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Ask HN: Bitcoin business unexpectedly taking off, help!

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Re: Ask HN: Bitcoin business unexpectedly taking off, help!

#71

Earlier quoted context omitted.

> I can only assume many of them have no idea what they are potentially exposing themselves to from a legal perspective. Or an ethical perspective even.

Can you expand on this? Because the way I'm reading it it sounds like since it "could" be a tool for money laundering the OP shouldn't be doing it. But by that logic a car "could" be used to facilitate a bank robbery and therefore the salesman needs to consider those ethical ramifications.

There's a huge difference between this and a car salesman.

A car salesman goes through all sorts of paperwork and meets with the person they are selling the car too, and they hand the keys over.

This is much more similar to the service where you take a photo of a Key and you get mailed a copy of it for 5$; except it's semi-anonymous with bitcoin.

Re: Ask HN: Bitcoin business unexpectedly taking off, help!

#72
post #42

Earlier quoted context omitted.

You should know that being a money transmitter is an exceptionally risky and time-intensive business to be in even if one is not "categorized as" a money transmitter. Even if the government ignores you, criminals will not. You are currently betting that your fraud prevention expertise is better than every criminal's fraud execution expertise. You will likely not win that bet. Do you understand that your adversary her…

Ha, thanks, I'm looking forward to the docs. Re: fraud I've definitely been disillusioned that I can handle the tide myself, but OTOH I imagine fraud prevention is a lot like security- make sure the wall is higher than the water. I'll just have to figure out how to do that in a way that's safe, economical, and keeps the core idea behind the service working. It will almost certainly involve hiring people, or cutting o…

Here you go:

http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&sid=d5570d7646c5...

[(5) Money transmitter (i) In general. (A) A person that provides money transmission services. 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. “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

(B) Any other person engaged in the transfer of funds.]

You unambiguously accept other value which substitutes for currency from one person. You equally unambiguously transfer value to another location or person, under multiple legal theories: a) the Starbucks card is one location, the Bitcoin account is another, b) the person holding the card and the bitcoin account may be different parties, c) your business operates as a transport layer between your customers and the company which you are unloading thousands of dollars of Starbucks cards on, and as those are different persons, that means you are transmitting that value.

You might think "But wait, FinCEN narrowed the regulations a bit for 'sellers of prepaid access' specifically to avoid overburdening them." Great news for Starbucks, bad news for you. You are not a seller of prepaid access, which you can verify by reading pg 45403 on of the Federal Register.

http://www.gpo.gov/fdsys/pkg/FR-2011-07-29/pdf/2011-19116.pd...

You are, instead, using Starbucks cards and Bitcoins as a transport layer for value. The government is astoundingly non-neutral about that choice of business.

Re: Ask HN: Bitcoin business unexpectedly taking off, help!

#73
post #71

Earlier quoted context omitted.

Can you expand on this? Because the way I'm reading it it sounds like since it "could" be a tool for money laundering the OP shouldn't be doing it. But by that logic a car "could" be used to facilitate a bank robbery and therefore the salesman needs to consider those ethical ramifications.

There's a huge difference between this and a car salesman. A car salesman goes through all sorts of paperwork and meets with the person they are selling the car too, and they hand the keys over. This is much more similar to the service where you take a photo of a Key and you get mailed a copy of it for 5$; except it's semi-anonymous with bitcoin.

Cars are probably one of the worst possible examples, since most transactions require the title.

Re: Ask HN: Bitcoin business unexpectedly taking off, help!

#74
post #20

Earlier quoted context omitted.

This is exactly why I am horrified by the number of bitcoin companies cropping up. I can only assume many of them have no idea what they are potentially exposing themselves to from a legal perspective.

> I can only assume many of them have no idea what they are potentially exposing themselves to from a legal perspective. Or an ethical perspective even.

I'm not entirely convinced that money laundering is unethical in its own right. Certainly, profiting from unethical activity is only once removed from unethical. That would make obfuscating the taint on unethical-once-removed funds an act that is unethical-twice-removed.

Clearly, there has to be some point at which we can no longer care, because I'm not certain that (metaphorically) there is a coin circulating that hasn't been dipped in blood at least once. Otherwise, the farmer who sells a hog to the butcher that sells sliced ham to the mafia capo's wife also shares the taint.

And even that presumes that the money to be laundered is profit from an unethical act, rather than one merely prohibited by government edict. I personally do not find marijuana-based commerce to be unethical. Therefore, I don't particularly feel as though a seller of sinsemilla on Silk Road should feel bad about wanting to be able to spend his profits without getting pinched, even if it means a murderer-for-hire could theoretically also prevent someone from following his money.

