FinCen March Guidance and Bitcoin

FinCen published a “Guidance” document in March of this year on virtual currencies. The section relevant for Bitcoin is reproduced here:

 c. De-Centralized Virtual Currencies

A final type of convertible virtual currency activity involves a de-centralized convertible virtual currency (1) that has no central repository and no single administrator, and (2) that persons may obtain by their own computing or manufacturing effort.

A person that creates units of this convertible virtual currency and uses it to purchase real or virtual goods and services is a user of the convertible virtual currency and not subject to regulation as a money transmitter. By contrast, a person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter. In addition, a person is an exchanger and a money transmitter if the person accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency.

Let’s take a real close look at this one sentence at a time. They start out with “A person that creates units of this convertible virtual currency and uses it to purchase real or virtual goods and services is a user of the convertible virtual currency and not subject to regulation as a money transmitter.”

Such a person would be called a miner when talking about the Bitcoin network. So if you got yourself some bitcoins by mining, you may exchange them for goods or services. That probably means by extension that if you bought bitcoins, you can do the same.

The next sentence says “By contrast, a person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter.” So if you mined some bitcoins, you become a “money transmitter” the moment you don’t spend them in the Bitcoin network economy, but sell them to some other person.

That doesn’t make any sense to me.

What exactly is the difference between paying for a meal in a restaurant with 50 dollars worth of bitcoins, and giving the same amount of bitcoins to someone who pays 50 dollars for it? Why should one case be free of regulation, the other one not?

And does that strange guidance apply also to people who have bought bitcoins, as opposed to having mined them? I have bought some bitcoins at MtGox. Would I be a “money transmitter” if I decided to sell some of them some time in the future? The guidance would not apply directly to my case, since I never created any bitcoins. Let’s just say I’m not sure how they would decide on that case.

The last sentence is “In addition, a person is an exchanger and a money transmitter if the person accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency.”

I agree that such a person would be an exchanger. But why are they are a “money transmitter”?

The logic behind this seems to be that “money transmitting” includes cases where one user changes one form of money for another. Money transmitting does not seem to require at least two parties, in the opinion of FinCen. So if I pay 50,000 yen into my MtGox account and then buy some bitcoins with that, my yen balance at MtGox changes to a bitcoins balance. That triggers “money transmission” rules.

I don’t agree with this line of reasoning. It is not compatible with common sense. But judging from this “Guidance” document, FinCen uses a very broad definition of “money transmission”. That might include many cases where such inclusion would seem to be rather surprising.

If someone mines and then sells bitcoins, they are a “money transmitter” under this guidance. I doubt that everyone this applies to has registered with FinCen and got licenses in 48 American States before selling.

Published by kflenz

Professor at Aoyama Gakuin University, Tokyo. Author of Lenz Blog (since 2003, lenzblog.com).

4 thoughts on “FinCen March Guidance and Bitcoin

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