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Author Topic: Online Wallet/Holding Services FinCEN registration?  (Read 1775 times)
piecinitup
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November 01, 2013, 01:57:29 PM
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Do services such as the blockchain.info and other websites that just offer online wallets to hold coin have to register with FinCEN?  I'm thinking of starting a service that wouldn't deal with any FIAT and just transfer/hold of bitcoin.

Appreciate the insight.


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Gerald Davis


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November 01, 2013, 02:16:24 PM
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Do services such as the blockchain.info and other websites that just offer online wallets to hold coin have to register with FinCEN?  I'm thinking of starting a service that wouldn't deal with any FIAT and just transfer/hold of bitcoin.

Appreciate the insight.

Standard caveat:  I am not a lawyer (although I have had to do extensive self research given what I do). The following should be considered educational only.  Always independently verify claims.  For those who may be reading this post in the future note the date and understand facts can and do change over time.   If you decide to move forward self research is no substitute for legal counsel.  Your situation may be unique and the response may not correctly address facts omitted, misstated, or misunderstood.   I have not had my morning stimulant injection and it is cloudy, I often give poor advice on days when it is cloudy.

FinCEN was silent on e-wallet type services for decentralized virtual currencies.  For centralized virtual currencies a wallet operator could depending on the circumstances be seen as an "administrator" but decentralized virtual currencies lack an administrator.  The only other class of regulated entity that FinCEN covers is "exchangers".    Practically speaking this would appear to be an area they would want to regulate, but they didn't cover it at all in the guidance and it doesn't clearly fit into any existing MSB category.  

      Guidance FIN-2013-G001 (March 18, 2013)
      Subject:   Application of FinCEN's Regulations to Persons Administering, Exchanging, or Using Virtual Currencies
      http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html



If I were creating a e-wallet service that did not exchange virtual currency for EITHER "real currency" or another virtual currency I would not register at this time.   Given that it does not fall into one of the existing MSB categories using a neutral reading of the reg and FinCEN did not address it in the guidance I believe that even if it is FinCEN intent to regulate such activity they have not created a scenario where lack of registration would be in violation of federal regulation or statute.

So if it were me I would operate without registration at the current time but I trust my own judgement and you probably shouldn't without your own research. Before you assume I (or any other response) is correct you should carefully review FinCEN guidance on virtual currencies (link above) and consider retaining counsel.   Also understand the guidance is just that "guidance" (very very poor guidance IMHO) on how the EXISTING laws/regs on MSBs apply to virtual currencies.   You can't get the whole picture without a good understanding of the MSB laws/regs/framework in general.  You are going to need to review and understand the MSB regs otherwise the guidance is incomplete.   If you don't feel up to it then consider retaining legal counsel.

The place to start:
http://www.fincen.gov/financial_institutions/msb/

One point of clarification, contrary to popular opinion FinCEN clearly did indicate EXCHANGING one virtual currency for another is a regulated activity so the "virtual currency only exchanges" are magically exempt because they don't deal with USD or EUR. So if your "wallet" service allows users to convert BTC to LTC for example you probably are regulated.  A wallet which holds multiple virtual currencies is probably no different than a single virtual currency.

Quote
An exchanger is a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency.


I would also operate under the assumption that eventually there is a good chance FinCEN will attempt to "pull you into the family".  However the fact that they did not cover online wallet services likely gives you a legitimate "out" until such times as they do.   Also FinCEN does provide a 180 day "grace period" for new businesses that begins once regulated activity begins so you can do initial research now, and if you determine you are not regulated, open and if events change (future guidance, additional legal research, news events, update guidance) in the next 180 days register without being non-compliant.

If you really want to know what FinCEN believes (and that is more important that what I or your lawyer believes) you can file for an administrative ruling.  It sounds more complicated than it is.  You write to FinCEN outlining the scenario and ask them to rule on if you are regulated or not.  If they say "no" well that is your "keep out of jail card". You can find more information in the "Chapter X regs" (see FinCEN website section on MSBs).  In my opinion that is simply poking the bear with a stick.  They are obligated to provide you a ruling but you may inadvertently "regulate yourself".  You can't "undo" an administrative ruling and it has the possibility of killing any future defense that FinCEN didn't meet their regulatory duty in accurately defining the scope of regulated activity so be sure before you file AND if you do so please get legal counsel.   Poorly thought out or written administrative rulings hurt the entire Bitcoin community because it becomes a bad "precedent".

Lastly you may consider regsitering just to be proactive I would caution against that.  Many bank customers have had their accounts summarily closed without review simply by being a MSB.  Yes banks do periodically review the MSB registry against their client list.   If you aren't engaged in regulated activity registering is a very bad idea.  Also understand that registering is just the start you must also be COMPLIANT.  By registering you are saying "I agree with FinCEN that I am a MSB and my activity is regulated."   Being a compliant MSB requires knowing your customer, having a compliance officer, conducting periodic reviews, having an AML program in place, keeping accurate records, and reporting certain transactions to FinCEN.   Registering and NOT being compliant is just STUPID.  It is saying "I agree I am engaged in regulated activity but I am chosing to willfully violate the law".

You may also want to consider an online wallet like blockchain.info where the USER retains control of the private keys.  In the future if/when FinCEN decides to call online wallets "money transmitters" a good legal team likely could argue for an exemption for services like blockchain.info where it is the user in direct control of their own funds at all times  Yeah a lot of this is future proofing but having been "shutdown" by the government after 2000% annualized growth trust me there is nothing worse so you want to look towards a solution that keeps you running today and in the future.

Lastly this is US centric advice.  Understand that if you offer services to citizens in all 200+ countries then the regs/laws/policies of all countries apply.  So while you may not be regulated in the US you could be regulated in another country.  I doubt that is the case but you should consider how you want to handle this because if you aren't regulated in any country yet you will be eventually.  You can either exclude residents of that country or countries or comply with those regulations.

Best of luck.

PS you may want to move this to "legal" subforum as it might provide better responses.
piecinitup
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November 01, 2013, 02:35:04 PM
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Thank you D&T

How do I move it? Mods?

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Gerald Davis


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November 01, 2013, 02:46:51 PM
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No need to bother the mods (although they may move it).

For the person creating a thread/topic (you) in the lower left of the page there should be two links "lock topic" and "move topic".
piecinitup
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November 02, 2013, 03:02:24 AM
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I re-read your additions and wanted to again say thank you.  I will research this further and also consider counsel since I'm not planning on launching for a few months when things could change.

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November 02, 2013, 03:09:09 AM
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D&T,
Just curious but are you able to comment on your situation at this time or are you still dealing with it?

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November 03, 2013, 02:40:50 PM
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Understand that if you offer services to citizens in all 200+ countries then the regs/laws/policies of all countries apply.
Don't apply if your live in Russia. That's why BTC-E just ignores all U.S. regulations and its owners don't fear crackdown.
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