In other words, if you run a Bitcoin exchange in the United States and you don't have 47 money transmission licenses, you'd better call your lawyer.
If you own Bitcoins, you should prepare for the very real possibility that one day, depending on arbitrary state or USDOJ enforcement actions, you may never be able to convert your Bitcoins back to dollars.
For a sense of how backwards our financial regulators are, and how poorly they understand the issues at hand, take a look for yourself:
Actual quotes: "We don't regulate technology," and "We don't treat every applicant exactly the same." —Teveia Barnes, Commissioner, California Department of Financial Institutions
(This was last week in Sacramento.)
Everyone should also familiarize themselves with 18 U.S.C § 1960:
It's a federal crime to break your state's money transmission law that operates independently of, but is likely to be affected by, FinCEN's federal guidance.
"..if you run a Bitcoin exchange in the United States..."
It doesn't just apply to the United States. See http://www.fincen.gov/statutes_regs/guidance/html/FIN-2012-A... for info on how entities located outside the US will qualify as MSBs (and be subject to the registration and reporting requirements of the Bank Secrecy Act) if they "offer MSB services in the United States from foreign locations."
None of this is at all surprising and won't have come as a surprise to anyone with an ounce of common sense. The same principle of extra-territoriality has been applied to foreign banks that deal in USD or accept deposits from US citizens, and to online gambling sites that accept payments from people located in the US.
I don't dispute any of that, but in an ideal Bitcoin economy people wouldn't need to convert to USD. Obviously the Bitcoin economy isn't at that point yet and people need the USD to peg "value" to what a Bitcoin is. But eventually, if Bitcoin becomes more widely accepted, shouldn't the economy settle on to what 1BTC is "worth" regardless of what other currencies are doing?
It seems that participating in the bitcoin economy, using bitcoins to procure goods and services, as well as accepting bitcoins for providing goods and services is okay, but a service for allowing conversion of bitcoins to USD will require a license (Is that true for every other currency?).
If I read it right, it makes sense. If not, please correct me, in addition to the downvote.
"If you own Bitcoins, you should prepare for the very real possibility that one day, depending on arbitrary state or USDOJ enforcement actions, you may never be able to convert your Bitcoins back to dollars"
Very unlikely. There are, today, many exchanges that run outside of US jurisdiction: btc-e, btc.de, btcchina, virwox, cavirtex, bitcoin-central, etc. Anybody in the world can sell bitcoins for something on one of these exchanges, then convert that something to USD.
Why is a bitcoin any different to any other alternative currency then - in the UK there are small cooperatives reading their own currencies, Linden dollars etc in MMOs - why is bitcoin wrong?
> If you own Bitcoins, you should prepare for the very real possibility that one day, depending on arbitrary state or USDOJ enforcement actions, you may never be able to convert your Bitcoins back to dollars.
You mean USD. Bitcoins can be converted to other currencies outside the United States.
>If you own Bitcoins, you should prepare for the very real possibility that one day, depending on arbitrary state or USDOJ enforcement actions, you may never be able to convert your Bitcoins back to dollars.
There are potential loopholes here. You can still buy liquid assets with bitcoins and sell those assets for cash. For example, you can have a provder that sells gold for bitcoins, and buys gold for cash.
How about Bitcoin exchanges get around the 47 licenses issue by sticking together and performing tit-for-tat trades with other transmitters. If every transmitter has licenses for 4+ states, then it should be possible to break up trades into small chunks and send them along the network to other transmitters.
Let's pop back to the big picture here. One of the functions of the Treasury Department is to prevent money laundering. And, by prevent, I mean make onerous for large amounts of money. Like millions or tens of millions or hundreds of millions of dollars. Think Mexican drug cartel money.
One way to do that is to log all exchange or transmission transactions above a certain size -- which is what licensed money changers and transmitters have to do. You're not prohibited from performing these transactions, you just have to give them your name and SSN or Taxpayer ID.
Sure, there are ways around this, like buying a million rubber duckies in China, then shipping them to the US and selling them at carnivals. But -again- try to import a million of anything, and US Customs will want to know your name and SSN.
