1) The quoted sentences are not from a legal statute, not even from an administrative regulation, it's just an re-elaboration on an administrative regulation, so a subjective interpretation from the Fincen about the Bank Secrecy Act. It's a reinterpretation of an administrative interpretation.
Even the regulations themselves are not binding on any court. The courts alone have the final power to determine the content of the Act. I have serious doubt any court would consider that an exchange trading only on crypto would be subject to the Act as a money transmitter.
2) Even the new regulations adopted on 2011 (
http://www.gpo.gov/fdsys/pkg/FR-2011-07-21/pdf/2011-18309.pdf) about the concept of money transmitter by the Fincen (again, just their personal interpretation of the Bank Secrecy Act) say nothing about virtual currencies. The vague notion is ‘‘other value that substitutes for currency’’.
In this 2013 reinterpretation, even Fincen argues that this notion only applies to convertible virtual currency.
Think about the Lindens in Second Life. It's the Game that emits them and buy them again, so it's a convertible virtual currency.
But there are other games that refuse to buy back their currencies and state that they have no value. So, these virtual currencies are not convertible and are not subject even to this subjective interpretation of the Fincen. But imagine that this virtual currency is exchanged for money by users and traders? Does this changes its nature? For the Game, no, it doesn't accept to convert it in fiat.
Now, think about an exchange that only accepts the trade of cryptos, even if that crypto is converted in fiat by other exchanges and traders. Is this exchange that only allows its customers to trade in crypto a money transmitter? I don't think so. Like the mentioned Game, they don't accept the cryptos that are traded as convertible. They don't pay or accept any customer to pay fiat for those cryptos. If third parties do that, it's their nature that is changed. Exchanges that allow their customers to exchange only cryptos are not allowing any trading of convertible virtual currencies.
A centralized virtual currency that is traded for fiat by its creator is always a convertible virtual currency. A De-Centralized virtual currency has no creator, so has no intrinsic nature as convertible or not. Some might convert it, some might not. Indeed, there are many cryptos that no exchange trades for fiat. Clearly, they are non convertible virtual currencies.
But if an exchange doesn't allow its conversion, it's not convertible in front of that exchange, therefore the exchange isn't a money transmitter.
If someone trading something that is accepted by some traders as convertible in fiat would be a money transmitter, well, half the Ebay traders would be money transmitters. Think about stamp sellers or all things that people collect and pay well for. And all goods have value in fiat and can be traded to fiat. Applying blindly those regulations would force most traders of goods to register with the Feds and the 48 states as money transmitters. That is absurd.
However, can't we argue that bitcoin is different? It's accepted as mean of payment by thousands of merchants and traded for fiat in many exchanges, can't we consider it as convertible virtual currency?
Well, the US government qualified it as a commodity for tax reasons. And the regulations apply only for the trade of convertible virtual currencies to another convertible virtual currency. No other crypto has the same status of bitcoin. Therefore, exchanges trading bitcoin for cryptos are not money transmitters.
Now, what about an exchange that allows its customers to trade crypto for fiat? We could argue its their customers that are accepting the crypto for fiat, not the exchange. But let's accept that the exchange is indeed giving convertible nature to the crypto and, so, it's a money transmitter.
Does that mean it's forced to adopt KYC policies against all of their customers, even the ones that can't withdraw fiat, but only crypto? I don't think so, because the goal of the KYC policy is indeed to combat money laundering and you can't clean money without inserting it in the banking system.
In any case, at most, that would be a violation of KYC duties and this isn't a crime, just a minor infraction. It wouldn't be possible any money laundering. At most, it would be imposed the payment of a fine. If the exchange had a KYC policy to customers with the ability to withdraw fiat, probably it would only determine a warning.
Anyway, those are just arguments, and the main one is: point me a court decision that supports a decision to close an exchange that doesn't allow withdraws in fiat or you won't have any Law on the issue, just opinions and vague legal precepts. Currently, there are no Law forcing exchanges to impose KYC if they don't allow withdraws in fiat, just opinions.
And those are american regulations. Any exchange just have to avoid using american addresses (like .com), avoid american servers and having property in american soil that can be seized, to be basically safe from any future change in American Law. And no case will be open to foreign exchanges because of a minor infraction, even if they have american customers.
But my main point was about being absurd to allow unverified customers to trade crypto, but not fiat, if they only can deposit and withdraw crypto.
