Selling a product with BTC inside it

[boounce]

I'm struggling to understand the laws regarding selling a product with BTC embedded in it (like casasious coins).  It seems he changed his model after a letter from FINCEN:

http://www.wired.com/2013/12/casascius/

However, I still see people and coin dealers selling his coins on eBay. 

If I make a collectible product, embed a private key inside and sell it, do I have to register as a MSB in the US?  What if the amount is small compared to the item's value?

Thanks.

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[Harley997]

If you keep your trades under a certain limit then you don't need to register as a MSB.

This is no different for selling items with "money" inside it then if you sold bitcoin via locablitcoins.com

[DeathAndTaxes]

If you keep your trades under a certain limit then you don't need to register as a MSB.

This is no different for selling items with "money" inside it then if you sold bitcoin via locablitcoins.com

Please stop giving "advice".   There is no exempt amount for money transmitters and FinCEN has declared the minting of coins or the exchanging of virtual currency for "real" currency to be a money transmitter.   If you make a 1 satoshi coin it would be money transmission.   Of course you can try to fight it out in court but until you win your "advice" is negligent.

To the OP, the guidance from FinCEN isn't law but rather interpretation of existing law.  It has not been testing in court but understand through the guidance, FinCEN it showing you their gameplan.  Essentially they are saying we believe this activity is regulated because of x, y, and z.   If you engage in that activity and don't follow their regulations you should EXPECT to eventually end up in court.  It shouldn't come as a surprise.  The only reason to do so would be to seek a legal precedent.   Still understand you would be playing with fire.  There are both civil and criminal penalties for violations of the BSA (which FinCEN says applies by the classification of this activity as money transmission).  If you win, FinCEN doesn't really lose anything other than having to scale back the scope of the activities they are able to regulate.  If FinCEN wins, you could potentially lose everything you own, your future income, and even your freedom.   The law isn't always fair.  You should get some competent legal counsel for engaging in activity that an agency says is regulated.  Under the MSB regulations yo have the right to file for an administrative ruling from FinCEN.  In essence you describe in detail your specific business activity and they will clarify if it is regulated or not and why.

Lastly I would say that personally I believe that FinCEN's guidance is contradictory, reaching, and probably extends beyond the scope that the statute was intended.  Of course none of that matters.  If FinCEN convinces an old guy in a black robe that your activity does indeed fall under the scope of the BSA, well that would be very bad so you should at least go in with your eyes wide open.

[Harley997]

If you keep your trades under a certain limit then you don't need to register as a MSB.

This is no different for selling items with "money" inside it then if you sold bitcoin via locablitcoins.com

Please stop giving "advice".   There is no exempt amount for money transmitters and FinCEN has declared the minting of coins or the exchanging of virtual currency for "real" currency to be a money transmitter.   If you make a 1 satoshi coin it would be money transmission.   Of course you can try to fight it out in court but until you win your "advice" is negligent.

To the OP, the guidance from FinCEN isn't law but rather interpretation of existing law.  It has not been testing in court but understand through the guidance, FinCEN it showing you their gameplan.  Essentially they are saying we believe this activity is regulated because of x, y, and z.   If you engage in that activity and don't follow their regulations you should EXPECT to eventually end up in court.  It shouldn't come as a surprise.  The only reason to do so would be to seek a legal precedent.   Still understand you would be playing with fire.  There are both civil and criminal penalties for violations of the BSA (which FinCEN says applies by the classification of this activity as money transmission).  If you win, FinCEN doesn't really lose anything other than having to scale back the scope of the activities they are able to regulate.  If FinCEN wins, you could potentially lose everything you own, your future income, and even your freedom.   The law isn't always fair.  You should get some competent legal counsel for engaging in activity that an agency says is regulated.  Under the MSB regulations yo have the right to file for an administrative ruling from FinCEN.  In essence you describe in detail your specific business activity and they will clarify if it is regulated or not and why.

http://www.fincen.gov/financial_institutions/msb/definitions/msb.html

Money Services Business - The term "money services business" includes any person doing business, whether or not on a regular basis or as an organized business concern, in one or more of the following capacities:

(1) Currency dealer or exchanger.
(2) Check casher.
(3) Issuer of traveler's checks, money orders or stored value.
(4) Seller or redeemer of traveler's checks, money orders or stored value.
(5) Money transmitter.
(6) U.S. Postal Service.

An activity threshold of greater than $1,000 per person per day in one or more transactions applies to the definitions of: currency dealer or exchanger; check casher; issuer of traveler's checks, money orders or stored value; and seller or redeemer of travelers' checks, money orders or stored value. The threshold applies separately to each activity -- if the threshold is not met for the specific activity, the person engaged in that activity is not an MSB on the basis of that activity

As long as you keep your transactions below $1,000 per day per person you are not considered to be a MSB

[DeathAndTaxes]

As long as you keep your transactions below $1,000 per day per person you are not considered to be a MSB

Once again you are completely wrong.  Please stop stating as fact things that you incorrectly believe are true.  Take this from someone who has spent more than you make in a year on legal counsel. There is NO threshold for money transmission.  Note that in your incorrectly quoted section, money transmission is not included in the list for which a min amount applies.  The other categories are referenced by name but money transmission is not.  Did you not find that interesting?  Did you think FinCEN just forgot and happened to name 5 of the 6 categories but not left one out by accident?