If you're talking about changing $100 or even $1,000 into BTC, the government doesn't really care. You might think, can't the criminals just split their transactions into small enough chunks that they can avoid the law altogether? Sure, maybe they could (and certainly they do) -- but at some point, having to conduct a thousand individual exchange transactions to move a million bucks starts to get onerous, and is also likely to leave a data trail -- there will be correlations somewhere.
It's never going to be impossible to exchange BTC for USD untraceably. The point here, which should come as no surprise, is that the government intends to make it impossible to exchange large amounts of value anonymously without it being annoying, time-consuming and costly.
The US has not gone very far yet with their anti money laundering program. In Sweden, we have got to the point where one can only withdraw a maximum amount of $200/$1000 a day (it depend on the ATM, where common one is the $200 version). There is also a hard limit of $2000 a week.
Alternative, one can "request" a larger withdraw from the bank which means two consecutive physical visits to a designated bank office, with a week between, and during designated hours (10-14). At the bank, they may ask you questions regarding the nature of the money withdraw, and is allowed to deny you if they feel the answer is unsatisfactory.
As a side note, an ID is also always required for any money transfer no matter transaction size. They also removed the option for SMS payments (it was considered too anonymous). The effect from this have been that the most common form of donations to red-cross and the likes has dropped with 90%. Last, any transaction (all sizes) is logged and shared internationally with EU and US.
> Sure, there are ways around this, like buying a million rubber duckies in China, then shipping them to the US and selling them at carnivals. But -again- try to import a million of anything, and US Customs will want to know your name and SSN.
Importing and selling that volume of products also kind of defeats the purpose of running a drug cartel. Drug money is quick and easy, rubber ducky money, not so much (which is quite counter-intuitive if you ask me). At some point you will become more involved in the rubber ducky game, funded by drug money.
I didn't choose the duck life. The duck life chose me.
FYI most reputable Bitcoin exchanges are compliant with "anti-money laundering" regulations ("AML") and require valid identification on record for anyone making transactions of significant size. You'd have to use a shady online btc brokerage or exchange the btc in local cash-based deals if you want to circumvent the international AML laws.
Now this is getting interesting. For a decentralized virtual currency:
A person that creates units of this convertible virtual currency and uses it to purchase real or virtual goods and services is a user of the convertible virtual currency and not subject to regulation as a money transmitter.
I would translate that to mean "no sales tax"... and that won't last long.
Among other things, it states that there is an activity threshold of $1,000/day before you have to register.
Regarding miners, in current exchange rates, there is $180,000 in BTC being mined each day, so you'd have to be doing about 0.5% of the total BTC hashrate, which would currently be around 250Ghash/s, to one organization to qualify. Anyone with a rate that high is basically a for-profit business at this point, and with that income level, I'm not too worried about them having to register. The large pools also have rates well above that, but I'm not sure if they would qualify, depending on exactly how they distribute earnings.
As far as exchanges, at that level of business, they pretty much are a substantial financial institution, and I don't see a real problem with them having to register as such.
I see it as a net win for Bitcoin - a relatively reasonable amount of regulation, and in return, the implied assurance that there will not be a much more severe level of regulation or an attempt to criminalize anything involving Bitcoin. I think the market is reading it the same way, because BTC seems to be up against the USD on all of the exchanges I checked.
Of course, I could be reading this all wrong... I'm no lawyer and I don't really know much of anything about financial regulations.
> 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.
So, the $1000/day threshold appears not to apply to money transmitters.
Does this guidance also apply to video game virtual currencies as well? My initial assumption was that "convertible" means it only applies to currencies that can be exchanged back and forth with fiat currency, but I don't explicitly see that stated.
I doubt the authors were smart enough to think of this, and I don't think most people here have really thought of this yet. The online gaming industry is going to be very interested in this once they realize the potential impacts.
In the case of Diablo III, you can sell your in-game virtual gold for real money in their Real Money Auction House, via PayPal. Other games have less official means of exchanging between currencies, but that's at least one official/built-in version that I can think of.
Insofar as such currencies can be converted back and forth to "real" currency, yes, they're covered. I think that's what the document is trying to get at when it discusses "centralized" virtual currencies.
| Accepting and transmitting anything of value
| that substitutes for currency makes a person a
| money transmitter under the regulations
| implementing the BSA
This makes it sound like anyone that anyone
engaging in a financial transaction is a "money
transmitter."
