Bitcoin News
Daily diary of what's happening with Bitcoin.
Patrick Murck (@VirtuallyLaw), General counsel and board member of Bitcoin Fondation posted on FinCEN’s recent guidance regarding using and exchanging virtual currencies. Excerpts:
“Upon an initial reading two things struck me:
FinCEN firmly believes that virtual currency in general, and bitcoin in particular, does not fall under the pre-paid access rules.
FinCEN seems intent on recreating and expanding the pre-paid access rules for virtual currency and bitcoin under the mantle of money transmission.”
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“Under the Administrative Procedures Act (APA), FinCEN can’t promulgate new rules without going through a notice and comment proceeding whereby the public may have their voices heard. If FinCEN would like to expand its statutory authority over “money transmitters” to include brand new categories such as ‘administrators’ and ‘exchangers’ of digital currency it must do so through proper rulemaking proceedings and not by fiat.”
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“FinCEN’s guidance implies that every person who has ever had any virtual currency and has ever exchanged that virtual currency for real currency may now be considered a money transmitter under the Bank Secrecy Act. That is, of course, an untenable position.”
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“This framework would wildly expand the reach of FinCEN and the BSA, and would be infeasable for many, if not most, members of the bitcoin community to comply with. […] The BSA was never intended to apply this broadly and reach this far into people’s everyday lives.”
- https://bitcoinfoundation.org/blog/?p=152
- http://bitcointalk.org/index.php?topic=154672.0 (Further discussion of the topic)
- http://1.usa.gov/117bnWj (FinCEN FIN-2013-G001)
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Forbes contributor and Bitcoin Foundation (@BTCFoundation) board member Jon Matonis (@JonMatonis) considers the impact a government ban on Bitcoin would have on the fledgling currency. Excerpts:
“The demand for an item, in this case digital cash with user-defined levels of privacy, does not simply evaporate in the face of a jurisdictional ban.”
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“Ironically, the ban would create something like the Streisand effect for Bitcoin generating an awareness for entire new demographic groups and new classes of society.”
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“[Bitcoin is] a bet that career mobility and independent contractor businesses will eventually outstrip the growth of the corporate wage-slave population.”
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“[The government’s] best response to Bitcoin is irrelevancy, or failing that, extreme gold-like market manipulation for as long as possible. The end game for the State is perpetuating the fiat myth — their fiat myth not the populace’s cryptographic Bitcoin myth. They have always known that faith in money is a mass illusion, however they never considered that they wouldn’t be in charge of the illusion.”
- http://onforb.es/112nF0u
- http://bitcointalk.org/index.php?topic=139516.0 (Further discussion of this article)
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Timothy B. Lee (@BinaryBits)’s latest post on Bitcoin explores a frequently raised topic regarding Bitcoin and the law. Excerpts:
“Nothing like Bitcoin existed when current laws were written. A wide variety of laws regulates banks, money transmitters, currencies, and securities—but none of these categories are a good fit for bitcoins.”
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“Nikolei Kaplanov says ‘so long as you are purchasing legal things and you’re conducting yourself in a manner where you’re making regular exchanges in person or through a company online, there are no legal hurdles whatsoever.’”
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“Kaplanov said it was ‘not a laughable argument’ that Bitcoin miners are money transmitters, though he did think it was a ‘huge stretch.’”
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“Bitcoin exchanges need to register as money-transmitting services with the relevant state or federal authorities and comply with regulations governing money-transmitting services, Kaplanov said.”
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“Bitcoin products keep arriving, and if their popularity grows, states may take a more active interest in regulating the currency than they do now.”
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“Shutting down the network in one country is unlikely to have much effect. It will continue to operate in other jurisdictions, and users in the jurisdiction where the technology is banned can easily participate in Bitcoin transactions via VPN.”
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“[Kaplanov] thinks it would be a bad idea for the US government to do anything dramatic, such as try to outlaw the cryptocurrency.”
