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Author Topic: Money Transfer Regulations  (Read 14157 times)
Timo Y
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June 29, 2010, 02:33:21 PM
 #21

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Running an exchange seems very dangerous. I would never do it without talking to a lawyer and setting up a LLC.

Running an exchange is only dangerous because it is likely to attract the "wrong" customers, sooner or later.

If you run a web store that sells luxury watches, and you agree sell $100,000 worth of watches to some anonymous customer, no quetions asked, who then turns out to be a drug dealer, then this will also get you into a lot of trouble.

The government isn't going to crack down on your exchange just for the sake of it. 

As an exchange operator it's wise to reject the kind of transactions that are likely to trigger alarm bells with the authorities.



 

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The Madhatter
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June 29, 2010, 02:58:43 PM
 #22


Quite simply: you're not responsible.

how are you responsible if two other people make a transaction and you just put them in touch with each other? Smiley
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June 29, 2010, 03:15:23 PM
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Technically you are only an exchanger if you call yourself one. The Bitcoins themselves are the product you are selling. What the customer does with the Bitcoins is really none of your concern, nor are you liable.

Now for the age-old analogy regarding liability: If someone buys a hammer from Home Depot and kills someone with it is it Home Depot's fault? Is it my fault that someone purchased something illegal with the Bitcoins I sold them? The answer is a resounding "NO".

Also, for a court to rule that you are engaging in currency conversion they have to *recognize* Bitcoins as a currency. If that did happen, it would open a whole new can of worms. (I can elaborate here upon request.)

All the best,
The Madhatter Cheesy

Running an exchange is only dangerous because it is likely to attract the "wrong" customers, sooner or later.

The government isn't going to crack down on your exchange just for the sake of it. 
Gavin Andresen
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June 29, 2010, 03:27:33 PM
 #24

I did some research into money exchanging and money transfer regulations in the U.S.

The raw legal code is online at:  http://www.access.gpo.gov/nara/cfr/waisidx_08/31cfr103_08.html

I am not a lawyer; trying to understand legalese is just an odd hobby of mine.  From my reading of the regulations, if you exchange less than $1,000.USD worth of Bitcoin per day you don't have to worry:

Quote
(1) Currency dealer or exchanger. A currency dealer or exchanger  (other than a person who does not exchange currency in an amount greater
than $1,000 in currency or monetary or other instruments for any person on any day in one or more transactions).

It looks to me like if you exchanged more than $1,000.USD per day a good lawyer might be able to argue that Bitcoins do not meet the legal definition of "currency":
Quote
(h) Currency. The coin and paper money of the United States or of any other country that is designated as legal tender and that circulates
and is customarily used and accepted as a medium of exchange in the country of issuance. Currency includes U.S. silver certificates, U.S. notes and Federal Reserve notes. Currency also includes official foreign bank notes that are customarily used and accepted as a medium of exchange in a foreign country.

Then again, if Bitcoins are not legally "currency" then it might be left up to a Court to decide what, exactly, they are, and the result might be really unpleasant (if a judge decided that they're like stocks and are therefore subject to regulation by the Security and Exchange Commision you might find yourself in jail for being an unlicensed stock broker).

I think Bitcoin needs some licensed, regulated exchanges that abide by all the regulations, treating Bitcoins just like another foreign currency, and make it really easy to buy or sell a few hundred dollars worth of Bitcoins.  The regulations are not as onerous as I expected; basically you just have to get identification from customers that make large transactions and report them.

How often do you get the chance to work on a potentially world-changing project?
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June 29, 2010, 04:23:49 PM
 #25

If you ended up in court under full force of statute, you have probably already lost. They will expand existing statutes (like the "unlicensed stock broker" point) to get you. The usual route is to hire a lawyer, have him/her argue and reduce the sentence. The state gets paid, the lawyer gets paid, you get incarcerated. Everyone makes money, except for you. Fun times, no? Tongue  

The way to do it is to assert claim, state your intentions, form an estoppel, declare a societal association, and go the Common Law route. In my country they don't even bother to take you to court when you do this. There is NO profit in it for them. Remove the profit motive and a lot of the harassment seems to disappear.

Common Law is the law of substance.

Statutes (sometimes called "codes") are contracts. You can revoke consent in my country. Once you do that, they have to use Common Law. Proving that I injured someone by selling them Bitcoins, would be quite difficult.

Licenses evidence the acceptance of a CONTRACT (aka statute). If you are operating under Common Law and do not have a license the statutes do not apply. As long as fair warning of your intentions has been provided. (Those who want LLCs, Incs, Corps, etc should re-read the first sentence again.)

So as I stand, I am an unbonded/unlicensed man operating in a Common Law jurisdiction with my own society under full liability for the benefit of Huh ... Bitcoin, I suppose. Tongue

Peace! Smiley
theymos
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July 01, 2010, 03:31:45 PM
 #26

What country are you in, MadHatter? That sound very different from what (little) I know of US law.

