe
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August 19, 2013, 02:43:43 PM
 #8

Maybe. Most money transmitter laws are extremely broad and none specifically exempt escrow companies (if the escrow is a division of a bank and governed by banking regulations, then it is exempt). Under a plain reading of the statutes, escrow companies are required to get a license.

That said, escrow is an extremely old concept -- using a trusted third person to guarantee payment/delivery -- and regulation of this industry has been around for, literally, hundreds of years. It just seems odd to add another layer of licensure and regulation (along with likely a different set of regulators who may not understand escrow) on top of their business.

There is some debate as to whether escrow companies need to be licensed as money transmitters, as well. Obviously, non-bank independent escrow companies are (or should be) against the idea but there's been no effort to exempt them from the laws like there has been with the recent effort to exempt payroll companies in California.
champbronc2
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August 20, 2013, 02:39:51 PM
 #9

What if the sellers were responsible for being registered?

"A person that is an MSB solely because that person serves as an agent of another MSB is not required to register."

Does this apply here?

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