A popular tool used to prosecute Bitcoin business operators is 18 U.S.C. § 1960, the Federal prohibition against operating an unlicensed money transmitting business. Bitcoin is at the forefront of the electronic currency market. With over 10 billion USD in market cap, there is now a significant amount of “real” money invested into this virtual currency. Though Bitcoin has survived its early stages in the investment market, the legal framework in which Bitcoin lives has been slow to solidify. Along with the nascent and complicated regulatory framework on both the Federal and State level, Bitcoin business operators are now being prosecuted under 18 U.S.C. § 1960, which criminalizes the operation of an unlicensed money transmitting business. This article addresses the initial question as to whether Bitcoin is covered by 18 U.S.C. § 1960, and, more specifically, whether it has been characterized as “money” or “funds” under that statute. Despite conflicting classifications by Federal regulators as to what Bitcoin actually is, the few Courts that have addressed this issue have held that 18 U.S.C. § 1960 covers Bitcoin because “[d]ictionaries, courts, and the statute’s legislative history all point to the same conclusion: Bitcoins are funds.” See United States v. Murgio, No. 15-cr-769, 2016 WL 5107128, at *4 (S.D.N.Y. Sep. 19, 2016); United States v. Budovsky, No. 15-cr-368, 2015 WL 5602853 (S.D.N.Y. Sep. 23, 2015); United States v. Faiella, 39 F. Supp. 3d 544 (S.D.N.Y. 2014).
A. The Department of Justice Has Decided to Prosecute Individuals for Failures to Comply With the Virtual Currency Registration Requirements
In 2013, the Department of Justice (“DOJ”) stated its policy position to prosecute individuals for failing to register their Bitcoin-related business. Specifically, the DOJ presented its determination that Bitcoin and other virtual currencies are covered by 18 U.S.C. § 1960, as well as the money laundering and spending statutes 18 U.S.C. §§ 1956, 1957:
Any money transmitter that fails to register with FinCEN or to obtain the requisite state licensing may be subject to criminal prosecution under 18 U.S.C. § 1960. Additionally, the general money laundering and spending statutes, 18 U.S.C. §§ 1956 and 1957, cover financial transactions involving virtual currencies. Finally, where virtual currencies are used in furtherance of underlying criminal activity, the Department can rely on traditional criminal statutes proscribing that activity, such as narcotics, cybercrime, child exploitation, and firearms laws.
Statement of Mythili Raman Acting Assistant Attorney General U.S. Justice Department Criminal Division Before the Committee on Homeland Security and Governmental Affairs United States Senate For a Hearing Entitled “Beyond The Silk Road: Potential Risks, Threats and Promises of Virtual Currencies,” DOJ 13-1230, 2013 WL 6056457, News Release (Nov. 18, 2013).
This article principally addresses the applicability of the unlicensed money transmitting business statute to certain Bitcoin-business operators and whether the DOJ can and should prosecute individuals under that statute.
B. The Unlicensed Money Transmitting Business Statute
The unlicensed money transmitting business statute states: “whoever knowingly conducts, controls, manages, supervises, directs, or owns all or part of an unlicensed money transmitting business, shall be fined in accordance with this title or imprisoned not more than 5 years, or both.” 18 U.S.C. § 1960(a). To establish criminal liability under this statute, the government must prove that a person or business (a) transferred on behalf of the public, (b) funds (c) in violation of State or Federal licensing and registration requirements, or with knowledge that the funds were derived from a criminal offense. See, e.g., United States v. Murgio, No. 15-cr-769, 2016 WL 5107128 (S.D.N.Y. Sep. 19, 2016) (citing 18 U.S.C. § 1960).