It isn't the money that's dirty or clean. It's the person holding it. Thus, I believe the criminalization of money laundering practices is simply an effort by the governments to solidify their control over the financial sectors, and to make their efforts at fighting crime less labor-intensive.

Even if all money were perfectly untraceable, police could still solve crimes by examining the evidence of the crime, rather than the evidence that someone got paid for it.

Of course, states seem to think that is rather a useful tool to have, so I expect that this business will be raided and shut down sooner or later. My advice is to cash out (in actual cash, no less) on the unexpected success as soon as possible, and then exit the business entirely before someone decides to make an example of it.

Re: Ask HN: Bitcoin business unexpectedly taking off, help!

#75
post #33
post #22

Earlier quoted context omitted.

How is he a money transmitter? His business is buying a product (Starbucks gift cards) and paying for them with Bitcoin. By your definition, a used car dealership that buys cars from the public and pays for them with cash is also a money transmitter.

http://fincen.gov/statutes_regs/guidance/pdf/FIN-2013-G001.p...

That link is for "virtual currencies" and here's one for "prepaid access".

http://www.fincen.gov/statutes_regs/frn/pdf/Prepaid_Final_7-...

In summary, in the US you must know your customer, have anti-money-laundering procedures, file suspicious activity reports, keep records for law enforcement, etc. Highly regulated.

Re: Ask HN: Bitcoin business unexpectedly taking off, help!

#76
post #15

I would strongly consider not running a money transmitter as a side business. If you do not understand that you are running a money transmitter, I will be happy to elaborate. I would also mention, on the assumption you're not aware of it, that you are offering fairly effective money laundering for credit card thieves at below-market rates for that service, and you can expect heavy dedicated adversarial interest. I ra…

Do you have any good references on money transmission and how to operate one? What does and does not qualify, approaches to deal with the regulations as an upstart, etc.

The short answer is (in California at least) it's a huge pain in the ass to comply with money transmission laws. You definitely need a lawyer. You might need a large amount of capital to backstop the business. You should also keep in mind that there is some uncertainty over what the law entails right now (hence the need for a lawyer), especially with respect to bitcoin. There is at least one ongoing lawsuit over California's money transmission laws.

California info: http://www.dbo.ca.gov/Licensees/money_transmitters/

Other states will have their own requirements. Depending on the nature of the business, you may have to interact with the SEC and FINRA. Again, get a lawyer.

Re: Ask HN: Bitcoin business unexpectedly taking off, help!

#77
post #64

Earlier quoted context omitted.

For most of them it's no problem, they're just selling their product or service in an additional way. However, something like this is scary as it's basically one hit easy money laundering. Not a bad idea if you're running the service anonymously. You'll make a good profit for sure. Otherwise there could be substantial risks and it may be better off to shut it down before feds get involved.

> Not a bad idea if you're running the service anonymously. Isn't running an anonymous (or unregistered) money transmitting service itself illegal?

[deleted]

Re: Ask HN: Bitcoin business unexpectedly taking off, help!

#78
Taking the service offline was a good move. You can request an administrative ruling from FinCEN. It would be prudent to meet with an attorney first and have the attorney draft and send the letter (it may receive a quicker response on attorney letterhead).

As a side note attorneys can not contact you, they can send you advertisements or return your calls but they can not directly contact you, you must contact an attorney. Therefore any attorney who contacts you as a result of this post should immediately raise a red flag in you mind.

In the meantime here is FinCEN's guidance on virtual currencies: http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001....

And FinCEN's final rule on prepaid access(aka gift cards): http://www.fincen.gov/news_room/nr/html/20110726b.html

Re: Ask HN: Bitcoin business unexpectedly taking off, help!

#79

Earlier quoted context omitted.

Do you have any good references on money transmission and how to operate one? What does and does not qualify, approaches to deal with the regulations as an upstart, etc.

The short answer is (in California at least) it's a huge pain in the ass to comply with money transmission laws. You definitely need a lawyer. You might need a large amount of capital to backstop the business. You should also keep in mind that there is some uncertainty over what the law entails right now (hence the need for a lawyer), especially with respect to bitcoin. There is at least one ongoing lawsuit over Cali…

Are there any small companies that may superficially appear to be money transmitters but are not?

Re: Ask HN: Bitcoin business unexpectedly taking off, help!

#80
post #20

Earlier quoted context omitted.

This is exactly why I am horrified by the number of bitcoin companies cropping up. I can only assume many of them have no idea what they are potentially exposing themselves to from a legal perspective.

For most of them it's no problem, they're just selling their product or service in an additional way. However, something like this is scary as it's basically one hit easy money laundering. Not a bad idea if you're running the service anonymously. You'll make a good profit for sure. Otherwise there could be substantial risks and it may be better off to shut it down before feds get involved.

[deleted]
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