The using, investing, buying and selling of bitcoin almost always leads one to contemplate the all-seeing-eye of the Financial Crimes Enforcement Network (“FinCEN”) and the horror of being labeled as a money services business (“MSB”) under the Bank Secrecy Act (“BSA”). Please bear with me as I try to make sense of this legal quagmire.
Just recently (Jan 30, 2014) FinCEN issued these letters … FIN-2014-R001: Application of FinCEN’s Regulations to Virtual Currency Mining Operations AND FIN-2014-R002: Application of FinCEN’s Regulations to Virtual Currency Software Development and Certain Investment Activity.
See:
http://www.fincen.gov/news_room/nr/pdf/20140130.pdf(contains links to both letters)
FIN-2014-R001 (Footnote 7): The definition of “money transmitter” in FinCEN's regulations defines six sets of circumstances – variously referred to as limitations or exemptions – under which a person is not a money transmitter, despite accepting and transmitting currency, funds, or value that substitutes for currency. 31 CFR § 1010.100(ff)(5)(ii)(A)-(F).
See:
http://www.srz.com/files/News/044ca43a-3777-405c-a700-da33c08c2cb3/Presentation/NewsAttachment/c9901cae-7a96-4765-8822-19c4ac2bc6f3/102611_FinCEN_Issues_Final_Rules_Relating_to_MSB_Definitions.pdf Whether a person is a money transmitter is a matter of facts and circumstances. The term money transmitter does not include a person who 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 SEC, and derivatives clearing organizations, or other clearinghouse arrangements established by a financial agency or institution;(16)
(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 stored value (now referred to as prepaid access under the Prepaid Access Rule), whether it is opened or closed loop;(17) 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.(18)
(Footnote 18) 31 C.F.R. §1010.100(ff)(5)(ii)(A)-(F). FinCEN notes that, similar to circumstance (B), “persons that sell goods or provide services other than money transmission services, and only transmit funds as an integral part of that sale of goods or provision of services, are not money transmitters. For example, brokering the sale of securities, commodity contracts, or similar instruments is not money transmission notwithstanding the fact that the person brokering the sale may move funds back and forth between the buyer and seller to effect the transaction.” FinCEN also indicates that a similar limitation would apply to “a debt management company that made payments to creditors as the conduit for a negotiated schedule of payments from the debtor to its creditors.” 76 Fed. Reg. at 43,594.
YIKES!!!!
Now consider the following scenario …
Person ‘A’ (the buyer) has lots of cash and he wants to buy bitcoin. He hates banks, he’s very busy working, and there is no one close by to sell him bitcoin (plus he’s afraid of being mugged or worse). But he trusts person ‘B’ (the expeditor) who lives far far away in a land where face-2-face bitcoin transactions are easily found. He contacts person ‘B’ and asks for help (and offers to pay him for the help). Person ‘A’ goes to the USPS and buys a $1000 money order. He leaves the MO blank and mails it to person ‘B’.
The next day person ‘B’ gets the blank $1000 money order from his (snail)mailbox and meets with person ‘C’ (the seller). Person ‘C’ verifies the status of the USPS MO on the USPS website and agrees to sell bitcoin at a fair market rate (say
http://preev.com). Person ‘C’ transfers bitcoin to person ‘B’ face-2-face and person ‘B’ verifies receipt in a temporary wallet. Person ‘B’ gives person ‘C’ the blank MO and both then part company. (We assume that person ‘C’ goes promptly to cash the MO writing his own name on the MO).
Person ‘B’ then simply transfers bitcoin to person ‘A’ (less the amount of his bitcoin fee). Person ‘B’ never signed the MO (he was just guarding it). Person ‘B’ never used the bulk bitcoin (he was just guarding it).
FROM WHAT I READ FROM FinCEN ABOVE … PERSON ‘B’ IS NOT A MONEY SERVICE BUSINESS.
Person ‘B’ is more like a guard and broker all-in-one. Hmmm.
