Interpreting the Recent FinCEN Rulings on Virtual Currencies


This article is a review of the current FinCEN administrative rulings as they apply to the use of virtual foreign currencies in the United States. FinCEN first began contemplating virtual currencies within March 2013 when they launched FIN-2013-G001. Their original judgment did not consider users associated with virtual currencies to be sellers in foreign exchange, which was a positive outcome because being a seller in foreign exchange brings with it significant compliance requirements. There was, however, one paragraph within FIN-2013-G001 that was both unpredicted and problematic. In area c., FIN-2013-G001 read:

“A person that produces units of this convertible digital currency and uses this to purchase real or digital goods and services is an user of the convertible virtual currency and not subject to regulation as a cash transmitter. By contrast, a person that produces units of convertible digital currency and sells all those units to another person with regard to real currency or the equivalent is engaged in tranny to another location and is a cash transmitter. ”[1]

A plain reading through of this language could just lead one to conclude that a miner who creates digital currency and sells this to another person is performing as a money transmitter. luckily, this problem seems to have been solved by the recent “Atlantic town Bitcoin Ruling”, which has right now been formally published simply by FinCEN as FIN-2014-R001. This new ruling supersedes the earlier 1:

“To the particular extent that an user puits Bitcoin and uses the particular Bitcoin solely for the user’s own purposes and not for the benefit of another, the user is not an MSB under FinCEN’s regulations, because these activities include neither “acceptance” nor “transmission” of the convertible virtual foreign currency and are not the tranny of funds within the which means of the Rule. This is the situation whether … the user will be purchasing goods or services for the user’s own use, paying financial obligations previously incurred in the regular course of business, or (in the case of a corporate user) making distributions to investors. ”[2]

The above paragraph will be significant. It says that will, so long as an user is “using Bitcoin” (i. e., marketing it) for their own reasons, then they are not engaged in cash transmission and are not considered to be a money transmitter (and do not need to register as an MSB below FinCEN’s regulations. ) the particular paragraph even allows that a general partner who is exploration on behalf of a limited partnership can make partnership distributions (whether within Bitcoin or in dollars) without being engaged in money tranny. There is, however, still the gray area here: it is not clear whether or not an agent who is mining Bitcoin for another consumer becomes a money transmitter by making a distribution to that consumer. The answer probably depends on the lawful structure of their relationship. We hope that FinCEN addresses this particular question next because it impacts many existing business models in our industry.

The Atlantic town Bitcoin Ruling was officially published by FinCEN upon January 30th, 2014, along with another ruling, FIN-2014-R002[3]. The first ruling dealt with miners. The second applies the same sort of logic to traders. these types of rulings not only describe the conditions in which miners and investors might become money audio receivers, they also apply themselves a lot more broadly to all virtual foreign currency users:

“How an user obtains a digital currency … is not materials to the legal characterization [of the user] under the BSA … What is material to the conclusion that a person is not an MSB is [the question of] what the individual uses the convertible digital currency for, and for in whose benefit. ”[4]

This is a good result for the Bitcoin business. Although we still have a good incomplete picture of the regulating landscape, we do know two things: 1) So long as a person is buying or selling Bitcoin for their own benefit, they are not acting as a money transmission device, and 2) FinCEN will be working hard to identify and tackle potential issues in our business, and they will give you guidance if you ask for it. We motivate anybody who has questions about their own situation to contact FinCEN directly.






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