{"id":308,"date":"2013-12-18T01:03:00","date_gmt":"2013-12-18T01:03:00","guid":{"rendered":"http:\/\/blog.holytransaction.com\/a-deep-dive-into-regulatory\/"},"modified":"2013-12-18T01:03:00","modified_gmt":"2013-12-18T01:03:00","slug":"a-deep-dive-into-regulatory","status":"publish","type":"post","link":"https:\/\/holytransaction.com\/blog\/2013\/12\/a-deep-dive-into-regulatory.html","title":{"rendered":"A deep dive into the regulatory requirements for Bitcoin companies"},"content":{"rendered":"<p>(<a href=\"http:\/\/onbitcoin.com\/2013\/12\/10\/regulatory-requirements-bitcoin-companies\/\" target=\"_blank\">OnBitcoin<\/a>) Marco Santori is a senior associate at New York-based&nbsp;<a href=\"http:\/\/nmllplaw.com\/\" target=\"_blank\">Nesenoff &amp; Miltenberg, LLP<\/a>,<br \/>\n and very familiar with the nuances of Bitcoin regulation. In a<br \/>\npresentation at the Inside Bitcoins conference in Las Vegas, Mr. Santori<br \/>\n provided a thorough overview of money transmission regulation on the<br \/>\nfederal and state levels.<\/p>\n<p>Money services businesses (MSBs) are regulated by FinCEN, whose goal is to prevent money laundering.<\/p>\n<p>MSBs are required to register with FinCEN on a federal level. While<br \/>\nit\u2019s a free, online process to register, there are an assortment of<br \/>\nrequirements, such as:<\/p>\n<ul>\n<li>Collect, verify, record report customer information<\/li>\n<li>Check identities against watch lists (terrorists, criminal, enemies of the state)<\/li>\n<li>Deny service for some customers<\/li>\n<li>Sometimes secretly report transaction activitiy to fincen and continue servicing the customer<\/li>\n<li>Undergo yearly audits<\/li>\n<\/ul>\n<div class=\"separator\" style=\"clear: both; text-align: center;\">\n<\/div>\n<div class=\"picture featured\" style=\"margin-left: 1em; margin-right: 1em;\">\n <img loading=\"lazy\" decoding=\"async\" alt=\"US Senate hearing bitcoin testimony\" class=\" wp-post-image\" height=\"246\" src=\"http:\/\/media.coindesk.com\/2013\/11\/US-Senate-hearing-bitcoin-testimony-600x370.jpg\" width=\"400\" \/><\/div>\n<p><\/p>\n<div class=\"single-content\">\n <\/div>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-227\" alt=\"Bitcoins Political Donations\" src=\"http:\/\/d1uiva7rkkyvvt.cloudfront.net\/wp-content\/uploads\/2013\/05\/20130501-Bitcoins-Political-Donations.jpg\" height=\"300\" width=\"615\"><\/p>\n<p>In March 2013 FinCEN published regulatory guidance surrounding<br \/>\nBitcoin. While this guidance left some confused, the overall takeaway<br \/>\nwas that Bitcoin is not inherently illegal and Bitcoin companies are<br \/>\nfine to operate as long as they comply with applicable laws.<\/p>\n<p>Santori provided examples of businesses that would be under the veil of regulation:<\/p>\n<ul>\n<li>Hosted wallets that permit exporting private keys<\/li>\n<li>Paper wallets<\/li>\n<li>Exchange digital currency for government currency<\/li>\n<li>Exchange one digital currency for another<\/li>\n<li>Mine digital currency and convert to government currency<\/li>\n<li>Accept value from person A and give to person B<\/li>\n<li>Accept value from person A and give to person A at another time or place<\/li>\n<\/ul>\n<p>While it\u2019s easy to register on the federal level, it\u2019s another story<br \/>\non the state level. There are 48 states that provide licenses for money<br \/>\ntransmission.&nbsp;The states regulate money transmitters separately from the<br \/>\n federal government. So, for a company to operate in the United States,<br \/>\nthey need to separately attain 48 licenses, which is a timely and costly<br \/>\n endeavor.<\/p>\n<p>While it\u2019s more complex to apply for licenses in 48 states, the scope<br \/>\n of regulation appears to be slightly less cumbersome. The states have<br \/>\nnot adopted all of FinCEN\u2019s categories of money transmitter.