The world’s largest economy was active in the regulatory space in 2017 as the United States experienced its most eventful year to date regarding the regulation of virtual currency and blockchain technology.
Several jurisdictions issued guidance on the application of state regulation, amend existing law to include virtual currency and/or blockchain technology, or sponsored other actions that affected the industry and its regulatory status.
Notably, Montana issued a grant to encourage virtual currency mining in its state in hopes to subsequently create new jobs in the state. This did not specifically affect regulation in the United States or Montana, however it did reinforce the state’s current position on virtual currency and on money transmission in general whereas it remains the only state in the US that does not further regulate the activity on the state level.
The landscape looks considerably different than it did just a year ago (below).
As we outlined in the 2017 State of Regulation report, quite a few states had taken action but the landscape in general was still pretty barren. That is no longer, 2018 clearly shows a heavy movement on regulation both friendly and hostile.
Enforcement
2018 will be a continuation of the busiest year (2017) involving
the enforcement of regulations governing the industry.
This included arrests beyond the jurisdiction of the United
States.
The Securities Exchange Commission (SEC) and the Internal
Revenue Service (IRS) added further enforcement of regulations or in response
to violations. Many defendants have been found guilty by conviction or plea
bargain and sentenced with probation, fines, and incarcerations of various
severity.
The following legal cases have been collected and monitored
over the course of 2017 and into 2018 from public district court records and
other sources.
2017/2018 Legal Cases
| # | Defendant | Case | Charge(s) | Status |
|---|---|---|---|---|
| 1 | COIN.MX | US Vs. COIN.MX | Money Laundering | Disposed |
| 2 | Coinbase | IRS Vs. Coinbase | Order to Release | Ordered |
| 3 | Anthony Murgio | US Vs. COIN.MX | Fraud/Operating Unlicensed MTS | Convicted |
| 4 | Trevon Gross | US Vs. COIN.MX | Bribery/Consp. Operating MTS | Convicted |
| 5 | Michael J. Murgio | US Vs. COIN.MX | False Statement(s) | Guilty Plea |
| 6 | Ricardo Hill | US Vs. COIN.MX | Fraud | Guilty Plea |
| 7 | Jose M. Freundt | US Vs. COIN.MX | Operating Unlicensed MTS | Guilty Plea |
| 8 | Yuri Lebedev | US Vs. COIN.MX | Fraud/Obstruction | Convicted |
| 9 | Sal Mansy | US Vs. Manzy/TVTOYZ | Operating Unlicensed MTS | Guilty Plea |
| 10 | Kevin Klein | US Vs. Kevin Klien | Operating Unlicensed MTS | Guilty Plea |
| 11 | Mario Costanzo | US Vs. Costanzo | Operating Unlicensed MTS | Ongoing |
| 12 | Peter Steinmetz | US Vs. Steinmetz | Operating Unlicensed MTS | Dismissed |
| 13 | BTC-E | US Vs. BTC-E | Money Laundering | Ongoing |
| 14 | Alexander Vinnik | US Vs. BTC-E | Money Laundering | Ongoing |
| 15 | Randall Lord | US Vs. LORDS | Operating Unlicensed MTS | Guilty Plea |
| 16 | Michael Lord | US Vs. LORDS | Operating Unlicensed MTS | Guilty Plea |
| 17 | Richard Petix | US Vs. PETIX | Operating Unlicensed MTS | Guilty Plea |
| 18 | Josh Garza | SEC Vs. GAW/GARZA | Fraud | Guilty Plea |
| 19 | Daniel Mercede | US Vs. MERCEDE | Fraud/Operating Unlicensed MTS | Guilty Plea |
| 20 | Gal Vallerius | US Vs. GAL VALLERIUS | Conspiracy to Possess/Dist. Narcotics | Ongoing |
| 20 | Morgan Rockcoons | US Vs. M. ROCKCOONS | Operating Unlicensed MTS | Ongoing |
Coinbase
California based (San Francisco) Coinbase, Inc., a popular wallet service and operators of the GDAX virtual currency exchange, fought the IRS ultimately losing when the agency succeeded in convincing a federal judge to allow them access to private information of over 19,000 Coinbase users from a timeframe spanning before the IRS published any guidance on the tax treatment of virtual currency.
The court order[2] result enforces an IRS request that demands access to personal and private user information and activity from year 2013 through 2015 in their entirety, however, despite requests from taxpayers asking for the agency’s assistance, the IRS issued absolutely no guidance regarding the tax treatment of virtual currency until March of 2014.
Notably, the IRS promotes its “adoption” of the measure on an additional website[5] the agency operates.
U.S. Federal Regulation
In addition to regulatory enforcement, the United States federal government has been active in proposing new acts in support of both further regulating virtual currency and blockchain technology including Tax Code amendments from the IRS and congress and a virtual currency threat assessment overseen by the Department of Homeland Security.
In addition
to ongoing US Treasury efforts through its branch FinCEN (Financial Crimes Enforcement Network), regarding AML/CFT reporting and enforcement thereof, the CFTC (Commodity Futures Trading Commission), SEC, HSI, USPS (United States
Postal Service), IRS, and other agencies have been involved in the investigations of
potential criminal activity and arrests.
State by State Regulation
2017
⬤ ALABAMA |
Alabama money services were governed by the 56-year-old Sale of Checks Act of 1961 until recently in August 2017 when the Money Transmission Act went effect.
Under the Alabama Monetary Transmission Act §§ 8-7A-1 to 8-7A-27, virtual currency transactions are considered money transmission by the state.
This does not include entities registered with FinCEN which provides exemption in other states (North Carolina for example).
Alaska (AK) proposed House Bill 180[41]. If passed, Section 58. AS 06.55.990(15) includes the definition of “virtual currency” under what constitutes “money transmission”.
The bill, HB180, proposes amendment Sec. 06.55.855. that defines virtual currency as:
Arizona is technically a grey area, however, with recent arrests and vague regulation, Arizona is one state to be careful with when transacting with virtual currency, especially for businesses.
Blockchain technology however is one area where Arizona exceeds most states whereas it recognizes blockchain transaction legally.Arizona is technically a grey area, however, with recent arrests and vague regulation, Arizona is one state to be careful with when transacting with virtual currency, especially for businesses.
Arkansas is currently[49] a grey area with no specific blockchain or virtual currency regulation pending or enacted.
Notably, an Arkansas sheriff’s office, Benton County Sheriff Department, launched a bitcoin mining program under its Cyber-Crimes Division with the goal to use the mined bitcoin to help investigators in future crimes on the dark web.Arkansas is currently[49] a grey area with no specific blockchain or virtual currency regulation pending or enacted.
This contributes to the reasons California is not included in the “hostile” category.
However, with a history of regulatory activity and currently pending regulatory proposals still present, California does remain in cautionary status.
The bill defines virtual currency as "any type of digital unit that is used as a medium of exchange or a form of digitally stored value or that is incorporated into payment system technology."
Delaware has no specific laws governing virtual currency and
remains a grey area in that regard, however many companies such as Coinbase,
Paxful, Kraken, and others in the industry are organized as legal entities in
Delaware.
Virtual currency is defined as:
The change in the statues puts virtual currency under the money services business and money transmitter laws of Florida. This also activates the prohibition of money transmitting under federal law.
Georgia issued consumer guidance in 2014 outlining various cautions but also noted anyone that "accepts and transmits a convertible virtual currency or buys or sells convertible virtual currency for any reason is a money transmitter" giving a clear understanding of where they were heading.
The regulation is broad giving the Georgia
Department of Banking and Finance the right to impose anything it wishes on
anyone doing anything with virtual currency, which includes money services
registration requirements, money transmission licensing requirements, or any
other requirements for regulatory compliance as it sees fit.
Many viewed the Peach State as a hub or even the unofficial capital of virtual currency in the U.S. with the growth of payment processor, BitPay; several virtual currency kiosks, which now number over 100; flourishing bitcoin Meetup groups; and, its status as a mecca for the legacy payments industry.[65]
This would eliminate other things like gift cards, precious metals (which is regulated in other ways, but not as money transmission) and historic currency as well.