The registration and reporting requirements for these sorts of businesses with the State and Federal authorities are numerous and complicated, and will not be fully addressed in this article. Of note, however, the Federal registration requirements for money transmitting businesses can be found under 31 U.S.C. § 5330, a provision within the Bank Secrecy Act, and its corresponding regulations. See Budovsky, 2015 WL 5602853, at *6.[1] “Money transmitting businesses” are required to register with the Secretary of the Treasury. See 31 U.S.C. § 5330(a)(1). A “money transmitter” that is required to register includes “a person who transmits ‘currency, funds, or other value that substitutes for currency’ between persons or locations ‘by any means;’ or ‘[a]ny other person engaged in the transfer of funds.’” See Budovsky, 2015 WL 5602853, at *7 (citing 31 C.F.R. § 1010.100(ff)(5)).[2] Section 5330 further defines a “money transmitting business”[3] as one that “is required to file reports under Section 5313,” which covers “domestic financial institutions” “involved in a transaction for the payment, receipt, or transfer of United States coins or currency (or other monetary instruments the Secretary of the Treasury prescribes) . . . ” See 31 U.S.C. § 5313.[4]
In addition to Federal filing requirements, failing to properly obtain State registration would land an operator within Section 1960’s reach. See Murgio, 2016 WL 5107128, at *7 (“A money transmitting business that operates ‘without an appropriate money transmitting license in a State where such operation is punishable as a misdemeanor or a felony’ is ‘unlicensed.’”)(citing 18 U.S.C. § 1960(b)(1)(A)).[5]
C. District Judges Have Ruled that Bitcoin Constitutes “Money” or “Funds” Under Section 1960
Section 1960 attaches criminal liability to those who operate unlicensed companies that are in the business of transferring “funds.” See 18 U.S.C. § 1960. The term “funds” is not defined by statute or regulation. The initial question is whether Bitcoin can be considered “funds” under that statute. Three Federal Judges from the Southern District of New York have answered in the affirmative.
In United States v. Murgio, business owners found themselves indicted for, among other things, allegedly running a Bitcoin-related money transmitting business without proper licensing and registration. No. 15-cr-769, 2016 WL 5107128, at *1 (S.D.N.Y. Sep. 19, 2016) (Nathan, J.). They had run a website called “Coin.mx” which the government claimed was an unlawful Bitcoin exchange. Id. The government also alleged that the operators bribed a Federal credit union in New Jersey and attempted to mask the true nature of its business from financial institutions by presenting itself as an association of individuals interested in collectable items, like stamps and sports memorabilia. See id.
The first question raised was whether Bitcoins are “funds” under 18 U.S.C. § 1960(b)(2). Judge Nathan concluded that they were. Under Section 1960 what counts as “money” is not defined other than to note that it includes “funds.” See Murgio, 2016 WL 5107128, at *3. Murgio defined “funds” under Section 1960 as “pecuniary resources, which are generally accepted as a medium of exchange or a means of payment.” 2016 WL 5107128, at *3. The Court then held that “it is clear that Bitcoins are funds within the plain meaning of that term”:
Bitcoins can be accepted ‘as a payment for goods and services’ or bought ‘directly from an exchange with [a]bank account.’ They therefore function as ‘pecuniary resources’ and are ‘used as a medium of exchange’ and ‘a means of payment.’ As Judge Rakoff explained, Bitcoins ‘clearly qualif[y]as money or ‘funds’ under § 1960 because they ‘can be easily purchased in exchange for ordinary currency, act[] as a denominator of value and [are]used to conduct financial transactions.
Id., at *4 (internal citations omitted). The Court sums up on this issue in holding that “[d]ictionaries, courts, and the statute’s legislative history all point to the same conclusion: Bitcoins are funds.” Id. Ultimately, the Court refused to dismiss the charges against Murgio.