- http://bit.ly/T4c3WT
- http://bitcointalk.org/index.php?topic=103022.0 (Further discussion on the articles)
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Rohan Pearce (@rohan_p) wrote a piece in Computer World Australia describing ways Bitcoin was flagged as a “potential vulnerability” as part of a July 2012 report on money luaundering by Australian watchdog AUSTRAC. Excerpts:
“‘AUSTRAC is aware that digital currencies, such as those offered by Bitcoin, may become more attractive to criminal groups, particularly in response to tighter regulation and monitoring of established or traditional financial channels by both government and the traditional financial service providers themselves,’ [AUSTRAC CEO] Schmidt says.”
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“‘By not being able to easily trace either the criminal or the placement of money, and coupled with the issue of which country should criminal proceedings be brought in, it is appealing to criminals who want to quickly launder money,’ Chambers-Jones argues.”
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“‘By far the bulk of attempted money laundering activity continues to be undertaken through the mainstream financial system,’ Schmidt says.”
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“Chambers-Jones believes that while governments and law enforcement agencies are aware of the potential of virtual world money laundering, there needs to be political will to specifically regulate the area. ’You need to get all countries to agree on a policy and this is going to be incredible difficult to get a consensus on because of the societal difference which underpin legislation,’ she says.”
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“‘No one country or body regulates and monitors the internet, and therefore no-one can control in the most part what goes on within the internet,’ Chambers-Jones says.”
- http://bit.ly/RUbenj
- http://www.austrac.gov.au/files/typ_rprt12_full.pdf
- http://bitcointalk.org/index.php?topic=100764.0 (Forum discussion for this report)
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A post on Bitcoin Money blog (@BitcoinMoney) describes a session at an upcoming conference in which regulators, bankers and anti-money laundering specialists will be discussing our favorite digital currency. Excerpts:
“One of the conference sessions under the Trends in Technology track, titled New Trends in e-Payment Methods: Understanding the Virtual Customer, will let attendees: ‘Analyze financial crime trends and vulnerabilities in credit cards, Bitcoin and pre-paid cards, especially in developing countries’.
“Why might Bitcoin be getting addressed explicitly this year? There have been no laws passed addressing Bitcoin or digital currency in general even nor have regulators given any guidance for dealing with Bitcoins.”
“These delegates are the lieutenants for the old guard. They help assert control so that we have no choice but to continue suffering through price increases as currencies around the world are debased. They maintain the control which ensures that we are tied to a system that rewards its loyal customers with $30 overdraft fees, 30% interest rates and $3 million bonuses for the executives”.
A post on Bitcoin Money blog describes how the FATF updated its anti-money laundering (AML) recommendations and includes some wording that is relevant to Bitcoin. Excerpts:
“Recommendation 14: […] Countries should take action to identify natural or legal persons that carry out MVTS without a license or registration, and to apply appropriate sanctions”.
“Protections are in place for licensed instituations, such as the banking industry. The FATF has a provision establishing that know your customer (KYC) requirements for some wire transfers (those below a “de minimis” threshold, i.e., $1,000 USD) can be skipped. But for unlicensed individuals, such as those exchanging bitcoins, there appears to be no no such “de minimis” exemption”.
“One has to wonder though how much higher the growth of Bitcoin currency would be if the future regulatory uncertainty weren’t holding Bitcoin’s adoption back from its use in commerce.”
- http://www.bitcoinmoney.com/post/17733869030
- http://www.fatf-gafi.org/dataoecd/49/29/49684543.pdf (PDF of Recommendations)
- http://1.usa.gov/Af6dwa (PDF of Foreign MSB Advisory)
A post on Bitcoin Money blog describes the latest development at Bitcoinica but also includes a cautionary note regarding the trading service’s current status. Excerpts:
“Bitcoinica has started paying interest to those holding balances in their accounts with the service and will start passing through interest rate differentials to those using leverage to hold BTC/USD positions”.
“A contributing factor to Bitcoinica’s growth has been that its margin accounts are trivially easy to open and leverage is granted automatically without restrictions”.
“Faced with a concern from a customer that withdrawal will require identification Tong responds ‘Currently we don’t have any KYC procedures. […] Just don’t worry about it’.”
“Even if Bitcoinica has a plan to get itself “in full compliance”, it may not have the “few more weeks” to do so”.