West Virginia passed House Bill 2585 (HB2585) on April 8th,
2017 enacting regulation covering bitcoin and other virtual currency.
West Virginia, unlike every other state in the United States, opted the use of the term "cryptocurrency" instead of "virtual currency" which could arguably not include virtual currencies not secured by cryptography since the common understanding of the term "cryptocurrency" involves a token secured by cryptography.
The definition is under felony provisions of its articles 8(a), 8(c), and 14. The amendment further defines monetary instruments as:
Under the Alabama Monetary Transmission Act §§ 8-7A-1 to 8-7A-27, virtual currency transactions are considered money transmission by the state.
Section
8-7A-2 lists virtual currency under the definition of monetary value.
(8) MONETARY VALUE. A medium of exchange, including virtual or fiat currencies, whether or not redeemable in money.
The Act further includes virtual currency defined
as "money transmission" and
as a "payment instrument".
(10) MONEY TRANSMISSION. Selling or issuing payment instruments, stored value, or receiving money or monetary value for transmission. The term does not include the provision solely of delivery, online or telecommunications services, or network access.
(11) PAYMENT INSTRUMENT. A check, draft, money order, traveler’s check, or other means utilized for the transmission or payment of money or monetary value, whether or not negotiable. The term does not include a credit voucher, letter of credit, or instrument that is redeemable by the issuer in goods and services.
Whereas the argument could be made stating that virtual currency OTC
(over-the-counter) sales would not be money transmission as money
transmission is defined as “receiving money
or monetary value for transmission" it is irrelevant since "selling payment instruments" is
considered money transmission under the Act which defines virtual currency as a
"payment instrument".
This puts Alabama in the "bitcoin hostile" category and appears to prohibit bitcoin
ATM's, even those operating simple machine-to-consumer models since any
non-exempt "selling" of
"payment instruments" is
prohibited in Alabama without a license.
That said, there is one
exemption that would potentially affect virtual currency businesses operating
under the Federal Commodities Act.
(5) A board of trade designated as a contract market under the federal Commodity Exchange Act, 7 U.S.C. Sections 1-25 (1994), or a person that, in the ordinary course of business, provides clearance and settlement services for a board of trade to the extent of its operation as or for such a board.
(6) A registered futures commission merchant under the federal commodities laws to the extent of its operation as such a merchant.
Certain entities registered with the Commodity Futures Trading Commission
(CFTC) would be exempt under the Act's exclusions in § 8-7A-3(5) as would
payment settlement providers under § 8-7A-3(6), payment processors or
settlement or clearance providers under §§ 8-7A-4(1)-(2), or entities
registered as brokers with the Securities Exchange Commission (SEC) under §
8-7A-4(3).
(1) A person that provides clearance or settlement services pursuant to a registration as a clearing agency or an exemption from such registration granted under the federal securities laws.
(2) An operator of a payment system to the extent that it provides processing, clearing, or settlement services, between or among persons excluded by this section, in connection with wire transfers, credit card transactions, debit card transactions, stored-value transactions, automated clearing house transfers, or similar funds transfers.
(3) A person registered as a securities broker-dealer under federal or state securities laws to the extent of its operation as such a broker-dealer.
This does not include entities registered with FinCEN which provides exemption in other states (North Carolina for example).
⬤ ALASKA |
The bill, HB180, proposes amendment Sec. 06.55.855. that defines virtual currency as:
“Virtual currency”. In this chapter, a reference to virtual currency shall be broadly construed to cover digital units of exchange that |
If enacted, money transmission will specifically include virtual currency[42]
(15) "money transmission" means ... |
⬤ ARIZONA |
Blockchain technology however is one area where Arizona exceeds most states whereas it recognizes blockchain transaction legally.Arizona is technically a grey area, however, with recent arrests and vague regulation, Arizona is one state to be careful with when transacting with virtual currency, especially for businesses.
Officially Arizona has no position specific to virtual
currency other than "they're looking
into it".
Current Arizona regulation governing money services states
that transmission of “money” by “any means”:
"Transmitting money" means the transmission of money by any means including transmissions within this country or to or from locations abroad by payment instrument, wire, facsimile, internet or any other electronic transfer, courier or otherwise.[43]
However, virtual currency does not appear to meet the
definition of “money”.
"Money" means a medium of exchange that is authorized or adopted by a domestic or foreign government as a part of its currency and that is customarily used and accepted as a medium of exchange in the country of issuance. [44]
"Payment instrument" means a check, draft, money order, traveler's check or other instrument or order for the transmission or payment of money sold to one or more persons whether or not that instrument or order is negotiable. Payment instrument does not include an instrument that is redeemable by the issuer in merchandise or service, a credit card voucher or a letter of credit.[45]"Money transmitter" means a person who is located or doing business in this state, including a check casher and a foreign money exchanger, and who does any of the following:
(b) Engages in the business of receiving money for the transmission of or transmitting money.
(c) Engages in the business of exchanging payment instruments or money into any form of money or payment instrument...[46]
Which appears to state that blockchain transactions may qualify as an “electronic
transfer” under the definition of "Payment Instruments", however, the
business or individual would need to be engaged in the “business of
transmission or exchange” of the “instrument” to be considered a “money
transmitter”.
This paired with recent arrests in the state regarding this activity pace
Arizona in the cautionary category and some business models would
likely fit the definition of a money transmitter.[47]
Additionally, Arizona Statute § 13-3122 prohibits tracking firearms
electronically which would include blockchain technology. [48]
⬤ ARKANSAS |
Notably, an Arkansas sheriff’s office, Benton County Sheriff Department, launched a bitcoin mining program under its Cyber-Crimes Division with the goal to use the mined bitcoin to help investigators in future crimes on the dark web.Arkansas is currently[49] a grey area with no specific blockchain or virtual currency regulation pending or enacted.
The attempt was to mine bitcoin on
a standard office desktop computer, however, in what way does this help the
Arkansas Sheriff’s department is unknown and subject to speculation even among
its own workforce.
⬤ CALIFORNIA |
The state of California has been active
regarding the regulation of virtual currency and blockchain technology.
California lacks specific regulation on business activity
for the most part, however, it has attempted several versions of regulation,
the latest and current versions being active in 2017. The state has also
prohibited certain purchases that cannot be paid for using virtual currency.
Timeline of Regulatory Events (CA)
| YEAR | EVENT |
|---|---|
| 2017 | Recently in 2017, California proposed Assembly Bill 1123 as the “Virtual Currency Act” which, if enacted, would require a “virtual currency license” in the state to engage in activity falling under its definition of a digital currency business (DCB). Notably, this would not allow a DCB to engage in “money transmission” activity without converting the license to a traditional “money transmission” license. |
| 2016 | In 2016, California enacted regulation[50] making it unlawful to sell raffle tickets for digital currency. |
| 2015 | In 2015, Assembly Bill 132[51] was introduced proposing licensure but failed to pass. However, it was amended and re-introduced in 2016 proposing a program called the “Digital Currency Business Enrollment Program” that would require all organizations that store, transmit, exchange, or issue virtual currency to qualify as "digital currency businesses" and require a non-refundable $5,000 fee (the original bill also required a $5,000 license application fee). |
| 2014 | In 2014 Assembly Bill 129[52] repealed Section 107 of the Corporations code that prohibited a corporation from circulating anything other than “lawful money” indirectly legalizing bitcoin in the state. |
| 2013 | In 2013 California's Department of Financial Institutions famously issued a “cease and desist” letter to the Bitcoin Foundation regarding compliance with its money transmission laws clearly indicating a lack of understanding of the technology at the time. |
AB-1123 and the fading AB-1326 are still alive
in California indicating that lawmakers may be set on regulating the industry.
That said, opinions vary on this.
Joe Ciccolo of BitAML says that his firm holds the opinion that California may
be unlikely to make another attempt in 2018 beyond the bill.