I am not sure it is accurate to call Bitcoin "digital cash," given that it does not actually meet the formal definition of a secure digital cash system -- Bitcoin is not secure against a polynomial time adversary.
This seems a bit of a landgrab or an exploitable (regulation-sense) ambiguity:
In addition, a person is an exchanger and a money transmitter if the person accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency.
So, if you only exchange virtual currency, do you now fall under US FinCEN rules or does, say, virtual currency not count as a "substitute" for currency?
I see that the prepaid accounts for cellular and game access can be sanitized. I expect at least one shady MVNO to offer prepaid SIM cards that can be recharged with BTC as that's a very easy way to move cash across national borders; and I expect that telco's are treated with pretty much the same laissez faire attitude as HSBC was with respect to money laundering.
Every time I've gotten a prepaid card, I've had to show identification (usually a passport outside the US). From what I recall the ostensible reason for this is to track people who might use a cell phone as a remote bomb trigger. Nevertheless, if there is an ID associated with each prepaid SIM, I'd think that would be the hook that could be used to penetrate a money-laundering scheme. Am I missing something?
This faintly gives me nightmares remembering the difficulties the US government caused converting poker winnings back into US dollar payouts. If something doesn't outright break current laws, we have a tendency to just legislate it out of existence. I want bit coins to succeed but this seems like a real possibility.
What is the status on the tax implications and the legality of online gambling with bitcoin? There are a few places online that let you play poker etc. with bitcoins. Is that legal in the US? How are winnings taxed?
The wiki(https://en.bitcoin.it/wiki/Tax_compliance#Are_my_bitcoins_ta...) talks about "Income that is earned through the exchange of services with another person, whether in the form of bitcoins, dollars, or barter;". Would income through gambling fall in that category?
Let's imagine situation where program is created, which uses bitcoins as a payment to automatically buy computing resources and launch more instances of itself.
And to get bitcoin to pay for these resources this program provides proxy/VPN service.
Does program owe taxes? From what amount? To whom? In what currency?
As long as you can convert bitcoin to some relatively stable currency somewhere in the world, the US government will have a tough time getting a handle on it.
There is no reason bitcoin needs to be converted to USD on US soil. If you have to exchange your bitcoin for HKD in Hong Kong, easy methods can arise for this, and it may not be a big issue.
"By contrast, a person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter."
If you mine bitcoins and then convert them to real money (i.e. not buy goods or services with them) then you will be regulated.
[+] [-] thinkcomp|13 years ago|reply
If you own Bitcoins, you should prepare for the very real possibility that one day, depending on arbitrary state or USDOJ enforcement actions, you may never be able to convert your Bitcoins back to dollars.
For a sense of how backwards our financial regulators are, and how poorly they understand the issues at hand, take a look for yourself:
https://www.facecash.com/legal/brown.html#document27
Actual quotes: "We don't regulate technology," and "We don't treat every applicant exactly the same." —Teveia Barnes, Commissioner, California Department of Financial Institutions
(This was last week in Sacramento.)
Everyone should also familiarize themselves with 18 U.S.C § 1960:
http://www.plainsite.org/laws/index.html?id=14426
It's a federal crime to break your state's money transmission law that operates independently of, but is likely to be affected by, FinCEN's federal guidance.
[+] [-] jackgavigan|13 years ago|reply
It doesn't just apply to the United States. See http://www.fincen.gov/statutes_regs/guidance/html/FIN-2012-A... for info on how entities located outside the US will qualify as MSBs (and be subject to the registration and reporting requirements of the Bank Secrecy Act) if they "offer MSB services in the United States from foreign locations."
None of this is at all surprising and won't have come as a surprise to anyone with an ounce of common sense. The same principle of extra-territoriality has been applied to foreign banks that deal in USD or accept deposits from US citizens, and to online gambling sites that accept payments from people located in the US.
[+] [-] acabal|13 years ago|reply
[+] [-] meric|13 years ago|reply
If I read it right, it makes sense. If not, please correct me, in addition to the downvote.