Other cases have similarly held. As referenced by Judge Nathan, Judge Rakoff presided over United States v. Faiella, in which the defendant was charged in connection with his alleged participation in the operation of the infamous dark web marketplace “Silk Road” where its users were able to purchase narcotics and other illicit items. 39 F. Supp. 3d 544, 545-47 (S.D.N.Y. 2014)(Rakoff, J.). Faiella was charged with operating an unlicensed money transmitting business under 18 U.S.C. § 1960 and conspiracy to commit money laundering. Id. The Court defined “funds” in the context of interpreting 18 U.S.C. § 1960 as “available money,” “an amount of something that is available for use” and “something generally accepted as a medium of exchange, a measure of value, or a means of payment.” See id. at 545. The defendant argued that Bitcoin is not “money” and thus not covered by Section 1960. See id. at 544. Judge Rakoff referred to the language of Section 1960 and the Merriam Webster dictionary and held that “Bitcoin clearly qualifies as ‘money’ or ‘funds’ under these plain meaning definitions.” Id. at 545. “Bitcoin can be easily purchased in exchange for ordinary currency, acts as a denominator of value, and is used to conduct financial transactions.” Id. at 545[6] (citing SEC v. Shavers, No. 4:13-cv-416, 2013 WL 4028182, at *2 (E.D. Tex. Aug. 6, 2013)(“It is clear that Bitcoin can be used as money. It can be used to purchase goods or services . . . [i]t can also be exchanged for conventional currencies.”)).[7]
The defendants pleaded guilty one week after the Court denied its motion to dismiss the indictment in the Faiella opinion. Faiella pleaded guilty to operating an unlicensed money transmitting business and was sentenced to four years in prison, three years of supervised release and was required to forfeit $950,000. See Press Release, DOJ, Bitcoin Exchanger Sentenced in Manhattan Federal Court to Four Years in Prison for Selling Nearly $1 Million in Bitcoins for Drug Buys on Silk Road (Jan. 20, 2015); United States v. Faeilla, No. 14-cr-00243, ECF No. 71 (S.D.N.Y. Jan. 26, 2015)(Judgment). Faiella’s co-defendant, Charlie Shrem, pleaded guilty to aiding and abetting the operation of an unlicensed money transmitting business and was sentenced to two years in prison and three years of supervised release and was ordered to forfeit $950,000. See Press Release, DOJ, Bitcoin Exchanger Sentenced in Manhattan Federal Court to Four Years in Prison for Selling Nearly $1 Million in Bitcoins for Drug Buys on Silk Road (Jan. 20, 2015); United States v. Shrem, No. 14-cr-00243, ECF No. 61 (S.D.N.Y. Dec. 23, 2014)(Judgment).
In United States v. Bodovsky, a defendant was charged related to the Liberty Reserve scandal where the Costa Rican based entity was using a virtual currency titled “LR” which was one of the world’s most widely used virtual currencies prior to Bitcoin. No. 15-cr-368, 2015 WL 5602853 (S.D.N.Y. Sep. 23, 2015)(Cote, J.). It was alleged that Liberty Reserve was designed to help criminals conduct illegal transactions and launder the proceeds of their crimes. See id. Ultimately, it was prosecuted under Section 1960 for failing to register as a money transmitting business and for conspiring to commit money laundering. See id., at *1. The Court rejected the defendant’s argument that virtual currency does not constitute “funds” under Section 1960. See id., at *14-5.[8] Four months after the ruling that denied his motion to dismiss, Budovsky pleaded guilty to conspiracy to commit money laundering and was sentenced to twenty years in prison, three years of supervised release, a fine of $500,000 and forfeiture of $122 million dollars. See Press Release, DOJ, Liberty Reserve Founder Arthur Bodovsky Sentenced In Manhattan Federal Court to 20 Years For Laundering Hundreds Of Millions Of Dollars Through His Global Digital Currency Business (May 6, 2016); United States v. Budovsky, No. 13-cr-368, ECF No. 364 (S.D.N.Y. May 10, 2016)(Judgment).[9]
Though it never reached a Courtroom, Ripple Labs settled an inquiry by the United States Department of the Treasury, Financial Crimes Enforcement Network (“FinCEN”) and the United States Attorney’s Office by paying a fine of $700,000 for violating the Bank Secrecy Act, acting as a money service business and selling its virtual currency, known as “XRP,” without registering with FinCEN and failing to implement an appropriate anti-money laundering program. See Press Release, FinCEN, FinCEN Fines Ripple Labs Inc. in First Civil Enforcement Action Against a Virtual Currency Exchanger (May 5, 2015); Press Release, DOJ, United States Attorney, Northern District of California, Ripple Labs Settlement Agreement (May 4, 2015). The agreement with the United States Attorney’s Office levied a $450,000 fine and memorialized assurances by Ripple Labs that it will continue to enhance its anti-money laundering program, training and internal controls, migrate a portion of its business and continue to cooperate with the government. See Ripple Labs Settlement Agreement. The company also agrees that it was operating while being unlicensed and the settlement agreement specifically cites 18 U.S.C. § 1960, among other things. See id.
