FinCEN publishes two rulings on virtual currency
AML AND COMPLIANCE NEWS |
A pair of administrative rulings earlier this year by the Financial Crimes Enforcement Network (FinCEN) offered clearer guidance on the use, purchase or sale of convertible virtual currency (Bitcoin).
In the first ruling regarding application of FinCEN’s regulations to virtual currency mining operations, FinCEN determined that when individuals create or mine virtual currency solely for their own purposes, those users do not fall under the Bank Secrecy Act’s (BSA) definition of a money transmitter or money service business (MSB). More specifically, the ruling noted that “Bitcoin mining imposes no obligations on a Bitcoin user to send mined Bitcoin to any other person or place for the benefit of another. Instead, the user is free to use the mined virtual currency or its equivalent for the user’s own purposes, such as to purchase real or virtual goods and services for the user’s own use.”
The term “money transmitter,” according to BSA regulations, means a person that provides money transmission services, or any other person engaged in the transfer of funds. The term, “money transmission services” means the acceptance of currency, funds or other value that substitutes for currency from one person and the transmission of currency, funds or other value that substitutes for currency to another location or person by any means. The guidance makes clear that an administrator or exchanger of convertible virtual currencies that accepts and transmits a convertible virtual currency or buys or sells convertible virtual currency in exchange for currency of legal tender or another convertible virtual currency for any reason (including when intermediating between a user and a seller of goods or services the user is purchasing on the user’s behalf) is a money transmitter under FinCEN's regulations.
In its second ruling regarding the application of FinCEN’s regulations to virtual currency software development and certain investment activity, FinCEN stated that if a business purchases or sells virtual currency as an investment that specifically benefits the company, that act also does not fall under BSA’s definition of a money transmitter. “In effect, when the company invests in a convertible virtual currency for its own account, and when it realizes the value of its investment, it is acting as a user of that convertible virtual currency within the meaning of the guidance,” FinCEN wrote in this ruling. “As a result, to the extent that the company limits its activities strictly to investing in virtual currency for its own account, it is not acting as a money transmitter and is not an MSB under FinCEN’s regulations.” However, the ruling states that a user wishing to purchase goods or services with Bitcoin it has mined, which pays the Bitcoin to a third party at the direction of a seller or creditor, may be engaged in money transmission.
To read FinCEN’s administrative rulings regarding the application of FinCEN’s regulations to virtual currency mining operations and to virtual currency software development and investment activity, please see: http://www.fincen.gov/news_room/nr/pdf/20140130.pdf.