What is interesting is you managed to quote the wrong portion of the text when the very next paragraph clearly shows you are wrong.   I guess by pure luck you just happened to not read past the portion you quoted because if you did you would have noticed your error.  Either you have very bad reading comprehension skills or you took a selective quote out of context to support an incorrect statement.  You do understand that someone relying on your false claims could face a felony conviction and potentially decades in prison.   Do you not believe you have an ethical obligation to ensure your statements are correct, property cited, and well researched before making them?

Here is the full content from FinCEN so others can judge for themselves:

Money Services Business - The term "money services business" includes any person doing business, whether or not on a regular basis or as an organized business concern, in one or more of the following capacities:

(1) Currency dealer or exchanger.
(2) Check casher.
(3) Issuer of traveler's checks, money orders or stored value.
(4) Seller or redeemer of traveler's checks, money orders or stored value.
(5) Money transmitter.
(6) U.S. Postal Service.

An activity threshold of greater than $1,000 per person per day in one or more transactions applies to the definitions of: currency dealer or exchanger; check casher; issuer of traveler's checks, money orders or stored value; and seller or redeemer of travelers' checks, money orders or stored value. The threshold applies separately to each activity -- if the threshold is not met for the specific activity, the person engaged in that activity is not an MSB on the basis of that activity.

No activity threshold applies to the definition of money transmitter. Thus, a person who engages as a business in the transfer of funds is an MSB as a money transmitter, regardless of the amount of money transmission activity.

Notwithstanding the previous discussion, the term "money services business" does not include:

A bank, as that term is defined in 31 CFR 1010.100(d) (formerly 31 CFR 103.11(c)), or
A person registered with, and regulated or examined by, the Securities and Exchange Commission or the Commodity Futures Trading Commission.
For the complete regulatory definition of "money services business", see 31 CFR 1010.100(ff) (formerly 31 CFR 103.11(uu)).

Note: Each money services business (MSB) is a financial institution. For the regulatory definition of "financial institution," see 31 CFR 1010.100(t) (formerly 31 CFR 103.11(n)).

Reference: http://www.fincen.gov/financial_institutions/msb/definitions/msb.html

Of course that segment is just provided as an overview.  The real regulations are found in 31 CFR 1010.100

(5) Money transmitter—(i) In general. (A) A person that provides money transmission services. The term “money transmission services” means the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means. “Any means” includes, but is not limited to, 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; an electronic funds transfer network; or an informal value transfer system; or

(B) Any other person engaged in the transfer of funds.

http://www.ecfr.gov/cgi-bin/text-idx?SID=a56fa205f5db4227d1cc044b26575e09&node=31:3.1.6.1.2.1.3.1&rgn=div8
Note a lack of any threshold amount.

[ShakyhandsBTCer]

Although technically illegal the chances of facing charges are small if you are only dealing in small amounts.

The district attorney and law enforcement have limited resources and generally like to go after "big fish" 

[boounce]

Thanks DeathAndTaxes... you live up to your name.

It sounds like everyone that wants to sell Bitcoin that isn't through a service is breaking the law isn't following their guidance.  That would mean all the people using localbitcoin or trading coins at meetups are criminals. 

Also, what about coin dealers? 

[Peter R]

Thanks DeathAndTaxes... you live up to your name.

It sounds like everyone that wants to sell Bitcoin that isn't through a service is breaking the law isn't following their guidance.  That would mean all the people using localbitcoin or trading coins at meetups are criminals.  

Also, what about coin dealers?  

You can legally trade your personal coins without registering as a money transmitter.  But remember, there is a legal distinction between "I sold a few coins to a friend from our meetup group" to "I buy and sell coins as a business and post ads that advertise this fact on local bitcoins."  

[DeathAndTaxes]

Thanks DeathAndTaxes... you live up to your name.

It sounds like everyone that wants to sell Bitcoin that isn't through a service is breaking the law isn't following their guidance.  That would mean all the people using localbitcoin or trading coins at meetups are criminals.  

Also, what about coin dealers?  

You can legally trade your personal coins without registering as a money transmitter.  But remember, there is a legal distinction between "I sold a few coins to a friend from our meetup group" to "I buy and sell coins as a business and post ads that advertise this fact on local bitcoins."  

Peter got it.  If you agree to cash your friends' paycheck one time because he needs the money today you probably aren't a check cashing business.  If you cash 1,000 "friends" regularly over the course of a year and collect a fee (even informally defined) you probably are.  There is no exact single definition of when an activity rises to a business.  If it went to court it would come down to the situation and circumstances.  Generally speaking if you are engaging in regular for profit activity involving customers you will probably be considered a business.

Note: The statements in this thread are merely informational and do not constitute legal counsel.  Your situation may vary and informational threads are no substitute for the services of a qualified attorney.

[jonald_fyookball]

Miners too?  Can't just sell their coins?  That's kind of sucky.

Anyway, There's often loopholes and ways to get around regulations if one is just a little bit creative.  Depends what you want to do. 

For example, many of the largest corporations not only pay zero taxes, but get hundreds of millions of dollars in tax credits. 

That's not advice, just an observation :-)