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July 01, 2010, 07:39:51 PM
 #27

I am on the sovereign lands of Alberta. It is a part of the Dominion of Canada.

You might be interested in this post:
https://www.bitcoin.org/smf/index.php?topic=227.msg1908#msg1908

Cheers! Smiley
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July 11, 2010, 01:26:53 PM
 #28

What about exchanging bitcoins for silver rather than fiat money?You could buy silver rounds off ebay for example and have them mailed to an address.How could this be tied back to you and your use of bitcoins?The person you buy them from off ebay has no idea what you are doing and absolutely no motive for saying anything .....All you are doing is legally buying silver.

If you used the open currency standard http://www.opencurrency.com/directory/ linked to bitcoin you could use the AOCS approved silver at all the merchants listed (currently 26,000).There could even be actual "bitcoins" minted for the purpose. Smiley
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July 26, 2010, 07:19:04 PM
 #29

What about exchanging bitcoins for silver rather than fiat money?

I'm investigating this route, as I'm interpreting local state laws to state that the act of arbitrage (bringing two parties to together to transact an exchange of currency) requires securities licensing.  I'll probably still need a business license to sell a commodity for bitcoins, but I think this will be more palatable to the powers that be.
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July 26, 2010, 10:33:20 PM
 #30

I see this is an old thread. Did any real lawyers advise anyone on this?

I see that the current market just helps people meet and paypal or others handle the currency. That seems sound to me. Either those outside organizations are registered to as money transmitters or their neck is on the line.

I doubt any of the argument of "It's not a currency" will hold water in the US, its the money transmittal service aspect that tends to get people in trouble.
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July 26, 2010, 10:40:47 PM
 #31

What about exchanging bitcoins for silver rather than fiat money?You could buy silver rounds off ebay for example and have them mailed to an address.How could this be tied back to you and your use of bitcoins?The person you buy them from off ebay has no idea what you are doing and absolutely no motive for saying anything .....All you are doing is legally buying silver.

If you used the open currency standard http://www.opencurrency.com/directory/ linked to bitcoin you could use the AOCS approved silver at all the merchants listed (currently 26,000).There could even be actual "bitcoins" minted for the purpose. Smiley

ebay does not accept bitcoins.  You could buy silver off of bitlist or biddingpond, if you can find someone selling it.

Tarot Card Readings for Bitcoins, available via e-mail, phone, skype or IM of your choice.  Inquire for price, quite reasonable.
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July 26, 2010, 10:43:16 PM
 #32

I think that as long as the exchanges stay small we are going to be ok.  I was heartened to see MT Gox add another dollar based exchange even though bitcoin market was not lacking in any way.  Ideally none of the exchanges will get big enough to catch the eye of johnny law, and if the amount of exchanges grows as the bitcoin economy does, rather than the size of any one exchange or group of exchanges, by the time the government is worried about it they wont be able to shut it down.  Shutting down one large exchange is easy, shutting down a dozen is more of a challenge, shutting down hundreds is more work than they will want to do.

Tarot Card Readings for Bitcoins, available via e-mail, phone, skype or IM of your choice.  Inquire for price, quite reasonable.
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July 26, 2010, 10:51:10 PM
 #33

I see this is an old thread. Did any real lawyers advise anyone on this?

I see that the current market just helps people meet and paypal or others handle the currency. That seems sound to me. Either those outside organizations are registered to as money transmitters or their neck is on the line.

I doubt any of the argument of "It's not a currency" will hold water in the US, its the money transmittal service aspect that tends to get people in trouble.
Sort of... I asked a real lawyer whom I know. It's not his specialty and he wasn't giving official legal counsel or whatever. I sent him a couple links to some laws posted on the Internet and then he pointed out to me that the law defines money as government backed currency. He said that bitcoins are plain ol' digital goods according to the law. Anyway, I don't think anyone has done enough business to be targeted by the government. If I ever got to the point where a significant amount of dollars were coming and going through me, I would look more in depth into the issue. I think the first regulation I'd run into is needing to follow KYC rules just in case. If it continued to increase, I'd probably register as offering financial services also just in case. I'd also get real legal advice on how to stay completely legal.

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July 26, 2010, 11:14:16 PM
 #34

I think the digital goods argument holds until it becomes obvious that the following is happening.

1) Someone within the US buys $X,000 worth of bit coins.
2) That person transfers those bitcoins to the account of someone undesirable.
3) That undesirable person sells $X,000 worth of bitcoins for cash in another part of the world.

At that point, unless bitcoin is receiving public adulation, (like say FaceBook) the whole network will be deemed an unregistered money transfer service. If the undesirable person is undesirable enough, showing steps 1) and 2) will not be proven, just implied.