Despite the defendant’s rather nuanced arguments, the Courts have been holding that Bitcoin is covered by Section 1960 and it stands to reason that prosecutions under this statute will become increasingly more prevalent. It seems that the cases that have thus far been prosecuted in this area have contained fact patterns where the government has suspected other more far-reaching criminal activity. However, Section 1960 gives prosecutors a strong advantage because of the criminal liability that may attach from the mere failure to register. Much like how certain notable organized crime leaders have been convicted of tax and other more technical criminal offenses, these few prosecutions have shown glimpses of the practice of garnering a conviction of a suspected criminal on more technical grounds, rather than the main criminal activity suspected by the government. As of now, there are no reported cases that solely address a defendant whose only issue is the failure to register. But lawyers and business operators should be aware that this statute provides a highly effective prosecutorial tool that can be used to fast-track a Bitcoin-related conviction.
D. Federal Agencies’ Conflicting Characterizations of Virtual Currency and How the Court Found Them Unavailing for Section 1960 Purposes
Interestingly, defendants have been pointing to recent guidance issued by the Internal Revenue Service (“IRS”), U.S. Department of the Treasury Financial Crimes Enforcement Network (“FinCEN”) and the Commodities Futures and Trading Commission (“CFTC”). Each of those guidances, the defendants claimed, supports the conclusion that Bitcoin is not “money” or “funds” for Section 1960 purposes. The Southern District has swiftly rejected these arguments at least twice, and held that “none of these documents, however, address the meaning of ‘funds’ in the context of § 1960” and otherwise support the Court’s decision that Bitcoins are “funds” for Section 1960 purposes. See Murgio, 2016 WL 5107128, at *5; Budovsky, 2015 WL 5602853, at *14 (same).
Perhaps the most conflicting with the Court’s decisions is a notice from the IRS. The IRS stated that Bitcoin is “property” and not “currency” for Federal taxation purposes. See I.R.S. Notice 2014-21. However, in rejecting this characterization for Section 1960 purposes, the Court seized upon the limitation of the IRS Notice that explicitly states it “addresses only the U.S. Federal tax consequences of transactions in, or transaction that use, convertible virtual currency.” See Murgio, 2016 WL 5107128, at *5 (“the document does not speak to the definition of ‘funds’ or have anything to do with § 1960”); Budovsky, 2015 WL 5602853, at *14 (same).
The FinCEN[10] Guidance defines “funds” in regard to whether or not a person has provided or sold “prepaid access.” See Application of FinCEN’S Regulations to Persons Administering, Exchanging, or Using Virtual Currencies, FIN-2013-G001, at 5 (Mar. 18, 2013) (“FinCen Guidance”). “Prepaid access” is “access to funds or the value of funds that have been paid in advance and can be retrieved or transferred at some point in the future through an electronic device or vehicle, such as a card, code, electronic serial number, mobile identification number, or personal identification number.” See 31 C.F.R. § 1010.100(ww).[11] The FinCEN Guidance states “[a]person’s acceptance and/or transmission of convertible virtual currency cannot be characterized as providing or selling prepaid access because prepaid access is limited to real currencies.” See FinCEN Guidance, at 5.[12] Murgio and Budovsky recognized that FinCEN limited the definition of “funds” for “prepaid access” purposes to “real currencies,” but held that “the FinCEN Guidance does not even mention § 1960, much less purport to interpret the statute’s use of the word ‘funds.’” See Murgio, 2016 WL 5107128, at *5; Budovsky, 2015 WL 5602853, at *14 (holding that “these documents [the FinCEN Guidance and the IRS Notice]are inapposite and do not suggest that the term ‘funds’ should not be read to encompass virtual currencies.”).
