With the recent arrest of BitInstant's founder I find myself in a strange position.
For quite awhile I have been working on a competitor/replacement for BitInstant, i.e. a system of using marked deposits at banks such as Chase, WellsFargo etc as a way of purchasing small amounts of BTC anonymously. I was also planning to add ACH deposits & withdrawls for KYC verified customers as well.
The biggest hold up has been the changing regulatory environment. When I started down this path it was unknown exactly what laws apply to Bitcoin trading. Now we know that the answer depends on what services you provide.
If you're selling BTC directly (or buying it) as a normal part of your business, you need a FinCEN money transmitter license. If you're running an exchange you need to be a registered broker dealer. So in otherwords the USA is actually trying to apply a common sense approach.
After reading the complaint against Mr Shrem, it appears to me that they are alleging he was intentionally avoiding his reporting responsibilities. Whether that is true or not, is not part of why I'm starting this thread. But I wanted to put it out there so folks can be aware of what the actual allegations are rather than **omg teh fedz hate teh bitcoinz!** line that's been going around.
Nothing could be further from the truth. In reality it appears that for the most part, they are very excited about it. Besides all of the positive things that have been coming out of recent federal hearings, I know of at least one major financial institution that is looking at moving to crypto currencies for clearing HUGE transactions between correspondant branches as an alternative to swift (for transaction volumes that would qualify).
So despite the recent bad press, I think now is the time to act.
I have had business banking relationships for over a decade with BofA, Wells Fargo and Chase. This week I will be meeting with someone from Wells Fargo corporate to pitch the idea that I described above yet again. For this to work the whole plan requires a custom type of account that is different from your traditional business banking account. It also requires that the bank know the intimate details of the business. To be honest this is not my first meeting, I've had several with various banks and each time it gets shot down. It's an iterative process of going up the chain of command, presenting the idea, listening to feedback and adjusting the business plan.
The problems with a business of this type are manifold, but it boils down to 4 recurring themes.
In this business there is quite literally "a hell of a lot of money flying around". Banks like you to put your money in and leave it. Moving it around too much makes internal accounting a headache and makes branch managers nervous and jittery. This is mostly a problem at the branch level. On the advice of my local branch VP I moved to Denver to deal with that particular problem by addressing it at the corporate level.
There are also certain ratios of money in flight, vs money at rest that are considered acceptable and need to be regularly maintained. As a business gets older these ratios are allowed to drop off a bit. Nevertheless according to a few people I've talked with, the best practice ratio is 90/10 rest vs flight in favor of money at rest. This can be done, but it means you need slow growth or a well healed backer with brass balls or some combination of the two.
With heavy volumes, there needs to be an automated SARS process. This is one of the reasons that PayPal gets demonized. As a money transmitter you are required to file SARS reports and proactively freeze accounts that trigger suspicious activity thresholds or appear to be from or to people or organizations that match the SDN list etc
http://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx Perhaps most insidiously, you are not allowed to notify anyone subject to SARS that an action has been taken, at all. The money is "just stuck".
Coincident with the SARS requirements are Know Your Customer. KYC is a compliance nightmare if done incorrectly. It can be done correctly but you can't just shoot from the hip and hope for the best. To comply with KYC you need to either know your customer personally, or be able to reliably establish their identity. I've noticed that many exchanges fail to understand this concept and just copy/paste what everyone else is doing. That's a really bad idea. I'm no expert, but in my opinion NONE of the exchanges I've dealt with are doing this step correctly. In conjunction with a financial services attorney I've documented a very thorough process that deals with both SARS and KYC as an integral business practice, rather than a pro-forma.
I think with all of this, I now have my bases covered. What I don't know for certain is if we have a viable business model anymore. When I started this process BTC was $6 yes that's $6 dollars not $60.00 or $600.00. At the rate I'm going, it'll probably be $6,000 by the time this launches.
Nevertheless I'm commited to making it work.
The biggest problem that I face in making this work right now is that I do not have a ready source of BTC liquidity.
I'm not looking for investors and I'm not asking anyone to put up BTC in hopes of cash. But I would love to gauge interest here and see if anyone is willing to sell at current MtGox rates (whatever those are at launch), in exchange for immediate direct deposit of funds via ACH.
Of course any other feedback is also appreciated, but mostly the above question "If I can get a fully compliant bitinstant type service going, would you sell?" is perhaps the most important one I need to answer. The second question is obviously "If I can get this going would you buy?". "Would the ability to purchase by cash deposit, or ACH, be of interest to you?"
Thanks!
