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Author Topic: Discussion of Leaked FBI Report on Bitcoin- April 2012  (Read 6097 times)
Yankee (BitInstant)
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Charlie 'Van Bitcoin' Shrem


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May 08, 2012, 03:43:14 PM
 #1

In continution of this thread https://bitcointalk.org/index.php?topic=80114.0

For those who have not read it, www.scribd.com/doc/92797476/FBI-Bitcoin-Report-April-2012

I want to point out 7th page 'Third-Party Bitcoin Services' as it discusses area where Bitinstant holds its legal footing.

It seems like from this report and using this report as legal precedence, that Bitcoin businesses need the following

1- Register as a federal MSB with FinCEN
2- Become state licensed in 40 US States
3- Develop a reasonable effort to deter money-laundering with an AML Manual and Program.

#2 scares me the most, because it is physically impossible for me or any of us to do that without spending $5m+

There is a way around #2, but Im still looking into the legalities of it- its a loop hole which they can easily close.

They also mention the $1,000 a day threshold does not apply
Source 'Additionally since any third-part Bitcoin services falls under the MSB rule would do so as a money transmitter, there is not a transaction threshold (such as 1,000 per day) that must be met for regulations to apply, unlike dealers in foreign exchange or issuers or sellers of checks or monetary instruments'

This is my biggest worry...

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May 08, 2012, 03:58:43 PM
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In continution of this thread https://bitcointalk.org/index.php?topic=80114.0

For those who have not read it, www.scribd.com/doc/92797476/FBI-Bitcoin-Report-April-2012

I want to point out 7th page 'Third-Party Bitcoin Services' as it discusses area where Bitinstant holds its legal footing.

It seems like from this report and using this report as legal precedence, that Bitcoin businesses need the following

1- Register as a federal MSB with FinCEN
2- Become state licensed in 40 US States
3- Develop a reasonable effort to deter money-laundering with an AML Manual and Program.

#2 scares me the most, because it is physically impossible for me or any of us to do that without spending $5m+


According to my research (dated ~6 months), operating in the US implies getting licensed in ~47 states.  Only a few states, such as NY or CA, have a law that requires out of state businesses dealing with NY/CA residents to be licensed in NY/CA.

As you probably know, that implies a surety bond and background check in ~47 states Sad

I would have opened a US exchange over a year ago, if not for the state licensing requirements.

I talked to State of North Carolina banking/securities people as well as lawyers...


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SgtSpike
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May 08, 2012, 04:09:14 PM
 #3

Good luck Yankee...
Yankee (BitInstant)
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Charlie 'Van Bitcoin' Shrem


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May 08, 2012, 04:11:33 PM
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Good luck Yankee...

I'm too good looking to go to jail  Sad

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May 08, 2012, 04:24:39 PM
 #5

I am including links to a readable .pdf file. That Scribd file is horrid.

http://www.bitcointrading.com/forum/index.php?topic=525.0

Direct link to the report

http://www.bitcointrading.com/files/fbi/92797476-FBI-Bitcoin-Report-April-2012.pdf

Concerned that blockchain bloat will lead to centralization? Storing less than 4 GB of data once required the budget of a superpower and a warehouse full of punched cards. https://upload.wikimedia.org/wikipedia/commons/8/87/IBM_card_storage.NARA.jpg https://en.wikipedia.org/wiki/Punched_card
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Gerald Davis


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May 08, 2012, 04:37:05 PM
 #6

Caution I am not a lawyer but I have seen one on TV.

My semi-informed but totally layman's understanding of cross state licensing:

1) Most states require a license if your company has a presence in that state.

2) Some states (NY, CA, VA about a dozen more) require a license even if you are out of state (foreign entity) if you process any tx for residents in that state.

3) We have learned that many surety bond issuers can issue a multi-state bond.  So if you need to be licensed in 8 states and the largest requires a 200K bond you can find an issuer who can issue a bond covering your obligation in all 8 states.  It will be more than the cost of a single state bond but it won't be 8x the cost of a single state bond.  Cost is still pretty significant though.  Oh to just have an extra $200K in cash (to post a security deposit in lieu of a bond).

4) If you aren't registered in all states some mechanism of verifying the user's address will be required.  You can then dynamically limit your offerings to the states where you either have a license or no license is required.

We are looking into licensing in Virginia.  Due to the cost and complexity we likely will not initially obtain licensing in states which require licensing for out of state entities (IMHO I feel they are overstepping their bounds).   As a result if we offer any money transmitter services it will not include all 50 states.

