Who needs a money transmitter license: a virtual currency exchangers activity

In recent years, the Financial Crimes Enforcement Network (FinCEN) released several papers stating exchanges and administrators of virtual currencies are subject to the Bank Secrecy Act of 1970 (BSA or BSA/AML) and must register as a Money Services Business (MSB).

FinCEN defines virtual currency as a medium of exchange that is operating like a currency in some environments, but does not have all the attributes of real currency. In particular, virtual currencies don’t have a legal tender status in any jurisdiction”.

It can be seen to such popular cryptocurrencies as Bitcoin, Ethereum, Litecoin, Bitcoin Cash, DASH and other coins, which are virtual currencies in finCEN view and, after that, shall be regulated accordingly.

WHAT IS EXCHANGER?

In Guidance from March 18, 2013, finCEN provides the further clarifications. The definition of Exchanger is a person which leads a business in the virtual currency exchange for real currency, funds, or other e-currencies. An exchanger that (1) accepts and transmits a virtual currency or (2) buys or sells virtual currency for any reason is a money transmitterunder FinCEN’s regulation.

WHAT IS MONEY TRANSMITTER?

Subject to section 1010.100(ff)(5), money transmitter definition is: “a person that provides money transmission services”.

The term “money transmission services” itself 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 term “Any means” includes, but is not limited to, through a financial agency or institution; a Federal Reserve Bank or other facility of one or more Federal Reserve Banks, the Board of Governors of the Federal Reserve System, or both; an electronic funds transfer network; or an informal value transfer system; or any other person engaged in the transfer of funds.

MONEY SERVICE BUSINESS AND MONEY TRANSMITTERS

From the definition, all money transmitters are Money Service Businesses. Subject to finCEN Guidance from October 2014 on Administrative Ruling on Virtual Currency Trading Platform, Money Service Business is “a person (both natural person or legal entity) wherever located doing business, whether or not on a regular basis or as an organized or licensed business concern, wholly or in substantial part within the United States, in one or more of the capacities listed in paragraphs (ff)(1) through (ff)(7) of the section 1010.100 31 CFR”. Amongst those are Money Transmitters.

BUSINESS CASES

Let us consider the following case. Estonian legal entity provides services to its clients for exchanging fiat currencies such as United States Dollar or Euro for cryptocurrencies OR just cryptocurrencies for different cryptocurrencies. The Estonian legal entity holds licenses for:

• Provision of services of exchanging a virtual currency against a fiat currency, i.e. crypto exchange; and
• Provision of a virtual currency wallet service, i.e. crypto wallet.
• Estonian legal entity, however, wishes to provide its services to the US citizens.

In order to do so, such Estonian legal entity shall register with finCEN as Money Service Business (MSB). Estonian legal entity, however, needs a US based representative, subject to 31 CFR 1022.380(2) and needs to report any suspicious transaction. A prescription must be filed within 30 days after our Estonian legal entity would become aware of a suspicious transaction.

A report must be filed, when a transaction that is conducted by, at or through the MSB is both suspicious and more than 2 000$.

Suspicious transaction is a transaction which MSB (our Estonian legal entity) knows the suspects or has reason to suspect the following:

• The transaction involves funds derived from illegal activity or is intended or conducted in order to hide or disguise funds or assets derived from illegal activity, or
• The transaction is designed to evade the requirements of the Bank Secrecy Act, whether through structuring or other means, or
• The transaction serves no business or apparent lawful purpose, and the reporting business knows of no reasonable explanation for the transaction after examining all available facts.

Understanding that virtual currency may be derived from anonymous cryptocurrency exchange or may be used in order to hide or disguise funds or assets derived from illegal activity, the MSB shall report any cryptocurrency transaction value of which exceeds 2000$.

However, it is worth noting that some states require additional license for provision money transmitter services with cryptocurrencies.

Such states are: Alabama, Alaska, Connecticut, Georgia, Hawaii, Idaho, Illinois, Kansas, Kentucky, Louisiana, Maryland, New Hampshire, New Mexico, New York, North Carolina, North Dakota, South Carolina, Tennessee, Texas, Vermont, Virginia, Washington (state).

HOW WE MAY HELP?

Lawyers of Law and Trust International may provide you with the following services:

1) Registration with finCEN,

2) Provision of representative services (as all non-US entities need to appoint an agent in the US),

3) Preparation of necessary money transmitter license and documents. Also it available to get KYC/AML policies that you need to implement in order to work in compliance with the US legislation,

4) Assist you with finCEN reporting procedures.

Please contact our experts for more details to know more of how we may help you.