Since Bitcoin’s legal status in not fully clear (even to U.S. regulators), it is very difficult for Bitcoin businesses to stay compliant with local laws.
It is unclear whether governments consider Bitcoin to be a “currency” or a “commodity”. Depending on how Bitcoin is classified, a business may or may need to seek a money transmitter license.
Recent law enforcement action by a Florida prosecutor charging two sellers at LocalBitcoins.com with operating an “unlicensed money service business” might give us an idea as to the U.S. governments stance on this issue...
But, things may be different overseas.
Legislators in Europe may be taking a different stance towards the regulation of Bitcoin as a currency. In Finland, the head of oversight at the Bank of Finland declared that Bitcoin doesn’t meet the definition of a currency. In this case, this small country to declared Bitcoin to be a commodity.
The country of Norway also followed suit to declare Satoshi’s Bitcoin, a commodity as well.
A judge in the U.S. recently made statements in a case where a Texas man (who was accused of running a Ponzi scheme), that might reflect light on this issue. This judge stated that that although Bitcoin was accepted as money in some online stores, it was not accepted everywhere, but can still be exchanged for U.S. currency.
This same judge wrote in an email to NBC news that “Bitcoin is becoming recognized as commodity money in the same way that gold and silver are recognized as money."
I believe this quote leaves the door open for interpretation and could leave the door open for a prosecutor to take legal action in either direction.
Although there are many contradictory statements concerning Bitcoin's status, it is very important to stay advised by legal counsel because the judicial penalties are quite severe. The Florida defendants in the case above case are facing large fines and years in jail.
Always consult with an attorney before starting a business involving Bitcoin or otherwise! (Never take legal advice via an online article.)
Registering with the government as a licensed money transmitter is both and expensive and lengthy process. It can take multiple years to be approved for such a license.
FinCEN (Financial Crimes Enforcement Network) has stated that the conversion of Bitcoins into U.S. currency is considered to be the transmission of money. Thus requiring businesses who do this, to register as a money service business. (However this may not apply to infrequent or low volume traders.)
If you are registered as a money service business, you are required to abide by certain guidelines including reporting suspicious activity, as well as gathering the identity of those engaged in the transaction and holding this information for 5 years.
Obviously these laws will differ based on the country and state in which you are located.
It is still very difficult to know if a particular Bitcoin business needs to register with FinCen. Interpretation of federal and state laws makes this even more ambiguous!
With the seller of Bitcoins facing jail time, it is very important to be aware of any legal issues when converting Bitcoins into dollars. This is especially true if this is occurring in high dollar amounts!
In the Florida case, the purchaser of the bitcoins stated that he wanted to use them to purchase illegal credit card numbers! I think this was most likely the reason why these charges were brought against these two Florida men.
Then the seller still decided to go ahead with the sale anyways. It is unclear whether or not the Miami prosecutor was using the money transmission laws to crack down on the sale of illegal goods, or was establishing Bitcoin sales guidelines by setting up this case.
All types of money service businesses must register with FinCEN to obtain a money transmitter license... It is quite easy to register on FinCEN's website to apply for a license, but actually obtain the license is difficult.
Money service licenses have been granted to companies like Paypal, Western Union, and American Express.
It can be a long, expensive, process to obtain an MTL. Bitcoin businesses may also work with a licensed transmitter (if they would like to forego the difficulty of obtaining their own licenses).
The cost to obtain a money transmitter license is quite high. It also can be a long and arduous process which can span years!
You should never use an online article (like this one) to guide you legally, but in the opinion of the author of this article, i do think this might only apply to larger conversions of Bitcoin to dollars through the local bitcoins site.
The Florida prosecutor also stated that the seller was notified by the buyer that the Bitcoins were going to be used to purchase illegal credit card numbers...SO, my personal belief is that the prosecutor sought legal action to dissuade against the use of money laundering or illegal activity through the Bitcoin system by seeking prosecution against this seller.
This case demonstrates the governments lack of understanding of cryptocurrencies.
Since they have not formally declared their stance on whether Bitcoin is even a currency, it can be difficult for users to comply with laws that don’t actually exist yet.
Ex-post facto laws are prohibited in the U.S. constitution, so it seems to me that the Florida prosecutor might have an uphill battle if the defendants were able to adequately fight it.
Bitcoin has not been declared a currency, although some presidency has been set. BUT, as someone who has a very limited understanding of the legal system, there may still be ways to proceed with this case. So, it is still unclear as to how, if, or when, prosecutors will come after large volume bitcoin sellers.
It seems as though large sellers need to be very careful as to whether they would be considered a money service business or they should be working with a licensed money transmitter to conduct transactions.
Last modified (UTC): February 18, 2014 2:32 PM