Nevertheless, the CFTC has taken a different position in its administrative decisions. See In re Coinflip, Inc., CFTC No. 15-29, 2015 WL 5535736 (Sept. 17, 2015); In the Matter of: TeraExchange LLC, CFTC No. 15-33, at 4-5, n. 3 (Sep. 25, 2015); In the Matter of: BFXNA Inc. d/b/a BITFINEX, CFTC No. 16-19, 2016 WL 3137612, at *5 (June 2, 2016). The CFTC decided that Bitcoin is best considered a commodity. See Coinflip, 2015 WL 5535736, at *2 (“Bitcoin and other virtual currencies are encompassed in the definition and properly defined as commodities.”); TeraExchange, CFTC No. 15-33, at 4-5 n. 3 (“Bitcoin is a commodity under Section 1a of the Act, 7 U.S.C. §1a (2012), and is therefore subject as a commodity to applicable provisions of the Act and Regulations.”); BITFINEX, 2016 WL 3137612, at *5 (same). However, the Murgio Court held that the fact that “the CFTC has classified Bitcoin as a commodity is [] unmoored from § 1960 and from the Court’s responsibility to determine the plain meaning of ‘funds,’” and further opined that even if the CFTC’s previous decision in Coinflip was relevant, its definition of Bitcoin places it “squarely within the plain meaning of § 1960’s term ‘funds.’” See Murgio, 2016 WL 5107128, at *5.
In regards to what Bitcoin actually is, the various Federal agencies are at odds with one another, and the Courts have deemed agency characterizations to be irrelevant to 18 U.S.C. § 1960. There is no uniformity. The IRS says that Bitcoin is property and not currency, FinCEN says that Bitcoin is not covered as funds with regard to prepaid access, the CFTC says that Bitcoin is a commodity, and the Courts thus far have held that Bitcoin constitutes “money” or “funds” under Section 1960. The truth of the matter is that the regulators, the Courts and the legislature remain collectively uncertain as to how Bitcoin is best characterized. Practitioners should be aware that the characterization of Bitcoin may ultimately result in a determination based merely on whatever gives the government authority power over the action.
E. Conclusion
As recent judicial opinions indicate, a Court will be unlikely to dismiss unlicensed money transmitting cases involving Bitcoin on technical definitional grounds. This is a matter of importance because Section 1960 criminalizes the failure to comply with licensing regulations and poses a criminal liability risk to operators of Bitcoin-related businesses. This criminal exposure is in addition to the various State and Federal regulators that have already claimed oversight over these businesses. Particularly when regulators have already asserted themselves into this realm and the regulations and licensing requirements are so new, confusing, fact-specific and different from State to State, it begs the question as to whether criminal liability is fair and necessary for failing to properly register. When running a Bitcoin business, or considering incorporating Bitcoin into a pre-existing business, one must be aware of the various regulations, guidances and judicial decisions in this area. Avoiding or delaying registration and licensing on the State and Federal level could have disastrous consequences both for the company and the individual operators. In this relatively young virtual currency world, the legal framework has not developed as rapidly as virtual currency has gained widespread acceptance in the investing community. What has resulted is a difficult regulatory and criminal landscape that requires counsel that is knowledgeable in this area to navigate.
[1] This article focuses upon “money transmitting businesses” which is one of a larger class of institutions called “money service businesses,” which are all required to register with the United States Department of the Treasury, Financial Crimes Enforcement Network (“FinCEN”). See 31 C.F.R. § 1022.380(a)(1).
