Question for professional miners and lawyers...

[vvic]

Not seeking for legal advice or anything, but after that FinCEN crap, miners are money transmitters...
So, let's say I've built nice 2-4TH/s farm. I've registered my own business, I'm renting facility to house my farm. so I have all these business expenses, I mine for profit, I pay myself salary, business bills etc. Would I have register my little business as money transmitting organization? Even though my business wouldn't have any customers I would deal with exchanges only.
I don't have the farm or anything like that, but miners section of FinCEN is confusing

[DeathAndTaxes]

Simple answer... nobody knows.  By the letter of FinCEN guidance you would be a money transmitter if you exchange your BTC for USD (or other currencies).  You would not be a money transmitter if you exchange your BTC for goods or services.


That being said.  FinCEN guidance is well retardedly vague and it is highly likely that had a very flawed understanding of Bitcoin and mining when they wrote the guidance.  FinCEN also doesn't clarify the distinction between solo miners and pools.  Yes we routinely calls "workers" in a pool, a "miner" but technically they are not producing any new currency.   Only the pool is.  Even that standard can be disputed, you could say only Satoshi created the currency units, miners simply "unlock" them.

Still I don't know of any miner who has registered with FinCEN.  Registering with FinCEN is actually pretty easy.  The problem is the minute you register with FinCEN your bank is going to call and want to charge you additional fees, want to audit your AML policy, etc.  You saying "I just did it because I am a miner" probably means they simply close your account for non-compliance.  However even if you get compliant with your bank it is very possible your state will send you a notice that you are operating as an unlicensed money transmitter and ask you to comply with state regs which generally means 12-18 months, $500K bond, a whole bunch of financial requirements (min capital amounts).  Given your lack of experience in handling money transmission the state could simply deny your application.

So yeah it is utterly confusing.  It is probably confusing because FinCEN is confused in the first place.   I would point out that FinCEN 's guidance is NOT THE LAW.  It is simply an explanation (a piss poor one in this case) of how FinCEN interprets the existing law.

BTW "dealing only with exchanges" provides no protection under FinCEN's guidance.  They carve out no exemption for exchanging with exchanges not even ones registered with FinCEN.  Yes it is unbelievably stupid but law/regulation isn't based on common sense it is based on what is declared and by the letter of the guidance any miner who uses Mtgox for example would STILL need to register as a MSB.

This following part should not be considered legal advice.  If you need specific legal advice you should retain independent qualified counsel.  I personally (and this is worth nothing if you are standing in front of a judge) don't believe FinCEN intended to word the guidance they way they did.  It would be a radical expansion of MSBs to regulate any business that exchanges currency as a course of their business (i.e. miners who mine and sell BTC to pay operating costs).  However the guidance is written as it is written.  I think the likelihood of them going after miners who don't engage in other traditional MSB activity to be very low however understand you are taking that risk.   

You have one option for clarification and that is to file requesting an administrative ruling.  Essentially you explain in plain english the details of your operation and ask FinCEN to rule on if that would be a MSB or not.  If you go this route PLEASE have competent counsel write up the filing.  It isn't required but you using sloppy language could result in FinCEN ruling based on a yet still flawed understanding of what economic activity is really occurring.  The bad news is flawed or not those AR will hurt future AR and court cases.

[vvic]

Thanks for extended answer! I guess if I build a farm, I'll register a business, pay business taxes, write business expenses and such. If they come to me, I'd get a lawyer and argue that "I wasn't generating any money, I was simply providing my computation power to the pool which payed for that power" Because even wallet shows when you mine your own coins and when you simply receive them. So I lend my hardware to the pool, pool pays me. I take one currency and exchange it for the other. That's it

[DeathAndTaxes]

Thanks for extended answer! I guess if I build a farm, I'll register a business, pay business taxes, write business expenses and such. If they come to me, I'd get a lawyer and argue that "I wasn't generating any money, I was simply providing my computation power to the pool which payed for that power" Because even wallet shows when you mine your own coins and when you simply receive them. So I lend my hardware to the pool, pool pays me. I take one currency and exchange it for the other. That's it

As a non-lawyer that is the route I would go.  Until FinCEN gets their act together trying to comply is an excercise in futility.  If you registered as an MSB and sold coins on MtGox you would be obligated to collect THEIR KYC information (due to a lack of any exchange exemption).  Of course MtGox isn't going to give you KYC information so you couldn't comply if you wanted to.  Hopefully in a decade all this will be settled law and old news, until then you are on the cutting edge not just in the technical world but in the legal world too.


Disclaimer: the above statements are merely the opinions of the author and should not be considered legal advice.  If you have a specific legal question you should retain qualified legal counsel.

[vvic]

If you registered as an MSB and sold coins on MtGox you would be obligated to collect THEIR KYC information (due to a lack of any exchange exemption).

I thought of that! I come to Mt Gox, they demand my personal details... I turn around and demand their:D
So, that KYC thing. If I register small business, would I give my company details, or still my own?

Disclaimer: the above statements are merely the opinions of the author and should not be considered legal advice.  If you have a specific legal question you should retain qualified legal counsel.

I absolutely understand that, I'm just asking these to get general ideas about this. Maybe someday I'll quit my job and be hired by me to maintain equipment for computing cluster for pools

[vvic]

Maybe I could use pool fee as business expense!

[MSantori]

Re: a letter ruling:

If you go this route PLEASE have competent counsel write up the filing.  It isn't required but you using sloppy language could result in FinCEN ruling based on a yet still flawed understanding of what economic activity is really occurring.  The bad news is flawed or not those AR will hurt future AR and court cases.

plussity plus plus.  Please don't do this alone.  Remember that at this early stage of the game, every ruling is precedent.

[vvic]

No farm yet, hardware makers are being depressing,etc. I won't do it alone, I'd need help with opening business in first place

[ffssixtynine]

Can a few miners/pools get together to fund Marco or someone similar?

Is this something the Bitcoin Foundation could or should be doing? Particularly since there appear to be concerns that it should be done properly to (try to) avoid a bad precedent being set.