[+] [-] mrb|13 years ago|reply
Very unlikely. There are, today, many exchanges that run outside of US jurisdiction: btc-e, btc.de, btcchina, virwox, cavirtex, bitcoin-central, etc. Anybody in the world can sell bitcoins for something on one of these exchanges, then convert that something to USD.
[+] [-] lifeisstillgood|13 years ago|reply
[+] [-] retrogradeorbit|13 years ago|reply
You mean USD. Bitcoins can be converted to other currencies outside the United States.
[+] [-] s_baby|13 years ago|reply
There are potential loopholes here. You can still buy liquid assets with bitcoins and sell those assets for cash. For example, you can have a provder that sells gold for bitcoins, and buys gold for cash.
[+] [-] malandrew|13 years ago|reply
[+] [-] duncan_bayne|13 years ago|reply
[+] [-] URSpider94|13 years ago|reply
One way to do that is to log all exchange or transmission transactions above a certain size -- which is what licensed money changers and transmitters have to do. You're not prohibited from performing these transactions, you just have to give them your name and SSN or Taxpayer ID.
Sure, there are ways around this, like buying a million rubber duckies in China, then shipping them to the US and selling them at carnivals. But -again- try to import a million of anything, and US Customs will want to know your name and SSN.
If you're talking about changing $100 or even $1,000 into BTC, the government doesn't really care. You might think, can't the criminals just split their transactions into small enough chunks that they can avoid the law altogether? Sure, maybe they could (and certainly they do) -- but at some point, having to conduct a thousand individual exchange transactions to move a million bucks starts to get onerous, and is also likely to leave a data trail -- there will be correlations somewhere.
It's never going to be impossible to exchange BTC for USD untraceably. The point here, which should come as no surprise, is that the government intends to make it impossible to exchange large amounts of value anonymously without it being annoying, time-consuming and costly.
[+] [-] belorn|13 years ago|reply
Alternative, one can "request" a larger withdraw from the bank which means two consecutive physical visits to a designated bank office, with a week between, and during designated hours (10-14). At the bank, they may ask you questions regarding the nature of the money withdraw, and is allowed to deny you if they feel the answer is unsatisfactory.
As a side note, an ID is also always required for any money transfer no matter transaction size. They also removed the option for SMS payments (it was considered too anonymous). The effect from this have been that the most common form of donations to red-cross and the likes has dropped with 90%. Last, any transaction (all sizes) is logged and shared internationally with EU and US.
[+] [-] n3rdy|13 years ago|reply
Importing and selling that volume of products also kind of defeats the purpose of running a drug cartel. Drug money is quick and easy, rubber ducky money, not so much (which is quite counter-intuitive if you ask me). At some point you will become more involved in the rubber ducky game, funded by drug money.
I didn't choose the duck life. The duck life chose me.
[+] [-] cookiecaper|13 years ago|reply
[+] [-] tomp|13 years ago|reply
Or, just open a UBS account on the Caribbean.
[+] [-] ISL|13 years ago|reply
http://en.wikipedia.org/wiki/Structuring
If any employee in a financial institution thinks you might be structuring transactions, they are obligated to notify authorities.
[+] [-] nwzpaperman|13 years ago|reply
[+] [-] rvkennedy|13 years ago|reply
A person that creates units of this convertible virtual currency and uses it to purchase real or virtual goods and services is a user of the convertible virtual currency and not subject to regulation as a money transmitter.
I would translate that to mean "no sales tax"... and that won't last long.
[+] [-] jmharvey|13 years ago|reply
[+] [-] wilfra|13 years ago|reply
However bitcoin exchanges/wallets (i.e. Coinbase) will need to.
Edit: It's not so simple. See child/grandchild comments.
[+] [-] ufmace|13 years ago|reply
http://www.fincen.gov/financial_institutions/msb/definitions...
Among other things, it states that there is an activity threshold of $1,000/day before you have to register.
Regarding miners, in current exchange rates, there is $180,000 in BTC being mined each day, so you'd have to be doing about 0.5% of the total BTC hashrate, which would currently be around 250Ghash/s, to one organization to qualify. Anyone with a rate that high is basically a for-profit business at this point, and with that income level, I'm not too worried about them having to register. The large pools also have rates well above that, but I'm not sure if they would qualify, depending on exactly how they distribute earnings.