Despite its annual effort to regulate, or rather overregulate, virtual currency, via a "separate but equal" money transmitter regulatory regime, there's nothing that leads us to believe California lawmakers have the will or interest to move forward in 2018. The bill in questions, AB-1123, has remained stalled in committee since April 2017. There seems to be very little interest among lawmakers in tech-heavy California.” Joe Ciccolo – President, BitAML, Inc.
This contributes to the reasons California is not included in the “hostile” category.
However, with a history of regulatory activity and currently pending regulatory proposals still present, California does remain in cautionary status.
⬤ COLORADO |
Colorado does not currently have
regulation specific to virtual currency or blockchain technology pending or
enacted.
However, in November of 2017 the Colorado “Committee on Colorado
Commission on Uniform State Laws” (CCUL), reviewed and tabled[53]
the ULC’s “Regulation of Virtual Currency
Businesses Act” until “next year” in 2018. If approved the Act could be
introduced in 2019.
Colorado has strict requirements for money
transmission licensing requiring one of the highest net-worth requirements in the
United States of $1 million dollars in addition to high surety bond
requirements.
With the looming ULC
Act consideration (Colorado adopted 2 ULC Acts in 2017) and notably strict
money transmission laws, Colorado gains cautionary status for 2018.
⬤ CONNECTICUT |
In 2017 the Connecticut 2016 House Bill 7141[54] went
into effect requiring a license for virtual currency transactions and one of
the strictest in the country to date.
"Each licensee that engages in the business of money transmission in this state by receiving, transmitting, storing or maintaining custody or control of virtual currency on behalf of another person shall at all times hold virtual currency of the same type and amount owed or obligated to such other person."
The bill defines virtual currency as "any type of digital unit that is used as a medium of exchange or a form of digitally stored value or that is incorporated into payment system technology."
⬤ DELAWARE |
Corporate stock trades are permissible on blockchain technology
(defined as “distributed ledgers” or a “blockchain”) under three conditions that the ledger
is used:Delaware enacted SB69 in July 2017 that allows
Delaware corporations to use blockchain technology to maintain corporate
records.
(1) It must enable the corporation to prepare the list of stockholders |
(2) it must record the information, and; |
(3) it must record transfers of stock |
⬤ FLORIDA |
Until May of 2017, Florida was considered a grey but cautionary area regarding virtual currency and blockchain technology.
In May of 2017, House Bill 1379[55]
was introduced defining virtual currency as a "monetary
instrument".
This is a similar path[56] to
that initially taken by New Hampshire (New
Hampshire now exempts [57]
some businesses) and under this definition Florida becomes a hostile state regarding
virtual currency transactions.
HB 1379 was passed into law on July 23rd, 2017. The bill
added "virtual currency" to the definition of a monetary instrument,
Section 896.101 (f)[58]
reads:
"Monetary instruments" means coin or currency of 191 the United States or of any other country, virtual currency, 192 travelers' checks, personal checks, bank checks, money orders, 193 investment securities in bearer form or otherwise in such form 194 that title thereto passes upon delivery, and negotiable 195 instruments in bearer form or otherwise in such form that title 196 thereto passes upon delivery.[59] |
Virtual currency is defined as:
“Virtual currency” means a medium of exchange in electronic or digital format that is not a coin or currency of the United States or any other country. [60]
The change in the statues puts virtual currency under the money services business and money transmitter laws of Florida. This also activates the prohibition of money transmitting under federal law.
This has been said to be a result of regulators “tightening”
money transmission regulations due to the outcome of the Espinoza case[61].
Both Michel Espinoza and Pascal Reid[62]
were charged with operating as an “Unauthorized
Money Transmitter” in violation of Florida Statute 560.125(5)(A).
Pascal Reid received probation, however, Michel Espinoza was
found not guilty on the grounds of bitcoin not being backed by any government
or bank, not considered “tangible wealth”, and “cannot be hidden under a
mattress like cash and gold bars.” as described by judge Teresa Mary Pooler and
the charges were dismissed.
Notably,
Florida is one of the more “affordable” states to obtain a money transmission
license in. The state has lower net worth, application fee, and surety bond requirements
than many other states those requirements being a net-worth[63]
of $100,000, applications fees in two parts totaling to around $600 ($375 for
part 1 and $188 for part 2), and a surety bond of at least $50,000.
⬤ GEORGIA |
Georgia (GA) House Bill No. 811 Amended Code Section 7-1-680
adding a definition of “Virtual Currency”.
It
also revised Code Section 7-1-690, authorizing the Department of Banking and
Finance "to enact rules and regulations that apply to persons engaged in
money transmission or the sale of payment instruments involving virtual
currency."
Georgia “virtual currency” Definition |
...a digital representation of monetary value that does not have legal tender status as recognized by the United States government. The term does not include the software or protocols governing the transfer of the digital representation of monetary value. The term also does not include units of value that are issued in an affinity or rewards program and that cannot be redeemed for money or virtual currencies. Neither does the term include units of value that can be redeemed for goods, services, discounts, or purchases as part of an affinity or rewards program with the issuer or a defined merchant." |
Which exempts users (as defined by FinCEN[64])
from paying for things and software. Users are people who buy bitcoin for
personal use and purchases.
7-1-690(b) gives its financial department full power over
virtual currency companies. It states:
The department is authorized to enact rules and regulations that apply solely to persons engaged in any virtual currency business. The department shall enact such rules and regulations it finds necessary to: [various broadly stated reasons] 7-1-690(b)
Many viewed the Peach State as a hub or even the unofficial capital of virtual currency in the U.S. with the growth of payment processor, BitPay; several virtual currency kiosks, which now number over 100; flourishing bitcoin Meetup groups; and, its status as a mecca for the legacy payments industry.[65]
Prior to
2016 Georgia was considered a gray area, but the state now prohibits virtual
currency activity without a license which is unaffordable to many small
start-up companies place Georgia in the hostile category.
⬤ HAWAII |
Hawaii has been back and forth on the topic of virtual
currency and its legality in the state being firm on its stance that its
existing money transmission laws cover virtual currency.
In 2016 Coinbase halted services to Hawaii.
The Hawaii Division of Financial Institutions (DFI) has stated that digital currency businesses operating in Hawaii are required to be licensed under the state’s Money Transmission Act. Coinbase has no objection to this policy. In fact, Coinbase is currently licensed to engage in money transmission in thirty-eight U.S. jurisdictions and we submitted a comprehensive application for licensure in Hawaii way back in 2014.This being due to DFI stating that digital currency companies would be required to maintain cash reserves (or similar, liquid assets referred to as “permissible investments”) in an amount equal to the aggregate face value of digital currency funds held on behalf of customers.[66] |
In March 2017, the Hawaiian Senate introduced Senate Bill
949[67], which
passed, and amends the existing money transmitters law to cover “payment
obligations” rather than the previously defined term of ““payment instruments”.
| Hawaii Senate Bill 949 |
| SECTION 1. Section 489D-4, Hawaii Revised Statutes, is
amended as follows: |
1.
By amending the definition of "outstanding payment
instrument" to read:
""Outstanding payment [instrument"]
obligation" means [any]:
⬤ IDAHO |
The Idaho Money Transmitters Act ("Act") governs transactions that include virtual currency, noted as digital currency by the state, however the Act itself contains no specific reference to virtual currency.
Idaho
does however, publish various opinion and no-action position response issued to
organizations when properly requested. These publications cover the application
of its Act to virtual currency as presented in various business models in
detail.
Moreover, it does this for stored value and tradition money
transmission as well covering additional model fused with the use of virtual
currency.
Based on these publications Idaho is "bitcoin
friendly" in that it provides clarity for these business models and which
ones are and are not subject to regulatory requirements and/or state licensing.
Merely trading virtual currency, both on online exchanges
and P2P trades, or mining are not considered money transmission so long as the
entity does not act as a custodian beyond nominal amounts for transaction
periods of time. They define an "Exchanger" (FinCEN terminology) that
buys/sells its own inventory is not considered a money transmitter under the
Act.