- http://www.bitcoinmoney.com/post/17566027429
- https://bitcointalk.org/index.php?topic=63694
GoWest, editor of The Bitcoin Trader blog, had the scoop in reporting on a development where GoldMoney is cancelling its online payments system. The organization has placed the blame on a “global increase in compliance requirements” for the action taken. GoWest’s summary:
“In other words, GoldMoney is officially no longer a competitor to Bitcoin.”
Additional commentary appears in the Bitcoin Money blog. Excerpts:
“Ironically, just weeks ago Dr. Edwin Vieira described how if the U.S. monetary system collapses, as he suspects it will, GoldMoney’s online payments system is the model for the states to implement themselves, independently”.
“GoldMoney did not disclose specifically which additional compliance requirements caused the company to decide to suspend the online payments service. Some bitcoin exchanges offer a similar member-to-member payments service. These include Mt. Gox’s redeemable code payments mechanism and TradeHill’s user-to-user transfer service”.
- http://www.bitcoinmoney.com/post/14544847244
- http://bit.ly/sBMN2k (The Bitcoin Trader blog)
- http://bit.ly/vQ6A5k (Dr. Vieiera’s comments on GoldMoney)
- http://bit.ly/uYut3Z (Trace Mayer’s opinion on GoldMoney)
A report from forum member Joepie copies a “blurb of text” that appears to be a response from the UK’s Financial Services Authority (FSA) on what regulations from the agency might apply to Bitcoin.
The response, allegedly from the FSA, includes the message that roughly concludes that bitcoin transactions in the U.K. are likely subject to the agency’s anti-money laundering (AML) regulations. Specifically:
“Independently of whether your firm falls within the scope of FSMA or the Money Laundering Regulations, the fact that it appears to be handling funds (in the broadest sense) makes it likely that the firm will be caught by the UK’s sanctions regimes”.
A reply to the post requests more information about the source of content from Joepie’s post however there has not yet been any response.
A post on Bitcoin Money blog describes statements by FinCEN director Freis regarding Prepaid Access and on who might be required to register as a U.S. money services business (MSB). Some of Freis’ excerpts:
“The new rule was designed to be technology neutral and is meant to be adaptable to a range of products, such as a plastic card, an internet system, or a mobile phone network”.
“[Criteria that determines if a product is subject to the new rules include] whether the product is reloadable, can be transferred to other consumers, and, […] can be used to transfer funds outside the United States”.
“We will be publishing [a] proposal for public comment very soon [on the requirement that tangible prepaid access is declared] when it is transported across a border, similar to the existing declaration required for international transport of cash and monetary instruments”.
“An entity that engages in money transmission in any amount is subject to the BSA rules”.”The term ‘currency dealer or exchanger’ [has been replaced] with the new term ‘dealer in foreign exchange,’ a term used to include the exchange of instruments other than currency as a category of MSB”.
“It is recognized that AML/CFT regulations need to be applied not just to banks, but rather to a range of financial and other types of commercial institutions. Why? The reason is that any way that you can move money—any way that value can be intermediated—can be abused by criminals”.
“Violations by much smaller entities might also merit monetary penalties”.
“Over the past year FinCEN has been engaged in an initiative to identify unregistered money services businesses, primarily independent money transmitters”.
“Now that FinCEN has established a solid regulatory framework for prepaid access in the United States, we must continue to promote analogous steps in foreign jurisdictions”.
A response in the Bitcoin Money post:
“Bitcoin is not a ‘prepayment of value’ that the product’s buyer would then later redeem to gain access to those funds previously paid. However, the words chosen in the ruling and in this speech are so broad that they appear to cover Bitcoin transactions as well”.
“The final ruling appears to have raised little concern among the Bitcoin community”.
“The state does appear to have positioned themselves with such a broad net that they could impose civil fines or criminally prosecute any miner or trader who [exchanges Bitcoins] without registering and complying”.
- http://www.bitcoinmoney.com/post/11074108719
- http://www.fincen.gov/news_room/speech/pdf/20111005.pdf (Freis’ transcript)
- http://www.gpo.gov/fdsys/pkg/FR-2011-07-29/pdf/2011-19116.pdf (Final Rule)
- http://www.fincen.gov/news_room/nr/pdf/20110715.pdf (Money Services Business Definition)
