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Author Topic: Legal clarification: Bitcoin vs. BitcoinUSA  (Read 3998 times)
taykaypee
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April 20, 2011, 07:23:57 AM
 #1

Bitcoinusa.com creation discussion (March 2011)
http://bitcointalk.org/index.php?topic=4276.0

Followed by Fincen's shut down? (April 2011) I'm not sure what this forum topic implies.
http://bitcointalk.org/index.php?topic=5627.0


Does this imply that FinCen closed BitcoinUSA? Because http://Bitcoinusa.com is still a functional website. In the first link, the topic creator seems to have indicated Bitcoinusa did follow  the "Know Your Customer Act" as well (some?) US Treasury Regulations due to the fact people had to register for the service using their US Driver's License/Passport, and a valid Mailing Address.

However, the case that Fincen provided as an analogous case is not clear to me. Below is the link to this Fincen case:

http://www.fincen.gov/statutes_regs/guidance/html/fin-2009-r001.html

The case seems to indicate that this comparable service did not qualify as a "Money Transmitter" (thus, Bitcoin does not qualify either).

So I searched for their definition of a "Money Transmitter," the below is the definition:

(A) [a]ny person, whether or not licensed or required to be licensed, who engages as a business in accepting currency, or funds denominated in currency, and transmits the currency or funds, or the value of the currency or funds, by any means through a financial agency or institution, a Federal Reserve Bank or other facility of one or more Federal Reserve Banks, the Board of Governors of the Federal Reserve System, or both, or an electronic funds transfer network; or

(B) [a]ny other person engaged as a business in the transfer of funds.

from : http://www.fincen.gov/news_room/rp/rulings/html/fincenruling2003-8.html

Money Transmitter is a critieria for an MSB (Money Services Business), page 2:
http://www.fincen.gov/financial_institutions/msb/pdf/FinCENfactsheet.pdf


Any thoughts regarding what actually is going on here? Was Bitcoinusa illegal? But Bitcoin is still legal under $1000 per day per person? Pretty convoluted.
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April 20, 2011, 07:52:59 AM
 #2

Did you read the thread you linked to? FinCen didn't shut them down, they closed because no one wanted to jump through hoops. Which doesn't surprise me in the slightest. The people interested in Bitcoin now aren't mostly bureaucratic types.

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taykaypee
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April 20, 2011, 08:29:19 AM
 #3

I see, that was not explicit. So Bitcoin users are acting lawfully as long as none of their transactions exceed $1000 per day? Or is this referring to the entire p2p network?

My understanding:

Bitcoin is NOT an MSB (Money Service Business)
Bitcoin does not qualify as a legal Money Transmitter (Criteria for MSB)
Bitcoin IS a "Stored Value"
BitcoinUSA was acting legally under Know Your Customer and (some?) US Treasury Laws

While the FinCen seems to be the major governmental bureau on determining these things, it is worth mentioning some Constitutional and Federal Law:

a)   18 USC 1956, 1957
(1)   (1)Whoever, knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, conducts or attempts to conduct such a financial transaction which in fact involves the proceeds of specified unlawful activity—
(2)   (A)
(3)   (i) With the intent to promote the carrying on of specified unlawful activity; or
(4)   (ii) With intent to engage in conduct constituting a violation of section 7201 or 7206 of the Internal Revenue Code of 1986; or
(5)   (B) Knowing that the transaction is designed in whole or in part—
(6)   (i) To conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity; or
(7)   (ii) To avoid a transaction reporting requirement under State or Federal law,
8   Shall be sentenced to a fine of not more than $500,000 or twice the value of the property involved in the transaction, whichever is greater, or imprisonment for not more than twenty years, or both.
(9)   For purposes of this paragraph, a financial transaction shall be considered to be one involving the proceeds of specified unlawful activity if it is part of a set of parallel or dependent transactions, any one of which involves the proceeds of specified unlawful activity, and all of which are part of a single plan or arrangement.


2.   Under 18 USC 1957
(a)   The Government is not required to prove the defendant knew that the financial transaction involved unlawful activity




And we all know that Liberty Gold was a great example, although very very different, of the government getting really aggressive. The US Attorney commented on the fact that it was viewed as a domestic terrorist act because it attacked the "economic stability" of the country.


I'm writing a 20 page report on this within the week. I will post it for the community once I'm done.
taykaypee
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April 20, 2011, 08:30:54 AM
 #4

By the way, I love Banksy - your avatar. I think he goes hand in hand with Bitcoin
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April 20, 2011, 08:35:24 AM
 #5

I don't care about the details of old bureaucrat's written diarrhea they call law. All I know is that BitcoinUSA was closed due to lack of interest not anyone's interpretation of so called law.

Do what's right, not what's legal.

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April 20, 2011, 08:38:44 AM
 #6

I'm writing a 20 page report on this within the week. I will post it for the community once I'm done.