Not exactly optimal but the govt has really turned this into a mess.
Yankee (BitInstant)
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Charlie 'Van Bitcoin' Shrem


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May 08, 2012, 04:38:29 PM
 #7

I am including links to a readable .pdf file. That Scribd file is horrid.

http://www.bitcointrading.com/forum/index.php?topic=525.0

Direct link to the report

http://www.bitcointrading.com/files/fbi/92797476-FBI-Bitcoin-Report-April-2012.pdf

Someone needs to OCR this ASAP

Bitcoin pioneer. An apostle of Satoshi Nakamoto. A crusader for a new, better, tech-driven society. A dreamer.

More about me: http://CharlieShrem.com
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Gerald Davis


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May 08, 2012, 04:42:35 PM
 #8

Someone needs to OCR this ASAP

In the other thread someone said they are willing to retype it (or OCR and correct it).  Maybe we can crowdfund this.  Get 10 people who want a readable copy to pledge 2? BTC. 
imsaguy
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May 08, 2012, 04:47:29 PM
 #9

Someone needs to OCR this ASAP

In the other thread someone said they are willing to retype it (or OCR and correct it).  Maybe we can crowdfund this.  Get 10 people who want a readable copy to pledge 2? BTC. 

mturk ftw

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EIEIO:
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Yankee (BitInstant)
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Charlie 'Van Bitcoin' Shrem


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May 08, 2012, 04:51:41 PM
 #10

Someone needs to OCR this ASAP

In the other thread someone said they are willing to retype it (or OCR and correct it).  Maybe we can crowdfund this.  Get 10 people who want a readable copy to pledge 2? BTC. 

Sure, I'm in for 2 BTC.

Wanna set up the thread?

Bitcoin pioneer. An apostle of Satoshi Nakamoto. A crusader for a new, better, tech-driven society. A dreamer.

More about me: http://CharlieShrem.com
imsaguy
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May 08, 2012, 05:02:20 PM
 #11

Someone needs to OCR this ASAP

In the other thread someone said they are willing to retype it (or OCR and correct it).  Maybe we can crowdfund this.  Get 10 people who want a readable copy to pledge 2? BTC. 

Sure, I'm in for 2 BTC.

Wanna set up the thread?

For the record, I've already got OCR going on it and its having good results. I'll post when its done and I've fixed the errors.

Coming Soon!™ © imsaguy 2011-2013, All rights reserved.

EIEIO:
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Shades Minoco Collection Thread: https://bitcointalk.org/index.php?topic=65989
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Yankee (BitInstant)
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Charlie 'Van Bitcoin' Shrem


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May 08, 2012, 05:03:23 PM
 #12

Someone needs to OCR this ASAP

In the other thread someone said they are willing to retype it (or OCR and correct it).  Maybe we can crowdfund this.  Get 10 people who want a readable copy to pledge 2? BTC. 

Sure, I'm in for 2 BTC.

Wanna set up the thread?

For the record, I've already got OCR going on it and its having good results. I'll post when its done and I've fixed the errors.

Perfect! Throw us your BTC address when your done, Ill gladly donate 2-3 BTC for it.

Bitcoin pioneer. An apostle of Satoshi Nakamoto. A crusader for a new, better, tech-driven society. A dreamer.

More about me: http://CharlieShrem.com
DeathAndTaxes
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Gerald Davis


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May 08, 2012, 05:15:15 PM
 #13

Someone needs to OCR this ASAP

In the other thread someone said they are willing to retype it (or OCR and correct it).  Maybe we can crowdfund this.  Get 10 people who want a readable copy to pledge 2? BTC.  

Sure, I'm in for 2 BTC.

Wanna set up the thread?

For the record, I've already got OCR going on it and its having good results. I'll post when its done and I've fixed the errors.

Perfect! Throw us your BTC address when your done, Ill gladly donate 2-3 BTC for it.

+1 and start a separate thread to handle crowd source funding and progress.  Having a digital searchable, quotable version would be an asset for whole community.
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May 08, 2012, 05:37:23 PM
 #14

Aww, I already have typed up the first 5 pages!

For what it's worth, here's my comments on it so far...
- Whoever wrote it didn't like commas.
- A few word-choice mistakes, especially in the text boxes. (example:  "...that allows users to consolidate many bitcoin address..." )
- For some reason, they believe that all Bitcoin addresses are tied to a person's IP address.  See the green box on page 5 for more details on that.
- They make mention that it is the first FBI look into Bitcoin, which I thought was interesting.

