Accepting BTC and SBD as Payment in the US - Legal Considerations - FinCEN 2014 Ruling Regarding Virtual Currency Payment System

As a money transmitter, the Company will be required to (a) register with FinCEN, (b) conduct a comprehensive risk assessment of its exposure to money laundering,13 (c) implement an Anti-Money Laundering Program based on such risk assessment, and (d) comply with the recordkeeping, reporting and transaction monitoring obligations set down in Parts 1010 and 1022 of 31 CFR Chapter X. Examples of such requirements include the filing of Currency Transaction Reports (31 CFR § 1022.310) and Suspicious Activity Reports (31 CFR § 1022.320), whenever applicable, general recordkeeping maintenance (31 CFR § 1010.410), and recordkeeping related to the sale of negotiable instruments (31 CFR § 1010.415). Furthermore, to the extent that any of the Company’s transactions constitute a “transmittal of funds” (31 CFR § 1010.100(ddd)) under FinCEN’s regulations, then the Company must also comply with the “Funds Transfer Rule” (31 CFR § 1010.410(e)) and the “Funds Travel Rule” (31 CFR § 1010.410(f)).

So what is it about accepting BTC that makes the shop owner a "money transmitter"?

Basically, in order to not be considered a money transmitter, the company must comply with these four requirements:

• The entity providing the service must facilitate the purchase of goods or services, or the payment of bills for goods or services (other than money transmission itself);
• The entity must operate through clearance and settlement systems that admit only BSA-regulated financial institutions;
• The entity must provide the service pursuant to a formal agreement; and
• The entity’s agreement must be at a minimum with the seller or creditor that provided the goods or services and receives the funds.

For a normal shop owner processing cash and credit cards, these are not an issue; but for BTC and digital currency, one of them is:

• The entity must operate through clearance and settlement systems that admit only BSA-regulated financial institutions;

FinCEN ruled that:

The Company is not operating through clearing and settlement systems that only admit BSA-regulated financial institutions as members. According to your letter the real currency payments from the consumer take place within a clearing and settlement system that only admits BSA-regulated financial institutions as members (specifically, a credit card network), however, the payment of the Bitcoin equivalent to the merchant, by definition, takes place outside such a clearing and settlement system, either to a merchant-owned virtual currency wallet or to a larger virtual currency exchange that admits both financial institution and non-financial institution members, for the account of the merchant.

FinCEN ruled that the Company is engaged in money transmission, which subjects them to the rules pertaining to a money transmitter.

The other thing FinCEN added (as if that all wasn't enough) was:

Please note that FinCEN would reach the same conclusions if payments were made in virtual currencies other than Bitcoin.

Unfortunately, that means the ruling applies to SBD as well.

Some Personal Notes / Disclaimers:

• I am not a lawyer. This post does not constitute legal advise.
• I was very conflicted as to whether or not to share this. My fear is that with this new found information, many people who were excited to start accepting BTC/SDB as a form of payment would no longer due so out of fear of breaking the law. On the other hand, if people are breaking the law, they can still be held accountable for it - even if they did not know they were breaking it. In the end, I decided it would be best to share the information and let people decide how they want to handle it for themselves.
• This ruling was made on October 27, 2014. It is possible that they have updated their regulations and positions since the information was published. I have not spent the time to see if there are any newer / revised laws that over-rule or change this ruling in any way.
• I am curious with Apple and other major companies starting to accept forms of digital currency, how they are doing it. Is it just one of those things where everyone is breaking the law, and just nobody is enforcing it? What are they doing that allows them to accept digital currencies as a form of payment?
• I am not an expert on this. I just spent some time researching, and am presenting my interpretation of what I found.
• I expect that there are a lot of people in the community that have way more information on the subject than I do. I am hoping this will start a discussion and learn more about people's different positions and understandings of the law.