[2] A guidance issued by FinCEN identifies three categories of persons and companies that operate in virtual currency. See Application of FinCEN’S Regulations to Persons Administering, Exchanging, or Using Virtual Currencies, FIN-2013-G001, at 5 (Mar. 18, 2013) (“FinCEN Guidance”). According to the FinCEN Guidance “Administrators” and “Exchangers” of virtual currency are “money transmitters” that are required to register with FinCEN. See id. An “Administrator” is “a person engaged as a business in issuing (putting into circulation) a virtual currency, and who has the authority to redeem (to withdraw from circulation) such virtual currency.” See id., at 2. An “Exchanger” is a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency.” See id. However, “Users” are not required to register. See id. A “User” is a company or person that is solely involved in the purchase or sale of goods or services. See id. (a bitcoin miner is also characterized as a “User”); see also Faiella, 39 F. Supp. 3d at 547, n. 3 (emphasis in original)(citing 31 C.F.R. § 1010.100(ff)(5)(ii)(F)) (excluding from registration requirements a person that “[a]ccepts and transmits funds only integral to the sale of goods or the provisions of services, other than money transmission services, by the person who is accepting and transmitting the funds.”)(emphasis in original).
[3] Section 5330 also provides other examples of what would be considered a “money transmitting business”:
provides check cashing, currency exchange, or money transmitting or remittance services, or issues or redeems money orders, travelers’ checks, and other similar instruments or any other person who engages as a business in the transmission of funds, including any person who engages as a business in an informal money transfer system or any network of people who engage as a business in facilitating the transfer of money domestically or internationally outside of the conventional financial institutions system.
31 U.S.C. § 5330(d)(1)(A).
[4] Section 5313 and its corresponding regulations contain a number of exceptions and limitations upon these reporting requirements.
[5] Certain State registration requirements have been referred to as “BitLicenses.” For example, in June 2015, New York’s regulations were codified by New York State’s Department of Financial Services. See 23 NYCRR 200.1. Interestingly, an article by Fortune magazine reported on the barriers created by these new regulations. For instance, many Bitcoin start-ups were refusing to service New Yorkers because of the exorbitant cost of applying for a BitLicense. See Daniel Roberts, Behind the “exodus” of Bitcoin startups from New York, FORTUNE, Aug. 14, 2015, http://fortune.com/2015/08/14/bitcoin-startups-leave-new-york-bitlicense/ (“The application costs $5,000, which alone does not necessarily seem excessive. But executives say that the paperwork was extensive and required legal help, which carries additional fees. Jaron Lukasiewicz, CEO of Coinsetter, tells Fortune his company spent nearly $50,000 to apply for the BitLicense. George Frost, chief legal officer at BitStamp, told Coindesk it was more like $100,000 for his company.”).
[6] Judge Rakoff goes on to cite the legislative history of Section 1960 in support of the Court’s conclusion that Section 1960 applies to Bitcoin:
If there were any ambiguity in this regard—and the Court finds none—the legislative history supports application of Section 1960 in this instance. Section 1960 was passed as an anti-money laundering statute, designed ‘to prevent the movement of funds in connection with drug dealing.’ United States v. Bah, 574 F.3d 106, 112 (2d Cir.2009) (citing H.R.Rep. No. 107–250(I), at 54 (2001)). Congress was concerned that drug dealers would turn increasingly to ‘nonbank financial institutions’ to ‘convert street currency into monetary instruments’ in order to transmit the proceeds of their drug sales. S. Rep. 101–460, 1990 WL 201710 (1990). Section 1960 was drafted to address this ‘gaping hole in the money laundering deterrence effort.’ Id. Indeed, it is likely that Congress designed the statute to keep pace with such evolving threats, which is precisely why it drafted the statute to apply to any business involved in transferring ‘funds … by any and all means.’ 18 U.S.C. § 1960(b)(2).
Faiella, 39 F. Supp. 3d at 545-6.
[7] Shavers held that Bitcoin is “money” and that investments in Bitcoin can constitute an “investment contract” which is subject to the Federal securities laws and registration requirements. See Shavers, 2013 WL 4028182, at *2.
