Getting Into the Virtual Currency Biz? Here’s How to Stay Legal…

“If your business involves creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies, you may be subject to FinCEN’s registration, reporting, and recordkeeping requirements.” (Pillsbury)

 

May 2013 was a watershed month for the virtual currency industry. For the first time in history, US law enforcement filed charges against two virtual currency exchange companies for violating federal laws. From attorneys at Perkins Coie:

“First, on May 14, 2013, the Department of Homeland Security initiated a seizure of the Dwolla account belonging to a leading Japanese-based Bitcoin exchange company, Mt. Gox, taking the position that Mt. Gox’s U.S. subsidiary, Mutum Sigillum LLC, operated as an unlicensed money transmitter in violation of 18 U.S.C. § 1960. Second, a joint investigation conducted by the Department of Justice, the Secret Service, the Internal Revenue Service and Homeland Security ended with an indictment charging a Costa Rican company called Liberty Reserve with laundering more than $6 billion in the last seven years.”

To avoid a similar fate, every company in the virtual currency industry should ask – and answer – these three questions:

1. Do we need a formal anti-money laundering system?

“… the clear concern […] is that the virtual currency system was designed, promoted and blatantly used as an anonymous payment system that facilitated criminal activity. […] Liberty Reserve is alleged to have collected a name, address and date of birth from its users, but not verified the information, such that, practically, a user needed to provide only an email address to use the payment system.” (Perkins Coie)

2. Should we register with the Financial Crimes Enforcement Network?

“… if an entity is in the business of exchanging Bitcoin for ‘real currency’ or vice versa, or accepts Bitcoin from one person and transmits the real currency equivalent to another person, that entity is a money transmitter and will be regulated as such in the United States, and will be subject to the criminal provisions of 18 USC 1960 for failing to register with the federal government as a money transmitter or being licensed in any state that would require a money transmitting license.” (Fuerst Ittleman)

3. Are we ready to pay the long-term costs of federal charges?

“[A]lthough no criminal charges have been brought against Mt. Gox or its subsidiary Mutum Sigillum LLC, Mt. Gox, its subsidiaries and the financial institutions that hold their funds must now grapple with how to defend their assets under federal civil asset forfeiture laws. These laws, many of which have their roots in admiralty practice and require lawyers and parties to follow the rarely used Supplemental Rules for Admiralty or Maritime Claims, are rife with traps for the unwary, any of which could be fatal to attempts to defend and recover seized assets.” (Perkins Coie)

The updates:

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