The Financial Crimes Enforcement Network (FinCEN) has announced, in two separate rulings, that companies working with virtual currency in their business operations are money service businesses (MSBs). As an MSB, each company must register with FinCEN, and comply with anti-money laundering risk management and risk mitigation requirements. Each company must also comply with recordkeeping, reporting and transaction monitoring requirements, such as filing Currency Transaction Reports and Suspicious Activity Reports.
Virtual currency is a medium of exchange that operates like a government-issued currency in some environments. FinCEN stated that it issued guidance in 2013 on the application of its regulations to transactions in virtual currencies. FinCEN applied this guidance in each ruling to determine the status of each company.
In Ruling FIN-2014-R011, a company intends to set up a platform that consists of a trading system to match offers to buy and sell convertible virtual currency for currency of legal tender. The company will establish a set of book accounts in which buyers or sellers of one type of currency can deposit U.S. dollars or convertible virtual currency to fund their exchanges. The platform will attempt to match purchase and sell orders for the same currency. Although the company had already registered with FinCEN as a money transmitter, it requested a ruling that it should not be regulated as a money transmitter.
FinCEN noted that a money transmitter includes a person that provides money transmission services, such as the acceptance and transmission of currency that substitutes for currency from one person or that substitutes for currency to another location or person. Here, the company is facilitating the transfer of value, both real and virtual, between third parties. FinCEN concluded that the company is engaged in money transmission and that it was not exempt under either the integral or payment process exemption.
In Ruling FIN-2014-R012, a company intends to set up a system that will provide virtual currency-based payments to merchants in the United States and Latin America. The company would receive payment in currency of legal tender from the buyer or debtor and would transfer the equivalent in Bitcoin to the seller or creditor. FinCEN determined that the company is an exchanger of real currency for virtual currency. As an exchanger, it fits within the definition of a money transmitter.