[8] The Court further held that virtual currencies are “funds” under the Federal anti-money laundering statutes. See Bodovsky, 2015 WL 5602853, at *13-4. Similarly, in the case against the alleged owner and operator of the infamous website Silk Road Ross Ulbricht, the Southern District held that Bitcoin constitutes “funds” for money-laundering purposes under 18 U.S.C. § 1956. See United States v. Ulbricht, 31 F. Supp. 3d 540, 568-70 (S.D.N.Y. 2014) (Forrest, J.). The Ulbricht Court noted that since the term “funds” is not defined under Section 1956, it must be given its ordinary meaning. See id. “Put simply, ‘funds’ can be used to pay for things in the colloquial sense.” Id. “Bitcoins can be either used directly to pay for certain things or can act as a medium of exchange and be converted into a currency which can pay for things . . . [o]ne can money launder using Bitcoin.” See id. at 570 (internal citations omitted).
[9] The District of Columbia previously held that the government properly alleged a violation of Section 1960 against the operators of a “digital currency” payment system that used a form of virtual currency titled E-Gold holding that the virtual currency constituted “funds.” See United States v. E-Gold, Ltd., 550 F. Supp. 2d 82 (D.D.C. 2008). More recently, in a forfeiture action in the District of Maryland, the Court held that “a money transmitting business that operates in Bitcoins must register with FinCEN” and that “failure to register is a violation of 18 U.S.C. § 1960.” See United States v. 50.44 Bitcoins, No. 15-cv-3692, 2016 WL 3049166, at *1 (D.Md. May 31, 2016). However, one State Court has held that Bitcoin is not covered by the Florida unlicensed money transmitter and unlicensed payment instrument seller statutes. See The State of Florida v. Michell Abner Espinoza, No. F14-2923 (Fla. 11th Cir. Ct. 2016) (“This Court is not an expert in economics, however, it is very clear, even to someone with limited knowledge in the area, that Bitcoin has a long way to go before it is the equivalent of money.”).
[10] FinCEN is a bureau of the United States Department of the Treasury. United States Department of the Treasury, FinCEN, https://www.fincen.gov/what-we-do. It is tasked with safeguarding the financial system from illicit use, combatting money laundering and promoting national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities. See id. Its regulatory power is derived from the Currency and Financial Transactions Reporting Act of 1970, as amended by Title III of the USA PATRIOT Act of 2001 and other legislation, which is commonly referred to as the “Bank Secrecy Act.” See id.
[11] In 2011, FinCEN amended the regulations related to the Bank Secrecy Act and its application to Money Service Businesses with regard to stored value. See 76 FR 45403 (amending 31 CFR §§ 1010 and 1022). It renamed “stored value” with “prepaid access” and added a host of reporting, recordkeeping and registration requirements. See id.
[12] The FinCEN Guidance also opines
‘prepaid access’ under FinCEN’s regulations is limited to ‘access to funds or the value of funds.’ If FinCEN had intended prepaid access to cover funds denominated in a virtual currency or something else that substitutes for real currency, it would have used the language in the definition of prepaid access like that in the definition of money transmission, which expressly includes the acceptance and transmission of ‘other value that substitutes for currency.’
FinCEN Guidance (citing 31 CFR § 10.10.100(ff)(5)(i)). Similar to the regulation cited by FinCEN that incorporates “other value that substitutes for currency,” 18 U.S.C. § 1960(b)(2) encompasses “funds . . . by any and all means” in its definition of money transmitting. See also Faiella, 39 F. Supp. 3d at 545 (“the text of Section 1960 refers not simply to ‘money,’ but to ‘funds.’ In particular, Section 1960 defines ‘money transmitting’ as ‘transferring funds on behalf of the public by any and all means.”)(emphasis in original).
Joseph B. Evans is an associate at Gage Spencer & Fleming LLP. Mr. Evans focuses his practice on the defense of white-collar criminal and regulatory actions and investigations as well as the prosecution and defense of other commercial actions that often involve technologically advanced and complex legal issues. Mr. Evans is also a Certified Fraud Examiner. He can be reached at (212) 768-4900 and [email protected] and welcomes any questions or inquiries.
