MSB/Money Transmitter?

[Giants91]

When trading on LocalBitcoins, or other similar sites, does someone need to register as a Money Services Business/Money Transmitter in the U.S.? I've tried looking around, mostly people saying we don't, with a few saying that we should. Is there anyone one here that has a background in Business Law or a CPA that might have more knowledge in it? I'm in Minnesota if that helps.

[1714027166]

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[1714027166]

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[Bitco]

There isn't always a clear answer.  It depends on exactly what you're doing.

From the definition of "Money transmitter" in 31 CFR 1010.100(ff)(5):

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.

Trading bitcoins for cash, with the same person, at the same location, isn't money transmission services.

To be a money services business, it has to actually be a business.  Buying bitcoins for personal use, investment, or sending money to friends and family usually wouldn't be considered a business.

Some states have additional rules.  I am not familiar with the laws in Minnesota.

[MCHouston]

From what I have seen on MSBs.  If you are only buying or only selling you are okay.  If you are buying and selling then yes you need an MSB.  I might be wrong but you do not want to wind up like BurtW so do your research.

[menlatin]

I have a scenario for you.

An app that allows purchase of in-app currency, lets say donkey tokens. The user can spend the tokens to buy virtual items in the app. The user can also earn bitcoin based on a certain amount of using the app. The bitcoin that is rewarded is acquired using in-app purchase funds and ad revenue. Since there is no direct x cash for y currency, would this be exempt from MSB requirements?

[cygnus_x]

I'm new here, but I want to make the law clear for everyone since this website is such a popular resource.

FinCEN guidence from October of 2014 (2 links, applies to all of the USA):

http://www.fincen.gov/news_room/rp/rulings/pdf/FIN-2014-R011.pdf

http://www.fincen.gov/news_room/rp/rulings/pdf/FIN-2014-R012.pdf

"The Guidance makes clear that an administrator or exchanger of convertible
virtual currencies that accepts and transmits a convertible virtual currency, or buys or
sells convertible virtual currency in exchange for currency of legal tender or another
convertible virtual currency for any reason is a money transmitter under FinCEN's
regulations..."

In English, I read this as saying the following:  Selling Bitcoin for Cash makes you a money transmitter.  Accepting a Check, Money Order or another virtual currency is NOT a loophole you can exploit in order to get around being a money transmitter.  Acting as a payment intermediary in which you accept Cash, send Bitcoin to a 3rd party, and having that 3rd party transmit services to your customer makes you a money transmitter.  It is very difficult to structure your business using Bitcoin and not be classified as a money transmitter.  The only way I can see anyone legally using Bitcoin, based on this guidance and without having a Money Transmitter license, is to send Bitcoin in exchange for goods and services which you must personally obtain.  You may spend Bitcoin at NewEgg for a graphics card, obtain that graphics card, then sell that graphics card for cash.  You cannot, however, pay with Bitcoin for that graphics card to be sent to a customer and then accept cash as compensation.  This may even be crippling to those offering Bitcoin to remedy randsomeware problems as you never personally receive any form of services for the Bitcoin sent.

[smoothie]

I'm new here, but I want to make the law clear for everyone since this website is such a popular resource.

FinCEN guidence from October of 2014 (2 links, applies to all of the USA):

http://www.fincen.gov/news_room/rp/rulings/pdf/FIN-2014-R011.pdf

http://www.fincen.gov/news_room/rp/rulings/pdf/FIN-2014-R012.pdf

"The Guidance makes clear that an administrator or exchanger of convertible
virtual currencies that accepts and transmits a convertible virtual currency, or buys or
sells convertible virtual currency in exchange for currency of legal tender or another
convertible virtual currency for any reason is a money transmitter under FinCEN's
regulations..."

In English, I read this as saying the following:  Selling Bitcoin for Cash makes you a money transmitter.  Accepting a Check, Money Order or another virtual currency is NOT a loophole you can exploit in order to get around being a money transmitter.  Acting as a payment intermediary in which you accept Cash, send Bitcoin to a 3rd party, and having that 3rd party transmit services to your customer makes you a money transmitter.  It is very difficult to structure your business using Bitcoin and not be classified as a money transmitter.  The only way I can see anyone legally using Bitcoin, based on this guidance and without having a Money Transmitter license, is to send Bitcoin in exchange for goods and services which you must personally obtain.  You may spend Bitcoin at NewEgg for a graphics card, obtain that graphics card, then sell that graphics card for cash.  You cannot, however, pay with Bitcoin for that graphics card to be sent to a customer and then accept cash as compensation.  This may even be crippling to those offering Bitcoin to remedy randsomeware problems as you never personally receive any form of services for the Bitcoin sent.

What if you bought bitcoins in person for cash...

sent it to a licensed exchange...

converted it to USD (at a profit or loss)...

then sent it to your bank account via ACH or a wire.

Would that be money transmitting?

[emmafaith32]

I'm new member, but I want to make the law clear for everyone since this site is such a popular.

[swilla]

I'm new member, but I want to make the law clear for everyone since this site is such a popular.

Law is pretty much interpretation. The link above pertains to a business. Earlier I read this, which was interesting. http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html

The pertinent part

Definitions of User, Exchanger, and Administrator

            This guidance refers to the participants in generic virtual currency arrangements, using the terms "user," "exchanger," and "administrator." A user is a person that obtains virtual currency to purchase goods or services. An exchanger is a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency. An administrator is a person engaged as a business in issuing (putting into circulation) a virtual currency, and who has the authority to redeem (to withdraw from circulation) such virtual currency.

Users of Virtual Currency

            A user who obtains convertible virtual currency and uses it to purchase real or virtual goods or services is not an MSB under FinCEN's regulations. Such activity, in and of itself, does not fit within the definition of "money transmission services" and therefore is not subject to FinCEN's registration, reporting, and recordkeeping regulations for MSBs.


So, as the first responder said, it depends what you are doing.