Bitcoin Platforms Being Reclassified As Money Transmitters

In a potentially significant ruling from the Financial Crimes Enforcement Network (FinCEN), Bitcoin platforms are being reclassified as money transmitters.

“FinCEN cited its 2011 amendments, which defines money transmitter as a person that provides money transmission services, or any other person engaged in the transfer of funds,” said a report in PaymentWeek. “As money transmitters, companies are required to comply with all risk management, risk mitigation, record keeping, reporting, and transaction monitoring requirements, FinCEN said.”

CoinDesk said the decision could make for complicated decisions. “In a response to twin letters submitted in late 2013, the chief U.S. money laundering and terrorist financing regulator explained that bitcoin exchanges may be money transmitters, even if they only match buyers and sellers on their platform. Further, the letters suggest this is true, even if the exchanges behave more like traditional securities or commodities exchanges, where no money is transferred between the company and any counterparty,” the story said. “While the first of today’s issuances may have been expected by those following the space, the more surprising update is perhaps that such guidance could apply to bitcoin processors as well as exchanges. The finding is notable as big companies in the sector like BitPay have indicated in the past that their services are exempt from FinCEN’s guidance as they facilitate purchases between consumers and merchants, only accepting and transmitting funds as necessary to the sale.”

The story quoted Pillsbury Winthrop Shaw Pittman attorney Marco Santori saying that “FinCEN’s latest guidance implies that the exemption only applies in instances where both sides of the transaction are Bank Secrecy Act (BSA) regulated institutions, as is the case in credit card processors, which transfer funds between customer and merchant banks.”

Another lawyer quoted, Andrew Ittleman with Fuerst Ittleman David & Joseph, PL, sees other implications. “Based on my reading of these documents, I’m not sure if there’s a limit to the breadth of [the MSB] definition,” he said. “It seems to me that, according to FinCEN, any company that’s dealing with bitcoin is a money transmitter, and I don’t know if I could have said that before before I read the payment processor note.”