<br \/>\nSpecifically, only these two categories are relevant:<\/p>\n<ul>\n<li>Accept value from person A and give to person B<\/li>\n<li>Accept value from person A and give to person A at another time or place<\/li>\n<\/ul>\n<p>Given the ambiguity and cost of regulation, what should a startup do?<\/p>\n<p>Circle Internet Financial, a company formed by serial entrepreneur<br \/>\nJeremy Allaire, publicly stated that they will be seeking licenses in<br \/>\nall states and raised $9 million in venture capital to fund that<br \/>\ninitiative.<\/p>\n<p>However, there are a plethora of startups that don\u2019t have the funds<br \/>\nor capabilities to attain licenses. Here are some other options.<\/p>\n<p>First, a company could send a \u201cno action\u201d or \u201crequest for ruling\u201d<br \/>\nletter, which explains the nature of the business and why it should not<br \/>\nrequire a license. Drafting this letter can be costly due to legal fees<br \/>\nbut can also result in certainty if authorities respond.<\/p>\n<p>There are also avoidance strategies. You can incorporate overseas and<br \/>\n geofilter IP addresses to block US customers. By documenting this<br \/>\nprocess and having appropriate policies in place, a company can protect<br \/>\nthemselves from regulatory backlash if some US customers get through.<br \/>\nFor example, a company should check if the customer registers a US bank<br \/>\naccount, makes transfers to US accounts or subsequently accesses the<br \/>\ncompany\u2019s service from US IP addresses.<\/p>\n<p>Santori said that most companies restructure their companies to<br \/>\neither fit into an exception in the regulation. Exceptions include:<\/p>\n<ul>\n<li>Providing network services to a money transmitter<\/li>\n<li>White label exchange<\/li>\n<li>Physically transporting value that substitutes for currency<\/li>\n<li>Operating a settlement business between MSBs<\/li>\n<li>Performing payment processing services<\/li>\n<\/ul>\n<p>If a company wants to get a state license, how long does it take to<br \/>\nget approved? For a regular business, just a few weeks. But for a<br \/>\nBitcoin business, it\u2019s not clear.<\/p>\n<p>Open your free digital wallet <a href=\"https:\/\/holytransaction.com\/app#!\/signup\">here<\/a> to store your cryptocurrencies in a safe place.<\/p>\n<!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content -->","protected":false},"excerpt":{"rendered":"<p>(OnBitcoin) Marco Santori is a senior associate at New York-based&nbsp;Nesenoff &amp; Miltenberg, LLP, and very familiar with the nuances of Bitcoin regulation. In a presentation at the Inside Bitcoins conference in Las Vegas, Mr. Santori provided a thorough overview of money transmission regulation on the federal and state levels. Money services businesses (MSBs) are regulated [&hellip;]<!-- AddThis Advanced Settings generic via filter on get_the_excerpt --><!-- AddThis Share Buttons generic via filter on get_the_excerpt --><\/p>\n","protected":false},"author":1,"featured_media":924,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[37,76,542,656],"tags":[764,1201,1307],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v19.6 (Yoast SEO v22.3) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>A deep dive into the regulatory requirements for Bitcoin companies -<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/holytransaction.com\/blog\/2013\/12\/a-deep-dive-into-regulatory.html\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"A deep dive into the regulatory requirements for Bitcoin companies\" \/>\n<meta property=\"og:description\" content=\"(OnBitcoin) Marco Santori is a senior associate at New York-based&nbsp;Nesenoff &amp; Miltenberg, LLP, and very familiar with the nuances of Bitcoin regulation. 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