Exchangers
of this type under FinCEN guidance are considered money transmitters.
⬤ ILLINOIS |
This coming after years of concern
and seemingly grey area which led to at least one conviction for operating an
unlicensed money transmission business (United States vs. John Powell).In 2017
Illinois introduced guidance on the application of its state regulation to
virtual currency.
Illinois now move from caution status
to "bitcoin friendly".
In 2017, the Illinois Department of
Financial and Professional Regulation issued its guidance and interpretation of
its Money Transmitters Act ("TOMA")[68]
as applicable to virtual currency.
Precisely, the department explains that
bitcoin and other virtual currency do not meet TOMA's definition of money which
must be recognized as such and be generally excepted as a medium of exchange.
There is no "or" as the law states the money is:
[A] medium of exchange that is authorized or adopted by a domestic or foreign government as a part of its currency and that is customarily used and accepted as a medium of exchange in the country of issuance.
This would eliminate other things like gift cards, precious metals (which is regulated in other ways, but not as money transmission) and historic currency as well.
The
guidance outlines two scenarios where activity is money transmission. Exchanges
acting as custodians, and ATM's that pull from 3rd party sources. This is much
like Texas, Kansas, Tennessee, etc. however, differs from Texas whereas Texas
does not require a license for Exchanges that reside in the states of Texas.
Activities Generally Qualifying as Money
Transmission
Exchange involving both digital currency and money through a third-party exchanger is generally considered to be money transmission. For example, some digital currency exchange sites facilitate exchanges by acting as an escrow-like intermediary. In a typical transaction, the buyer of digital currency sends money to the exchanger who holds the funds until it determines that the terms of the sale have been satisfied before transmitting the funds to the seller. Irrespective of its handling of the digital currency, the exchanger conducts money transmission by receiving the buyer's money in exchange for a promise to make it available to the seller.
Exchange of digital currency for money through an automated machine is generally considered to be money transmission. For example, several companies have begun selling automated machines commonly called “Bitcoin ATMs” that facilitate contemporaneous exchanges of digital currency for money. Most such machines currently available, when operating in their default mode act as an intermediary between a buyer and seller, typically connecting through one of the established exchange sites. When a customer buys or sells digital currency through a machine configured this way, the operator of the machine receives the buyer's money and is engaging in the “business of receiving money for transmission or transmitting money.”
Some digital currency ATMs, however, can be configured to conduct transactions only between the customer and the machine's operator, with no third parties involved. If the machine never involves a third party, and only facilitates a sale or purchase of digital currency by the machine's operator directly with the customer, there is no money transmission because at no time is money received and neither party is engaging in the “business of receiving money for transmission or transmitting money.”
The
latter being the exception to the rule covering ATM units exempting operators
from money transmission regulation. Simply put, if the unit self-contains or
pulls from operator owned virtual currency then the activity is not money
transmission.
Not Money Transmission
Exchange of digital currency for money directly between two parties does not qualify as money transmission. This is essentially a sale of goods between two parties. The seller gives units of digital currency to the buyer, who pays the seller directly with money. The seller does not receive money with the intent to transmit it to another entity or “engage in the business of exchanging, for compensation, money of the United States Government or a foreign government to or from money of another government.”
Transfer of digital currency by itself is not transmitting money. Because digital currency is not money, the receipt of it with the intent to transmit it to another entity is not “transmitting money.” This includes intermediaries who receive digital currency for transfer to a third party, and entities who, akin to depositories (commonly referred to as wallets), hold digital currency on behalf of customers and can either unilaterally execute or prevent a digital currency transaction.
Exchange of one digital currency for another digital currency is not money transmission.A merchant who accepts digital currency as payment for goods or services or an individual who pays for goods or services with digital currency are commonly referred to as “users” of digital currency. Regardless of how many parties are involved, no money is involved at any point in this transaction, so “transmitting money” does not occur.
The guidance exempts small
business and individual models engaged in P2P trading, predominately the
leading cause of arrest and prosecution in the United States regarding virtual
currency. Users, merchants, and some ATM operators are additionally exempt.
⬤ INDIANA |
Indiana is a grey area with no blockchain or convertible virtual currency specific regulations enacted or pending.
⬤ IOWA |
Iowa is currently a grey area with
no specific guidance published on existing regulations or regulation pending or
enacted blockchain or convertible virtual currency.
⬤ KANSAS |
The Office of the State Bank Commissioner in Kansas issued
guidance on the application of the Kansas Money Transmitter Act (KMTA) to
virtual currency business activity in 2014.
Much of this document is modeled after guidance issued by the Texas Department of Banking in Supervisory Memorandum 1037 and we thank them for allowing the OSBC to adapt it for use in Kansas.
Kansas followed three months after
Texas issued its memorandum 1037 with similar guidance[1] pertaining to the application of its Money Transmitters
Act (KMTA)[2],
to virtual currency. Kansas thanks Texas in footnote (2) of the guidance
document stating:
Exchange of cryptocurrency for sovereign currency between two parties is not money transmission under the KMTA. This is essentially a sale of goods between two parties. The seller gives units of cryptocurrency to the buyer, who pays the seller directly with sovereign currency. The seller does not receive the sovereign currency with the intent to transmit to another entity.
Exchange of one cryptocurrency for another cryptocurrency is not money transmission. Regardless of how many parties are involved, since cryptocurrency is not considered “money” under the KMTA, no money transmission occurs.
Transfer of cryptocurrency by itself is not money transmission. Because cryptocurrency is not money or monetary value, the receipt of it with the intent to transmit it to another entity is not money transmission. This includes intermediaries who receive cryptocurrency for transfer to a third party, and entities that, akin to depositories, hold cryptocurrencies on behalf of customers.
Like
Texas, in Kansas, virtual currency is not considered money or money
transmission when sent from one person to another. It goes on to say that
bitcoin automated teller machines (ATMs) may not be money transmission, although in some cases
can be considered as such.
Exchange of cryptocurrency for sovereign currency through an automated machine may or may not be money transmission depending on the facts and circumstances of its operation and the flow of funds between the operator of the automated machine and the customer.
Kansas
offers example of a money transmission configurations:
"For example, several companies have begun selling automated machines commonly called “Bitcoin ATMs” that facilitate contemporaneous exchanges of bitcoins for sovereign currency. Most such machines currently available, when operating in their default mode, act as an intermediary between a buyer and a seller, typically connecting through one of the established exchange sites. When a customer buys or sells bitcoins through a machine configured in this way, the operator of the machine receives the buyer’s sovereign currency with the intent to transfer it to the seller. This would be considered money transmission under the KMTA and would require licensure."
The
guidance also covers when an ATM would not be considered money transmission:
However, at least some Bitcoin ATMs can be configured to conduct transactions only between the customer and the operator or owner of the machine, with no third parties involved. If the machine never involves a third party, and only facilitates a sale or purchase of bitcoins by the machine’s operator directly with the customer, there is no money transmission because at no time is sovereign money received by the owner or operator of the machine with the intent to transfer it to another entity.
In 2017, The Kansas Governmental
Ethics Commission decided that bitcoin is too secretive and untraceable to be
allowed as a form of campaign contributions in state and local elections.
⬤ KENTUCKY |
Kentucky is currently a grey area
with no specific guidance published on existing regulations or regulation
pending or enacted blockchain or virtual currency.
⬤ LOUISIANA |
Louisiana is currently a grey area
with no specific guidance published on existing regulations or regulation
pending or enacted blockchain or convertible virtual currency, however, is moved to cuationary status due to apparent interpretations on it's definition of monetary value resulting in criminal arrests.
That
said, there is in at least one case[3]
the existing regulation was applied to virtual currency regarding the activity
money transmission. Randall and Michael Lord were sentenced collectively to
over 12 years (46 months and 106 months respectively) in federal prison for violating
of both state and federal law governing the activity.
The Lords
also failed to report the receipt of over $31,000 in cash to FinCEN pursuant to
BSA reporting laws[4].