EDIT:  Would anyone still be interested in a hand-typed, exactly-as-displayed version of the document in docx format?
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Gerald Davis


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May 08, 2012, 05:41:46 PM
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I just want a complete copy.  I don't care how it gets done.  If you guys want to compete that is fine.  If you want to work together split the work and the reward.  I don't really need two complete copies from independent sources though.  Smiley

I would however STRONGLY suggestion someone start a seperate thread, put up a donation address, a goal for releasing, and show progress.  If you do all the work, release it, and THEN try to get some compensation I guarantee you it will end being less than flipping burgers.
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May 08, 2012, 06:07:22 PM
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I just want a complete copy.  I don't care how it gets done.  If you guys want to compete that is fine.  If you want to work together split the work and the reward.  I don't really need two complete copies from independent sources though.  Smiley

I would however STRONGLY suggestion someone start a seperate thread, put up a donation address, a goal for releasing, and show progress.  If you do all the work, release it, and THEN try to get some compensation I guarantee you it will end being less than flipping burgers.
Done:  https://bitcointalk.org/index.php?topic=80182.msg888564#msg888564
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May 08, 2012, 06:55:30 PM
 #17

3) We have learned that many surety bond issuers can issue a multi-state bond.  So if you need to be licensed in 8 states and the largest requires a 200K bond you can find an issuer who can issue a bond covering your obligation in all 8 states.  It will be more than the cost of a single state bond but it won't be 8x the cost of a single state bond.  Cost is still pretty significant though.  Oh to just have an extra $200K in cash (to post a security deposit in lieu of a bond).

This is very interesting, and potentially very impactful on startup business plans.


Jeff Garzik, bitcoin core dev team and BitPay engineer; opinions are my own, not my employer.
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May 08, 2012, 07:29:33 PM
 #18

The only part that my OCR did right:

emphasis mine

"(U) Despite the virtual nature of Bitcoin, users value the currency for many of the same reasons people trust Federal Reserve notes: they believe they can exchange the currency for goods, services, or a national currency at a later date. As such, Bitcoin is currently accepted as a form of payment at hundreds of legitimate retailers including vendors selling clothing, games, music, and some hotels and restaurants."


FBI sees legitimacy in Bitcoin's use.

You guys have really come up with somethin'
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May 08, 2012, 09:38:55 PM
 #19

I didn't see a link to the PDF (image-based) yet so there's this here:
 - http://heikki.zerodistance.org/bitcoin/92797476-FBI-Bitcoin-Report-April-2012.pdf

They also mention the $1,000 a day threshold does not apply
Source 'Additionally since any third-part Bitcoin services falls under the MSB rule would do so as a money transmitter, there is not a transaction threshold (such as 1,000 per day) that must be met for regulations to apply, unlike dealers in foreign exchange or issuers or sellers of checks or monetary instruments'

I wonder if it is because they are considering Bitcoin to be a form of prepaid access (formerly called "stored value") then that this applies?  I'ld love to see this challenged with the argument that Bitcoin is a commodity, not a form of "prepayment of value" (as a person buying a bitcoin does not get in exchange a claim that can be later redeemed to get funds back.)

And just an interesting observation from the report:

Quote
"All Bitcoin transactions are published online and Internet Protocol (IP) addressses are linked to the public Bitcoin transactions.  If a user does not anonymize his or her IP address, an interested party can identify the individual's physical location. (13, 14)"

Where that claim comes from is a misunderstanding by the author of an article from the media (see #14 in the report).  There is the ability to monitor nodes (such as what Blockchain.info does) and learn which node (of the ones monitored) that happened to be the first to relay the transaction.  That may not necessarily be the node of the individual making the transaction, particularly if the individual configures the client in a manner so that the chances of detection are less, even without using Tor or other method for IP address anonymity.

SgtSpike
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May 08, 2012, 09:45:46 PM
 #20

The retyped document is completed and ready to be hosted, I just need 3.8 BTC more for the bounty.
https://bitcointalk.org/index.php?topic=80182.msg888564#msg888564

I will release the docx and a PDF when the bounty is reached.

EDIT:  Bounty reached!  Documents released.  Please download them and do not use the dropbox viewer - they look funky in their viewer.

PDF: https://www.dropbox.com/s/0nc35rpevjcu9p4/Bitcoin%20FBI.pdf
DOCX: https://www.dropbox.com/s/p9m3hd7yfq2ee16/Bitcoin%20FBI.docx
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