Are you a lawyer? I'm not being facetious or anything. I'm just curious.
taykaypee
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April 20, 2011, 09:01:21 AM
 #7

I'm writing a 20 page report on this within the week. I will post it for the community once I'm done.

Are you a lawyer? I'm not being facetious or anything. I'm just curious.

I am not a lawyer. I'm just interested in the subject and how it relates to the law.

FreeMoney, I'm not quite sure why you have such a pessimistic outlook of US law. While our justice system has plenty of flaws, let me point you to China... Or would you rather live on an island with 0 governance?
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April 20, 2011, 09:04:59 AM
 #8

Bitcoin is NOT an MSB (Money Service Business)

Bitcoin is a currency / commodity, not a business.

Bitcoin is either (a) a digital token or (b) an open source project.

Quote
Bitcoin does not qualify as a legal Money Transmitter (Criteria for MSB)

Does the US dollar qualify as a legal Money Transmitter?

Bitcoin is a currency / commodity, and not a business.

Quote
Bitcoin IS a "Stored Value"

From what we can tell, for the purposes of US citizens, according to the Department of Treasury, yes.

Disclaimer: But I/we are not lawyers, this is not legal advice.

Quote
BitcoinUSA was acting legally under Know Your Customer and (some?) US Treasury Laws

As far as we can tell, yes.

Quote
And we all know that Liberty Gold was a great example, although very very different, of the government getting really aggressive. The US Attorney commented on the fact that it was viewed as a domestic terrorist act because it attacked the "economic stability" of the country.

Emphasis on different, as in, completely and utterly unrelated to bitcoin's situation.

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April 20, 2011, 09:14:22 AM
 #9

I'm writing a 20 page report on this within the week. I will post it for the community once I'm done.

Are you a lawyer? I'm not being facetious or anything. I'm just curious.

I am not a lawyer. I'm just interested in the subject and how it relates to the law.

FreeMoney, I'm not quite sure why you have such a pessimistic outlook of US law. While our justice system has plenty of flaws, let me point you to China... Or would you rather live on an island with 0 governance?


Fuck China's tyrants too, but at least I could play online poker there.

Governance is fine. If it's good governance I'll follow it. If I decline some particular governance are you going to put me in a cage or shoot me? That's not governance that's god damned slavery.

I have a pessimistic outlook on legislation that some refer to as law. Law is the real deal. Earth pulls things down, people who are kind and peaceful with others are happy, etc. You can't make laws by writing shit down.

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taykaypee
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April 20, 2011, 09:20:57 AM
 #10

From what I've read, the community's understanding of the law is limited. Hopefully my report will shed some light because if I had to bet, this will certainly be a big issue in the next few years, if not months.

In my paper, I will also be analyzing virtual game currencies. It's surprising to see how similar they are. If you've heard of Second Life, Anshe Cheung, AKA the "Rockefellor of Second Life," pulls in $150,000+ per year playing the game. How do you think the IRS deals with this? It is not a simple matter legally, and enforcing it is even more difficult. MMORPG's are a 1.4 Billion dollar economy.


xf2_org, while I agree with you,  Bitcoin is not a "business," it is a client. Consider BitTorrent or the PirateBay, very different situations once again, but the principle is the same: people abused the software/client, resulting in the founders and developers getting sued and prosecuted. The law may very well treat it similar to a business in my opinion.

The US dollar is not a "money transmitter," it is what is being transmitted via the money transmitter. Bitcoin, as in the client, IS acting as a Money Transmitter. It falls under the definition, "[a]ny other person engaged as a business in the transfer of funds." Although, I'm unsure if it is legally doing so.

And once again, yes, Liberty Dollar was a very very different case (once again, I'm using two "very's" to emphasize this...), but it should be known that the government COULD POSSIBLY treat this as an act of terrorism. Bitcoin DOES question the US economy, as did Liberty Dollar, though in different ways.
taykaypee
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April 20, 2011, 09:24:00 AM
 #11

I wouldn't put you in a cage and shoot you, I'd let the law determine your fate. Aside from the death penalty in certain states, I think our judicial system is quite fair.
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April 20, 2011, 10:33:03 AM
 #12

Quote
I see, that was not explicit. So Bitcoin users are acting lawfully as long as none of their transactions exceed $1000 per day? Or is this referring to the entire p2p network?

My understanding:

I guess the guy who was transferring BTC 94,000 chunks ten or more times today missed your memo.

US laws are only applicable on US soil last time I looked so any outlawing you want to do may actually be shooting the US economy in the foot (aka economic terrorism or treachery) more than allowing Bitcoin commerce to flourish within the US ... comparative advantages and all that for the lawyering economics types .... Bitcoin commerce will move where it is welcome not where the lawyers say.