As far as exchanges, at that level of business, they pretty much are a substantial financial institution, and I don't see a real problem with them having to register as such.
I see it as a net win for Bitcoin - a relatively reasonable amount of regulation, and in return, the implied assurance that there will not be a much more severe level of regulation or an attempt to criminalize anything involving Bitcoin. I think the market is reading it the same way, because BTC seems to be up against the USD on all of the exchanges I checked.
Of course, I could be reading this all wrong... I'm no lawyer and I don't really know much of anything about financial regulations.
[+] [-] RoboTeddy|13 years ago|reply
> 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.
So, the $1000/day threshold appears not to apply to money transmitters.
(I'm not a lawyer)
[+] [-] daxelrod|13 years ago|reply
[+] [-] jmomo|13 years ago|reply
In the case of Diablo III, you can sell your in-game virtual gold for real money in their Real Money Auction House, via PayPal. Other games have less official means of exchanging between currencies, but that's at least one official/built-in version that I can think of.
[+] [-] deepblueocean|13 years ago|reply
[+] [-] apapli|13 years ago|reply
[+] [-] pyre|13 years ago|reply
[+] [-] hayksaakian|13 years ago|reply
+ any mobile game with "coins" that can be bought with dollars
[+] [-] waterlesscloud|13 years ago|reply
[+] [-] retrogradeorbit|13 years ago|reply
[+] [-] nym|13 years ago|reply
http://howdoyoubuybitcoins.com/from/ziggap/ http://howdoyoubuybitcoins.com/from/bitinstant/
Digital cash isn't going away anytime soon.
[+] [-] betterunix|13 years ago|reply
[+] [-] drucken|13 years ago|reply
In addition, a person is an exchanger and a money transmitter if the person accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency.
So, if you only exchange virtual currency, do you now fall under US FinCEN rules or does, say, virtual currency not count as a "substitute" for currency?
[+] [-] olefoo|13 years ago|reply
[+] [-] fpgeek|13 years ago|reply
Every time I've gotten a prepaid card, I've had to show identification (usually a passport outside the US). From what I recall the ostensible reason for this is to track people who might use a cell phone as a remote bomb trigger. Nevertheless, if there is an ID associated with each prepaid SIM, I'd think that would be the hook that could be used to penetrate a money-laundering scheme. Am I missing something?
[+] [-] dreamdu5t|13 years ago|reply
[+] [-] mrbrannon|13 years ago|reply
[+] [-] unknown|13 years ago|reply
[deleted]
[+] [-] zaptheimpaler|13 years ago|reply
What is the status on the tax implications and the legality of online gambling with bitcoin? There are a few places online that let you play poker etc. with bitcoins. Is that legal in the US? How are winnings taxed?
The wiki(https://en.bitcoin.it/wiki/Tax_compliance#Are_my_bitcoins_ta...) talks about "Income that is earned through the exchange of services with another person, whether in the form of bitcoins, dollars, or barter;". Would income through gambling fall in that category?
[+] [-] wmf|13 years ago|reply
[+] [-] andrewpi|13 years ago|reply
[+] [-] hippich|13 years ago|reply
Let's imagine situation where program is created, which uses bitcoins as a payment to automatically buy computing resources and launch more instances of itself.
And to get bitcoin to pay for these resources this program provides proxy/VPN service.
Does program owe taxes? From what amount? To whom? In what currency?
[+] [-] unknown|13 years ago|reply
[deleted]
[+] [-] aneth4|13 years ago|reply
There is no reason bitcoin needs to be converted to USD on US soil. If you have to exchange your bitcoin for HKD in Hong Kong, easy methods can arise for this, and it may not be a big issue.
[+] [-] nivertech|13 years ago|reply
If you only buy or mine bitcoins - you are safe. Once you'll try to exchange them for real money - you must be regulated.
[+] [-] seldo|13 years ago|reply
If you mine bitcoins and then convert them to real money (i.e. not buy goods or services with them) then you will be regulated.