I think you are correct that no one will care for small numbers of X. But as market volume goes up, someone will start to notice.

P.S.:  I think you will also want to be able to show that you are NOT in too tight with other traders. Otherwise it looks even more like a money transmittal service.
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July 27, 2010, 10:24:43 AM
 #35

I think that as long as the exchanges stay small we are going to be ok.  I was heartened to see MT Gox add another dollar based exchange even though bitcoin market was not lacking in any way.  Ideally none of the exchanges will get big enough to catch the eye of johnny law, and if the amount of exchanges grows as the bitcoin economy does, rather than the size of any one exchange or group of exchanges, by the time the government is worried about it they wont be able to shut it down.  Shutting down one large exchange is easy, shutting down a dozen is more of a challenge, shutting down hundreds is more work than they will want to do.

Right on, if every time they close an exchange two open that are a little trickier to find they just won't be able to stop it.

Lol, maybe we'll get weed and BTC from the same guy.

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July 27, 2010, 05:39:33 PM
 #36

I am somewhat new to the whole bitcoin community, but bit coin solves a problem I was trying to solve myself (how to establish an unregulated digital currency to replace paper money).

It seems that the principle of bitcoin is to track transactions and that it is possible for anyone to review the "transaction history" of any particular coin.  If that is the case, then is there any reason why bit coins couldn't double as digital warehouse receipts?  

Suppose you deposit 100 oz of gold with me and in exchange I give you 100 bit coins with a "repurchase agreement" in place where I will buy back the "same" 100 bit coins for 100 oz of gold.  The fact that the coins "left" a designated account and have not yet returned to that account means that they are "backed by gold".  With some standard and published "addresses" and some "even/odd" counting it should be possible to independently verify whether a coin is backed by gold and *who* is doing the backing without checking in with a the warehouse.  

Is there something about the bitcoin implementation that would prevent this kind of usage?

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July 27, 2010, 06:05:53 PM
 #37

Bytemaster: I had a similar ideal. It turns out the major limiting factor is that coins are not actually serialized or represented in any way. Only exchanges of fungible value are represented.

It quickly becomes impossible to identify your particular backed coins unless special care is taken. I was going to write a post on this, but instead I wrote the one on coin collecting in the marketplace forum.

If you want create a new topic and we can all discuss "non-fungible" bitcoins.
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August 10, 2010, 02:44:21 PM
 #38

I think that as long as the exchanges stay small we are going to be ok.  I was heartened to see MT Gox add another dollar based exchange even though bitcoin market was not lacking in any way.  Ideally none of the exchanges will get big enough to catch the eye of johnny law, and if the amount of exchanges grows as the bitcoin economy does, rather than the size of any one exchange or group of exchanges, by the time the government is worried about it they wont be able to shut it down.  Shutting down one large exchange is easy, shutting down a dozen is more of a challenge, shutting down hundreds is more work than they will want to do.

Great, it looks like a P2P exchanges for a P2P money transfer system Smiley

I think, that Bitcoin will benefit as a system, if such law considerations will be well documented and published together with step-by step recommendations for operators of exchanges, perhaps with software to run them automated.
For example, a HOWTO, verified by a payed lawyer, on how to securely run your own exchange will be GREAT.
I think, community may fund such research.
Who can take the liability to collect funding?
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August 15, 2010, 04:02:31 AM
 #39

As someone who is very much interested in creating another exchange for BitCoin, I think that commissioning a paid lawyer to do a full report is a great idea.  I think the goals of such a report should include:
  • legal reporting/record keeping/operating requirements for a BitCoin-enabled currency exchange business
  • tax implications and reporting requirements for normal businesses merely choosing to accept BitCoins as payment for their services
  • any clever legal loopholes that can be used to promulgate BitCoin usage without risking jail or injunction (perhaps selling visa/amazon/etc gift-cards for BitCoins?)
IMHO commissioned reports like these would go a long way towards lending mainstream credibility to the decentralized currency movement.
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August 15, 2010, 05:20:57 PM
 #40

You can commission 10 different lawyers and get 10 different results and tomorrow they will change the rules. 

It does not matter what the law says in this country.  They either like you or they don't and if you are using bitcoins to undermine their tax collection system and currency monopoly then they will not like you.  They can print endless dollars to fund an attack on bitcoin, its users, and the exchanges. 

I know what the law says regarding the income tax, yet they enforce something entirely contrary to the law.   

What is needed is a black market defense company with honest intentions that will provide legitimate "self defense" against government goons.   You pay for "protection" from the government and when you are attacked by the government they scare, and if necessary dispose of officials whom violate the natural right to private property, free association and exchange.  At the very least it could be an insurance fund to provide defense in a lawsuit.   

Until the black free market develops its own security apparatus to defend against organized crime (government), systems like bitcoin will be too dangerous for most individuals to risk.

 

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