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April 20, 2011, 12:42:05 PM
 #13

How the government would deal with bitcoin-

It should be fairly trivial to setup alpaca sock scanners at the airport .....

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April 20, 2011, 01:00:08 PM
 #14

As long as you do not process large amount of USD on USA territory, you do not need a license as Money Services Business.
It is *not* illegal to use bitcoins.

Quote
Bitcoin is considered a stored value product, comparable to a coupon/card which you can buy, give away, sell and use to buy goods or services.
Stored value is defined as "funds or monetary value represented in digital electronics format (whether or not specially encrypted) and stored or capable of storage on electronic media in such a way as to be retrievable and transferable electronically.
The coupons/Cards can be loaded with up to $1,000 per day and $2,500 per month.
In addition, our regulations define a money services business to include a seller or redeemer of stored value who sells or redeems stored value in an amount greater than $1,000 per person per day in one or more transactions.
As service provider for the Arranger, engaged in the marketing, sale, loading and reloading of the Cards only as an intermediary between the Arranger and its selling agents, the Company would not be a seller or redeemer of stored value as that term is defined in our regulations. Rather, the Company would be engaging in providing back-office services in connection with the provision of a stored value product.
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April 20, 2011, 01:05:39 PM
 #15


Kind of interesting. Maybe current laws will make BTC truly the money of the little people ... since there is no way the big guys can get in and out of it at $1,000 per day. Hoisted on their own petard?

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April 20, 2011, 06:30:27 PM
 #16

How sure is it that the "store of value" call on bitcoins is really correct?

It would be closer to a digital commodity.

and i am not aware of trading restrictions on commodities of 1 k$...

browneman
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April 20, 2011, 06:41:47 PM
 #17

I'm writing a 20 page report on this within the week. I will post it for the community once I'm done.

Are you a lawyer? I'm not being facetious or anything. I'm just curious.

I am not a lawyer. I'm just interested in the subject and how it relates to the law.

FreeMoney, I'm not quite sure why you have such a pessimistic outlook of US law. While our justice system has plenty of flaws, let me point you to China... Or would you rather live on an island with 0 governance?


SO its this steaming pile of what the aristocrats and their thugs have given us and told us to like, or nothing at all? Actually, if thats the choice, I will take the 0 governance please. Not my first choice but, if you are limiting me to those options, then.... yes thats fine with me, I am pretty convinced that any governance that involves supporting wars on foreign soil and wars against my own friends and family is worst than none.
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April 20, 2011, 06:45:45 PM
Last edit: April 20, 2011, 06:56:28 PM by S3052
 #18

I'm writing a 20 page report on this within the week. I will post it for the community once I'm done.

Are you a lawyer? I'm not being facetious or anything. I'm just curious.

I am not a lawyer. I'm just interested in the subject and how it relates to the law.

If you are not a lawyer, what makes you credible to write an article about that?

You better get top experienced lawyers with financial and payment expertise to work this article with you before it will contain only a bunch of wrong asumptions.

My few bitpennies.

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April 20, 2011, 06:49:02 PM
 #19

How sure is it that the "store of value" call on bitcoins is really correct?

well davidonpda of bitcoinusa.com said:
Some information we have received from the Department of the Treasury that may help others or existing exchangers expand their presence in the United States.
We asked for a ruling on Bitcoin, and bitcoin is determined to be "Stored Value" and FinCen regulations do not apply if $1000 per day per person is exchanged.
Here is a specific ruling on Stored Value that applied to our situation: http://www.fincen.gov/statutes_regs/guidance/html/fin-2009-r001.html
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April 20, 2011, 06:49:42 PM
 #20

I have a pessimistic outlook on legislation that some refer to as law. Law is the real deal. Earth pulls things down, people who are kind and peaceful with others are happy, etc. You can't make laws by writing shit down.

Some years ago, I was considering what to do for an advanced degree.  I briefly considered law but then decided against it because you never really prove anything, just make hopefully-convincing arguments based on statutes and case history.  I ended up getting a science Ph.D. and am glad I chose that path as I now work with "real" laws.

"A small body of determined spirits fired by an unquenchable faith in their mission can alter the course of history." --Gandhi
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April 20, 2011, 07:00:09 PM
 #21

How sure is it that the "store of value" call on bitcoins is really correct?

well davidonpda of bitcoinusa.com said:
Some information we have received from the Department of the Treasury that may help others or existing exchangers expand their presence in the United States.
We asked for a ruling on Bitcoin, and bitcoin is determined to be "Stored Value" and FinCen regulations do not apply if $1000 per day per person is exchanged.
Here is a specific ruling on Stored Value that applied to our situation: http://www.fincen.gov/statutes_regs/guidance/html/fin-2009-r001.html

Thanks, there are still 2 questions:
1)  I am still not 100% clear whether the Department of Treasury really assessed bitcoins or whether they just sent the old 2005 ruling to davidonpda.