⬤ MAINE |
Maine has no blockchain or virtual
currency specific regulations enacted, however, existing regulation appears to
cover virtual currency business transactions.
However, Sal Mansy was sentenced[5] to
1 year and 1 day in prison for operating a money transmission business in the
state in violation of federal and state law. Additionally, three years’
probation, and over $100,000 in fines was included in the sentence.
Financial transactions and sales are governed by the Maine
Department of Professional and Financial Regulation under Chapter 80 of the
Public Laws of Maine. More specifically Subchapter I which is MRSA c. 80 sub-c.
I §§ 6101-6145.
§ 6102(10) defines money transmission
as:
"....the business of selling or issuing payment instruments or the business of receiving money for transmission or transmitting money within the United States or to locations abroad by any means, including, but not limited to, payment instrument, wire, facsimile or electronic transfer."
The words "electronic transfer" may include bitcoin.
Notably, Maine also killed a promising blockchain bill that would have promoted the technology indicating the jurisdiction is not ready for blockchain or bitcoin.
⬤ MARYLAND |
Maryland is currently a grey area with no specific guidance published on existing regulations or regulation pending or enacted blockchain or virtual currency.
⬤ MASSACHUSETTS |
Massachusetts is currently a grey
area with no specific guidance published on existing regulations or regulation
pending or enacted blockchain or virtual currency.
The Office of Consumer Affairs and
Business Regulation has provided guidance in several Opinion Letters that
Bitcoin ATMs are not "Financial Institutions" or “Electronic
Branches” as defined by Chapter 167B of the Massachusetts General Laws.
However,
recently in 2017 the Office issued on Opinion Letter stating, “further review”
of the business model (virtual currency ATM’s) would require further analysis.
⬤ MICHIGAN |
Michigan remains a grey area. There
are no blockchain or virtual currency specific regulations enacted or pending
and current regulations do not appear to cover bitcoin or any virtual currency.
However, Bradley Anthony Stetkiw was arrested[7]
and charged with operating an unlicensed money transmitting business in 2017
and the case is pending.
This activity is governed by the Michigan “Money
Transmission Services Act” (“ACT”) 1, Act 250 of 2006 § 487.1001 - 487.1047.
"Virtual currency” is not recognized as currency in the
United States or any other government and is not considered money by the state
of Michigan pursuant to § 487.1003(b) of the ACT.
As defined at 487.1003(b), "Money" is “means a
medium of exchange authorized or adopted by the United States or a foreign
government as a part of its currency” and “Money Transmission Services” as
defined at 487.1003(c) means:
“...selling or issuing payment instruments or stored value devices or receiving money or monetary value for transmission. The term does not include the provision solely of delivery, online, or telecommunications services or network access.”
If a business or individual is not
selling payment instruments (as defined) and virtual currency does not meet the
definition of a “payment instrument” or an “outstanding payment instrument” as
defined at § 487.1003(d)-(e) of the ACT and virtual currency is not sold for a
specific fee or to one individual or entity with the intention of sending that
value to another individual or entity, then it would appear as if virtual
currency is not money transmission in Michigan.
The Michigan Department of
Treasury issued guidance defining virtual currency and explaining tax treatments[8] when
is used. The guidance states:
| Michigan Guidance |
|---|
| The General Sales Tax Act and the Use Tax Act impose tax at a rate of 6% on the value of consideration given in exchange for tangible personal property. |
| Taxpayers are required to remit sales and use tax liabilities based on the dollar value of the consideration exchanged for taxable property. If the consideration given in exchange for the property is not USD the taxpayer must convert the value of the consideration to USD as of the date and at the time of the transaction; this requirement includes convertible virtual currency exchanged for taxable property. |
| Therefore, a taxpayer accepting virtual currency in a retail sale transaction must convert the value of the virtual currency to USD as of the day and the exact time of the transaction. |
| The taxpayer accepting virtual currency must also maintain documentation demonstrating the value of the virtual currency on the day and at the exact time of the transaction. |
| The General Sales Tax Act and the Use Tax Act impose tax at a rate of 6% on the value of consideration given in exchange for tangible personal property. |
Buying virtual currency itself
however, would not be taxable since virtual currency is not tangible property
and thus, convertible virtual currency purchases are not subject to sales tax.
⬤ MINNESOTA |
Minnesota is a grey area with no specific
blockchain or convertible virtual currency regulations enacted or pending and existing
regulation does not appear to cover either.
⬤ MISSISSIPPI |
Mississippi is a grey area state
without specific blockchain or convertible virtual currency regulations enacted or pending.
⬤ MISSOURI |
Missouri is a borderline hostile, but not quite "misery" just yet and currently in a “caution” status with no specific
blockchain or convertible virtual currency regulations enacted or pending.
Missouri Department of Revenue ruled[9] that
an ATM provider is not required to collect sales or use tax when transmitting
bitcoins through an ATM since sales and use taxes are imposed solely on items
of tangible personal property.
The Office of the Secretary of State issued a cease and
desist order in June 2014, stating that that offering and/or selling shares of
stock in Bitcoin constituted "transacting business as an agent" in
the state of Missouri.
In 2015 it was ordered that
Virtual Mining Corporation (BTC Mining Corporation) and Kenneth Slaughter
sold unregistered, non-exempt securities in violation of Missouri law[10]
and fined over $32,000 in civil penalties.
In 2017, bitcoin trader, Jason Klein,
who advertised on the Localbitcoins.com platform was arrested and sentenced to
3 years of probation for operating an unlicensed money services business.[11]
⬤ MONTANA |
Montana is the only state left
without money transmission regulations and has no blockchain or virtual
currency specific regulations enacted or pending related to business
operations.
However, Montana enacted laws regarding
political contributions reporting.[12]
Montana also
granted Project Spokane, LLC $416,000 for mining operations in the state.
This paired with the favorable money transmission law easily
places Montana in a “bitcoin friendly”
status.
⬤ NEVADA |
Despite the Nebraska Department of
Revenue having previously stated in an administrative release that the term
"currency" does not include Bitcoin or other virtual currency, Nebraska
has put two new bills on the table, neither one of which is friendly to bitcoin
or other virtual currencies.
On January 8th, 2018, the "Nebraska Virtual Currency
Money Laundering Act" (VCMLA) was introduced and then just 3 days later an
additional proposal to adopt the Uniform Law Commission's (ULC) "Uniform
Regulation of Virtual-Currency Businesses Act" (URVCBA).
Legislature Bill LB691 proposes the VCMLA and would make the
use of virtual currency a felony if a transaction is used in a financial crime.
If enacted the bill will amend:
"...sections 8-2701 and 8-2715, Revised Statutes Cumulative Supplement, 2016, and section 28-101, Revised Statutes Supplement, 2017; to adopt the Nebraska Virtual Currency Money Laundering Act; to provide penalties; to define and redefine terms under the Nebraska Money Transmitters Act; to harmonize provisions; and to repeal the original sections."
For example, the ULC "Money Services Act" is
adopted by only 11 jurisdictions.Bill LB987 proposes the adopt the
URVCBA drafted and approved by the ULC, a commission of attorneys and
regulators who draft regulations for unified adoption by all states. However,
this is never the case as it is up to individual states to adopt or not adopt
any ULC draft regulation.
Nebraska was previously a friendly state for virtual
currency, however with the new bills, Nebraska moves to cautionary. This coming
after the busiest year to date for state regulation of blockchain and convertible virtual
currency.
⬤ NEVADA |
Nevada became is convertible virtual currency and blockchain friendly in
several ways. First, the state has banned government taxation on use of
blockchain technology.
Secondly, Nevada enacted law[13]
that makes a blockchain ledger record a legally acceptable document of “electronic
record” admissible in judicial proceedings.
However, Nevada’s definition of a blockchain as “…one or more computers…” falls short of
what many would argue safely constitutes an immutable record, thus some further
attention to the definition mat be required.
Nevada’s money transmission laws do not specifically cover
virtual currency nor is virtual currency defined in any financial regulation.