I recall someone in the forum asked him to send the official letter and I am not sure if this happened.

It would be great to get clarity.

2) If FinCEN regulations would apply, what would be the implication for bitcoins? Would the FinCEN regulations automatically apply if trading volume is higher than 1 $k?

taykaypee
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April 20, 2011, 07:13:08 PM
 #22

I'm writing a 20 page report on this within the week. I will post it for the community once I'm done.

Are you a lawyer? I'm not being facetious or anything. I'm just curious.

I am not a lawyer. I'm just interested in the subject and how it relates to the law.

If you are not a lawyer, what makes you credible to write an article about that?

You better get top experienced lawyers with financial and payment expertise to work this article with you before it will contain only a bunch of wrong asumptions.

My few bitpennies.



I'm not saying I'm credible. I'm simply offering information, take it if you will.
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April 20, 2011, 07:26:05 PM
 #23

No offense

I like you bringing useful information into this forum. It would just be great if you can help getting most clarity into this complex matter...

taykaypee
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April 20, 2011, 07:38:58 PM
 #24

No offense

I like you bringing useful information into this forum. It would just be great if you can help getting most clarity into this complex matter...

Obviously that's what I'm striving for.
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April 20, 2011, 08:37:41 PM
 #25

xf2_org, while I agree with you,  Bitcoin is not a "business," it is a client. Consider BitTorrent or the PirateBay, very different situations once again, but the principle is the same: people abused the software/client, resulting in the founders and developers getting sued and prosecuted. The law may very well treat it similar to a business in my opinion.

The US dollar is not a "money transmitter," it is what is being transmitted via the money transmitter. Bitcoin, as in the client, IS acting as a Money Transmitter. It falls under the definition, "[a]ny other person engaged as a business in the transfer of funds." Although, I'm unsure if it is legally doing so.

No, the person using the bitcoin client, not the bitcoin client itself.

bitcoin itself by definition cannot be an MSB.

Quote
And once again, yes, Liberty Dollar was a very very different case (once again, I'm using two "very's" to emphasize this...), but it should be known that the government COULD POSSIBLY treat this as an act of terrorism

The government could possibly do anything.  But if you are trying to try any sort of responsible comparison between Liberty Dollar and bitcoin, you should present hard facts not wild speculation.

Quote
Bitcoin DOES question the US economy, as did Liberty Dollar, though in different ways.

This is entirely your own supposition, projecting a foreign ideology onto bitcoin.

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April 20, 2011, 09:43:08 PM
 #26

I'm not saying I'm credible. I'm simply offering information, take it if you will.

I appreciate your work on this topic taykaypee--I think you're right about this information not being well known so far and this will definitely be a good resource to have.  Cite sources and you can't do worse than Wikipedia, right?

Also, on the governmental thing there are plenty of people here who respect and appreciate our current governmental systems, while still working continuously to improve them.  Those who take a more extreme stance tend to be a little heavier on the rhetoric, as well as introducing the subject when it's only tangentially related--the rest of us have learned to love them despite their prickly shells Smiley .  I do recommend to all, though, that the place to explore the interaction between sociopolitical viewpoints is squarely in the Off-topic board.

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April 20, 2011, 09:50:11 PM
 #27

Quote
Thanks, there are still 2 questions:
1)  I am still not 100% clear whether the Department of Treasury really assessed bitcoins or whether they just sent the old 2005 ruling to davidonpda.

I recall someone in the forum asked him to send the official letter and I am not sure if this happened.

It would be great to get clarity.

2) If FinCEN regulations would apply, what would be the implication for bitcoins? Would the FinCEN regulations automatically apply if trading volume is higher than 1 $k?


1). Good point, I do not know. I would love more information regarding this.

2). Currently, they deemed Bitcoin to be a "Stored Value," so anything above $1000 is 100% illegal and regulations would automatically apply.
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April 20, 2011, 09:52:07 PM
 #28

Xf2, when you say the government "can do anything," they cannot, or at least not legally. Your phrasing really implies you believe the US government to be a dictatorship.
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April 20, 2011, 10:07:47 PM
 #29

Xf2, when you say the government "can do anything," they cannot, or at least not legally. Your phrasing really implies you believe the US government to be a dictatorship.

It's awfully close. And yes, they can do anything. If they can't, they either change the rules or ignore them. Such as US attorney Preet Bharara kidnapping people from countries where there is no extradition treaty and smuggling them back to the US to face trumped-up charges when those people never did anything in the US.

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April 20, 2011, 10:36:42 PM
 #30

Im glad the EFF takes donations in bitcoin.

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April 21, 2011, 01:02:36 AM
 #31

Xf2, when you say the government "can do anything," they cannot, or at least not legally. Your phrasing really implies you believe the US government to be a dictatorship.

Oh, you noticed too did you?

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