Nevada has not been without legal issue regarding virtual
currency, in 2018, Morgan Rockcoons was arrested on charges relating to trading
bitcoin on Localbitcoins.com and it would appear, as with most states,
peer-to-peer (P2P) cash sales trades (cash in exchange for virtual currency)
would be covered by Nevada’s existing money transmission laws.
These types of trades are certainly covered by federal
anti-money laundering laws.
However, purposely transmitting money or transmitting money
due to inadvertent transactions are to be expected as regulated regardless of
state law so for this reason paired with the positive regulation on blockchain
technology, Nevada moves from grey to friendly.
⬤ NEW HAMPSHIRE (⬤ Exchange or Custodian ⬤ Developer or Startup ⬤ Trader or User) |
New Hampshire has undergone a
roller coaster ride in changes in the regulation governing virtual currency
transaction in the state.
After previously making its money transmission laws fully applicable to virtual currency, House Bill 436 was passed and went into effect August 1st, 2017 providing exceptions for certain businesses.
Money Transmitters; Licenses; Exemptions. Amend RSA 399-G:3, VII to read as follows: VII. Persons conducting business using transactions conducted in whole or in part in virtual currency.
Due the exemption, New Hampshire moves from hostile to cautionary.Which still leaves some gaping holes
but an improvement over the previous amendment. However, it only covers some
models and other models fall under the original amendment which still exists
stating that monetary instruments include virtual currency.
A company doing
remittance with virtual currency, for example, would not be exempt and would be
required to obtain a money transmitters license.
New Hampshire gets one of only two purple dots with mixed regulations ranging from hostile to friendly.
⬤ NEW JERSEY |
The Uniform Fiduciary Access to
Digital Assets Act[16]
was introduced in 2018 that would authorize estate executors under certain
circumstances to manage digital assets of a decedent.New Jersey has been active in
addressing blockchain or virtual currency, however to date there are no specific
regulations enacted.
New Jersey issued guidance[17]
in 2015 on tax treatments of virtual currency which states virtual currency is
“intangible property” and subject to sales tax.
⬤ NEW MEXICO |
On January 1st, 2017 New Mexico’s Money Services Act[18]
went into effect ending its status as one of the only 3 states left in the
United States without regulation of money transmission leaving only Montana and
South Carolina as the last 2 unregulated money transmission states.New Mexico offered consumer guidance
in 2014, but remained a grey area up until January 1st, 2017 when
any type of entity dealing with virtual currency.
In additional to wording in their regulations that seems to
indicate virtual currency is regulated in New Mexico, the Regulation &
Licensing Department clearly states[19]
their position:
…pursuant to the definitions of “money”, “monetary value”, “money transmission”, ”payment instrument”, “stored value” and “internet-based money services business” as contained within the Uniform Money Services Act §58-32-102 NMSA 1978, it is the position of the New Mexico Financial Institutions Division that any entity engaged in the business of providing the exchange of virtual currency for money or any other form of monetary value or stored value to persons located in the State of New Mexico must be licensed by the FID as a money transmitter.
In 2017 New Mexico was downgraded from
Grey to Hostile and remains in 2018.
⬤ NEW YORK |
The
state of New York is considered a "bitcoin hostile" state.
It is currently the only state that has a specific "virtual currency"
license in addition to its own money transmitters license.
Blockchain technology
itself is not regulated with the exception its token which is considered
virtual currency and thus, regulated.
The
virtual currency license, also known as the BitLicense, regulates any
business conducting transactions with virtual currency regardless if the
company is in the business of transmitting money and regardless of the medium
of exchange which even includes other virtual currencies.
History
On August 9th, 2015, the 45-day grace period for non-exempt organizations to prepare and file for a virtual currency license in New York ended and any company who had not, or has not, filed an application with the Department of Financial Services (DFS) became in violation of 23 NYCRR 200 and not compliant with state law. This in turn enables federal law[20]which states that violating any state's money transmission laws, of which the BitLicense is a lesser form of, is a federal offense punishable by up to multiple years in prison.
Circle, a former "bitcoin company” which no longer transacts or sells virtual currency at all, was ironically the first to receive a BitLicense, followed by Ripple, and Coinbase, the GDAX exchange operator and wallet service, was third. However, a large portion of the organizations operating in the industry space exited the jurisdiction physically or ceased offering services to New York in what was called the “bit-Exodus”[21]. This included major players in the industry such as Kraken, Localbitcoins, Paxful, Bitfinex and many others.
Virtual Currency Application
The application itself,
which was the subject of one of the most popular articles published here on the
process, is a 31-page application that requires copious amounts of intrusive
information on any beneficiary be that an owner, shareholder, or immediate
family or other beneficiary of that beneficiary.
One of the most popular articles on dinbits of all time is in regards to the New York Bitlicense, whereas the article is an opinion piece and intentionally sarcastic, the information is actually factual and is a good starting point for any upcoming hurdles should a company choose to apply, click the link below for more infomration:
⬤ NORTH CAROLINA |
North Carolina passed House Bill 229
in June of 2016 expanding the state's Money Transmitters Act to cover virtual
currency.
However non-custodial companies
with federal registrations in good standing can transact with NC residents
without a state license.
Miners are also provided an exemption. Exchanges, some ATM
operator models, and custodial related services require a money transmitters
license.
The law also
imposes insurance requirements for "cybersecurity risks.".[22]
The clear exemption guidance moves North Carolina from
hostile to cautionary.
⬤ NORTH DAKOTA |
Notably, a bill[23]
to determine whether a virtual currency license should be required for
companies operating in the space was introduced but failed to pass a vote. North Dakota is a grey area with no
blockchain or virtual currency specific regulations enacted or pending.
⬤ OHIO |
Ohio is a cautionary jurisdiction,
however, not due to business activity under which it has no specific
regulation for virtual currency or blockchain technology. Rather, Ohio
prohibits the purchase of alcohol with virtual currency.
Ohio’s alcohol control division cautioned vendors on
accepting virtual currency for alcohol stating that it may violate Ohio law
since it is not actual “money” going so far as to state “Bitcoin cannot be used
to purchase alcohol”.
Although Ohio definitions[24]
are extremely broad appear to possibly cover virtual currency, however, they
contain no mention of “virtual currency” nor is it defined as money or any type
of monetary value.
The State of Ohio currently has a “no-stance” position in
that is has not taken official position on virtual currency as applicable to
existing regulation6. This was stated by both Eric Wolf[25]
of Ohio’s Investigative Unit and by Anna Vitale[26],
Associate General Counsel of the Ohio Department of Public Safety.
Regulation
seemingly applicable to virtual currency, a “no-position”, and a ban on alcohol
purchases in Ohio puts the state in cautionary status.
⬤ OKLAHOMA (⬤ Transmission ⬤ Vendor Use) |
Oklahoma took a position that virtual currency is not free
of a security interest when accepted as payment. In an official comment to a
statute Oklahoma regulation[27] states:
As of 2015, the use of so called ‘bitcoins’ and the like have gained traction as a form of “currency,” i.e., as a payment method. Some sellers of goods or services are willing and able to accept bitcoins in payment. If that payment instead were made in cash, or by a check or other transfer out of a deposit account, any security interest in that, e.g., as proceeds of the deposit account based on the claim of a secured party that has a security interest in inventory, would not impair the payment to the seller or other transfers to a third party. See section 1-9-332 and section 1-9-315(a)(2), (c) and (d). This is a consistent policy under UCC Article 9—see, for example, sections 1-9-320 and section 1-9-321, and is particularly strong with respect to ‘currency.’ However, section 1-9-332 cannot be construed to protect the receiver of bitcoins.
The difference being that traditional
money transmission would be free of an existing security interest. This appears
to state that money transmission laws in Oklahoma may not be applicable to virtual
currency transactions, however state that a seller accepting bitcoin would not
be taking that payment free of a security risk.
For this reason, Oklahoma receives one of only two purple dots on the list, which refers to a "mixed" state of regulation where the state is in a cautionary status for vendor use and gray area status for transmission since this appears to loosen the noose regarding money transmission, although not a friendly status since it does not specifically declare it so.
⬤ OREGON |
Oregon is a grey area with no current regulation specific to the blockchain and virtual currency industry. However, Oregon regulations likely cover virtual currency under its definition of monetary value and certainly cover cash and cash-like trades covered by federal regulation.
Oregon handles this determination on a case-by-case basis after reviewing a company's operating model and funds flow.
⬤ PENNSYLVANIA |
Pennsylvania introduced a bill[28]
which would amend its money transmitter laws to include virtual currencies under
the regulations definition of "monetary value".
However, the effort has not moved forward and appears to be
stalled permanently in its current state.
With the stalled bill and no further regulation pending or
enacted, Pennsylvania moves from its previous hostile status, to cautionary.
⬤ RHODE ISLAND |
Rhode Island is a grey area with no blockchain or virtual currency specific regulations.
⬤ SOUTH CAROLINA |
South Carolina, like New Mexico,
become one of the last 3 states to enact[29]
its money transmission law leaving only Montana without regulations governing
the activity.
South Carolina adopted the ULC MSA[30]
with has been interpreted in different ways.
For example, the Texas guidance[31]
outlines how it’s version of the MSA does not pertain to virtual currency in
most cases, a position with has adopted by multiple state regulators and its
guidance used as a model for regulatory guidance issued by other states.
Washington, on the other hand, is an example of another
interpretation of the MSA where regulators state that virtual currency is
covered by their existing laws and the state has additionally amended its
version of the MSA to specifically cover virtual currency.
South Carolina has issues no guidance its current version of
the MSA and has no regulation pending or enacted specific to virtual currency
or blockchain technology.
For this reason, South Carolina loses its friendly status,
however, unlike New Mexico (hostile), the state moves only to cautionary
status.
⬤ SOUTH DAKOTA |
South Dakota is a grey area with no current virtual currency or blockchain specific regulations enacted or pending.
⬤ TENNESSEE |
The
Tennessee Money Transmitters Act[32]
does not include virtual currency and virtual currency is not considered money.
Likewise, for net worth purposes virtual currency is not allowed as part of
that calculation.
This
is pursuant with Memo 2015-12-16 titled "Regulatory Treatment of
Virtual Currencies under the Tennessee Money Transmitter Act" issued the
Tennessee Department of Finance Institutions (DFI) which in modeling appears
very much like guidance from Texas and Kansas.
Their statement of policy reads:
Automated
Teller Machine treatment is much like TX and KS as well.
Exchange of cryptocurrency for sovereign currency through an automated machine is usually but not always money transmission. For example, several companies have begun selling automated machines commonly called “Bitcoin ATMs” that facilitate contemporaneous exchanges of bitcoins for sovereign currency. Most such machines, when operating in their default mode act as an intermediary between a buyer and seller, typically connecting through one of the established exchange sites. When a customer buys or sells bitcoins through a machine configured this way, the operator of the machine receives the buyer's sovereign currency in exchange for a promise to make it available to the seller. However it is worth noting that at least some Bitcoin ATMs can be configured to conduct transactions only between the customer and the machine's operator, with no third parties involved. If the machine never involves a third party, and only facilitates a sale or purchase of Bitcoins by the machine's operator directly with the customer, there is no money transmission because at no time is money received in exchange for a promise to make it available at a later time or different location.
⬤ TEXAS |
Texas
was the first state in the United States to formally address virtual currency
regulation. On April 3rd, 2014 the state of Texas issued guidance in the form
of Supervisory Memorandum 1037 which was titled "Regulatory Treatment
of Virtual Currencies Under the Texas Money Services Act".
Then governor Rick Perry was said in response to inquires about the states position on bitcoin stating bitcoin "helps create jobs".
As a result, Texas has been one of the most bitcoin friendly states in the United States since 2014.
Notably Texas the publication
states specifically that:
Guidance
|
|
|---|---|
| 1 | Exchange of cryptocurrency for sovereign currency between two parties is not money transmission. This is essentially a sale of goods between two parties. The seller gives units of cryptocurrency to the buyer, who pays the seller directly with sovereign currency. The seller does not receive the sovereign currency in exchange for a promise to make it available at a later time or different location. |
| 2 | Exchange of one cryptocurrency for another cryptocurrency is not money transmission. Regardless of how many parties are involved, there is no receipt of money, and therefore no money transmission occurs. |
| 3 | Transfer of cryptocurrency by itself is not money transmission. Because cryptocurrency is not money or monetary value, the receipt of it in exchange for a promise to make it available at a later time or different location is not money transmission. This includes intermediaries who receive cryptocurrency for transfer to a third party, and entities who, akin to depositories, hold cryptocurrency on behalf of customers. |
Further stating that only
exchanges such as Mt Gox, sometimes, or certain ATM configuration could be
considered money transmission by the state. (specifically when the ATM is sourced by another party on behalf of the owner when a customer makes purchase)
Recent Events (2017)
In
2017 Texas Representative Matt Schaefer, proposed a Bill[33] that will make owning
bitcoin a constitutional right. The bill would alter Article I of the Texas
state structure to enshrine the correct to use any “mutually agreed upon medium
of exchange”.
“ARTICLE I, TEXAS CONSTITUTION, IS AMENDED BY ADDING…THE RIGHT OF THE PEOPLE TO OWN, HOLD, AND USE A MUTUALLY AGREED UPON MEDIUM OF EXCHANGE, INCLUDING CASH, COIN, BULLION, DIGITAL CURRENCY, OR SCRIP, WHEN TRADING AND CONTRACTING FOR GOODS AND SERVICES SHALL NOT BE INFRINGED. NO GOVERNMENT SHALL PROHIBIT OR ENCUMBER THE OWNERSHIP OR HOLDING OF ANY FORM OR AMOUNT OF MONEY OR OTHER CURRENCY.”
If
passed, this would prevent authorities from preventing or interfering with use,
ownership, or the acquisition of any digital currency.
⬤ UTAH |
Utah enacted a 2015 bill[34] allowing
residents to pay taxes with virtual currencies.
The state has no virtual currency
or blockchain specific regulations in regard to virtual currency business
models or pertaining to money transmission and pair with the tax allowance,
Utah is “bitcoin friendly”.
Notably, Overstock.com, a large
supporter of virtual currency, bitcoin, and blockchain technology resides in
Utah.
⬤ VERMONT |
Neighboring
New Hampshire took similar action in 2015, however have since provided
exemptions for some business models. Vermont hasn't gone as far as provide
exemptions for virtual currency models, but did make bitcoin a
"permissible investment" meaning that a company’s value in bitcoin is
acceptable as proof of asset holdings value and net worth.
Vermont
claims virtual currency has always been covered by their state laws, even
though there is no mention to virtual currency anywhere in any of their laws
prior to 2017. However, in 2014 they went after a local bitcoin ATM operator
and have since made it official. As of May 2017, virtual currency is included
in their definitions as "stored value" making any dealer, broker, or
merchant selling bitcoin a money transmitter.[35]
Vermont
also enacted bill 868 in 2016 which recognizes records stored with blockchain
technology a legally verifiable record in court proceedings.[36]
⬤ VIRGINIA |
Virginia is a “bitcoin hostile” state. Virginia’s Bureau
of Financial Institutions requires[37] a
money transmission license be obtained by any company dealing with virtual
currency to legally operate in the state.
⬤ WASHINGTON |
Washington is arguably the most bitcoin hostile state next to New York.
In July 2017, the state passed a bill[39] which puts virtual currency exchange operators under the state's money transmitter laws and requires them to comply with the licensing requirements as traditional transmitters.Along with New York, Washington has emerged as one of the most heavily regulated states for the virtual currency industry. The state includes virtual currency within its definition of money transmission in its Uniform Money Services Act[38].
Digital currency is included in
the definition of “Money Transmission” in the Uniform Money Services Act
(UMSA), chapter 19.230 RCW.
19.230 RCW previously stated that “Money transmission” means receiving money or its equivalent value
to transmit, deliver, or instruct to be delivered the money or its equivalent
value to another location, inside or outside the United States, by any means
including but not limited to by wire, facsimile, or electronic transfer.
Washington has claimed this covered virtual currency since 2015,
however, the revision passed in 2017 is now much stricter.
(18) "Money transmission" means receiving money or its equivalent value (equivalent value includes virtual currency) to transmit, deliver, or instruct to be delivered to another location, inside or outside the United States, by any means including but not limited to by wire, facsimile, or electronic transfer. "Money transmission" includes selling, issuing, or acting as an intermediary for open loop prepaid access and payment instruments, but not closed loop prepaid access. "Money transmission" does not include: The provision solely of connection services to the internet, telecommunications services, or network access; units of value that are issued in affinity or rewards programs that cannot be redeemed for either money or virtual currencies; and units of value that are used solely within online gaming platforms that have no market or application outside of the gaming platforms.
(19) "Money transmitter" means a person that is engaged in money transmission
Arguments and Notes
| Example A |
| If you go to a bitcoin ATM and pull out $20 worth of bitcoin and then pay for a cup of coffee. Did you just transmit money? Apparently not, the regulation later states that facilitating payment for goods or services (with the exception of money transmission) is exempt. |
| Example B |
| Many night clubs will not accept credit cards, they insist on cash only. Same wording would almost apply to a person pulling $20 from and handed it to the bartender. Did you just transmit money? Likely not, there is no part of this section which includes person-to-person transfers of which that would be. |
Money transmission means "means receiving money or its equivalent value (equivalent value includes virtual currency) to transmit, deliver, or instruct to be delivered to another location" and that is rather vague. Specifically, the wording "to transmit, deliver, or instruct to be delivered to another location." which is very broad and could include just about anything for any reason. Buying a cup of coffee would be covered with that statement.
Virtual currency, however, is
transferred electronically and thus would obviously fit within this regulation
and there is no "investment" or "property" type exceptions
in any section other than a licensed "broker". Sec. 2(10)
⬤ WEST VIRGINIA |
West Virginia, unlike every other state in the United States, opted the use of the term "cryptocurrency" instead of "virtual currency" which could arguably not include virtual currencies not secured by cryptography since the common understanding of the term "cryptocurrency" involves a token secured by cryptography.
HB2585 amended the Code and West Virginia
Sections 61-15-1, 61-15-2, 61-15-3 and 61-15-4 to include a definition of
virtual currency as "cryptocurrency" in § 61-15-1(3)
which reads:
“Cryptocurrency” means digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, and which operate independently of a central bank.
The definition is under felony provisions of its articles 8(a), 8(c), and 14. The amendment further defines monetary instruments as:
“Monetary instruments" means coin or currency of the United States or of any other country, travelers’ checks, personal checks, bank checks, gift cards, prepaid credit cards, money orders, cryptocurrency, investment securities in bearer form or otherwise in such form that title thereto passes upon delivery, and negotiable instruments in bearer form or otherwise in such form that title thereto passes upon delivery.
✔ Some relief of liability is provided in 61-15-2(a) stating that:
It is unlawful for any person to conduct or attempt to conduct a financial transaction involving the proceeds of criminal activity knowing that the property involved in the financial transaction represents the proceeds of, or is derived directly or indirectly from the proceeds of, criminal activity:
Unlike related federal law which prohibits any kind of money transmission regardless of knowledge of the legality of any transaction. Federal law has separate enforcement for money laundering or knowingly laundering money.
That said, the amendments are not in the money transmission laws, however they place the definition of "cryptocurrency" under the definition monetary instruments of which also defines violations included in the amended article[40], which governs the activity under West Virginia law.
“Felony violations of article two of this chapter”
This includes virtual currency under
prohibition of money laundering where an operator gains knowledge of funds from
any illicit activity being used in any transaction which would include money
transmission and further enforced[41].
⬤ WISCONSIN |
Wisconsin is a grey area with no blockchain or virtual currency specific regulations enacted or pending.
The state will not issue a money transmitter license to virtual currency businesses and has asked money transmitter license holders that deal in virtual currency to sign an agreement that the company will not use virtual currency to transmit money using the license.
Additionally, the state will not take a position of no-action regarding any virtual currency business.
⬤ WYOMING |
In 2016 Wyoming attempted to pass bitcoin friendly legislature which failed. However, in 2018 two bills passed that put Wyoming in “bitcoin friendly” status.
“Open Blockchain tokens” offered through an Initial Coin Offerings (ICO) are exempted from regulation providing the token hasn’t been marketed “as an investment” and is used as a payment method or other exemptible asset.
On March 5, the state passed House Bill 19 exempting virtual currencies from the Wyoming Money Transmitter Act.
Unfortunately some of these arrests were targeting unknowing individuals and small business of whom had no intention or desire to do anything illegal, but the current law in the United States is a bit unfair in this area and it states that even if you do not know that you are violating any states money transmission laws, you will still be prosecuted and that defense is not viable.
It's very difficult for a small business or independant to cover the high price or compliance with federal and state regulations which can costs millions to setup and thousands monthly.
Note, for the most part, this does not apply to trading on regulated exchanges such as Gemini or Coinbase.
Stay safe.
Summary
In summary, the United States is getting serious about virtual currency regulation and its enforcement as is evident of the record number of arrests in 2017.Unfortunately some of these arrests were targeting unknowing individuals and small business of whom had no intention or desire to do anything illegal, but the current law in the United States is a bit unfair in this area and it states that even if you do not know that you are violating any states money transmission laws, you will still be prosecuted and that defense is not viable.
It's very difficult for a small business or independant to cover the high price or compliance with federal and state regulations which can costs millions to setup and thousands monthly.
Note, for the most part, this does not apply to trading on regulated exchanges such as Gemini or Coinbase.
Stay safe.
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[item title="References"]
[1]
Guidance Document MT
2014-01, Regulatory Treatment of Virtual Currencies Under the Kansas Money
Transmitter Act, (June 6, 2014)
[4]
31 C.F.R. § 1020.315(c)
(2000).
[6]
Office of the
Commissioner of Financial Regulation - "Virtual Currencies: Risks for
Buying, Selling, Transacting, and Investing" - Advisory Notice 14-01
[15] D. (2015,
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https://news.dinbits.com/2015/12/monday-alarmed-free-staters-with-new.html,
Pub. (Dinbits, Inc. d/b/a dinbits media)
[16]
2016 NJ A.B. 3433
[17]
Technical Advisory Memorandum,
N.J. Division of Taxation, Convertible Virtual Currency (TAM– 2015–1) July 28,
2015
[19] FAQ's, Rld.state.nm.us (2018),
http://www.rld.state.nm.us/financialinstitutions/faq-s.aspx (last visited Mar
14, 2018).
[21] “Localbitcoins.com Join
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https://news.dinbits.com/2015/08/localbitcoincom-joins-exodus.html
[25]
Eric Wolf, Ohio
Investigative Unit in response to legality of accepting bitcoin for alcohol
sales. (614) 728-1369
[26]
Anne Vitale in response
to inquiry pertaining to the sale of alcohol and accepting bitcoin as payment.
July 17th, 2014
[52] CA AB-129 Reg. Sess. (Cal. 2017)
[53] Commissioner Gardner (CCUL) moved that the commission table the “Regulation of Virtual Currency Businesses Act” until next year. Commissioner Wist seconded and the motion passed without objection. Nov. 3rd, 2017 CCUL Loc. SCR 352. 71st Gen. Assembly. (Colorado 2017)
[64] FinCEN publication FIN_2013_G001 defines “users” as “a person that obtains virtual currency to purchase goods or services.”
[66] Juan Suarez, Coinbase Legal, How Bad Policy Harms Coinbase Customers in Hawaii – The Coinbase Blog The Coinbase Blog, https://blog.coinbase.com/how-bad-policy-harms-coinbase-customers-in-hawaii-ac9970d49b34 (last visited Feb 11, 2018)