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FinCEN ruling on payment processor as "money transmitter"

By David Luhman on Tue, 10/28/2014 - 13:16

Here are excerpts from a private ruling where a company asked FinCEN (Financial Crime Enforcement Network) a ruling regarding their proposed bitcoin payment processing system.

Issued: October 27, 2014
Subject: Request for Administrative Ruling on the Application of FinCEN’s Regulations to a Virtual Currency Payment System

Based on the following analysis of the description of the System to provide payments to merchants who wish to receive customer payments in Bitcoin, FinCEN finds that, if the Company sets up the System, the Company would be a money transmitter and should comply with all risk management, risk mitigation, recordkeeping, reporting, and transaction monitoring requirements corresponding to such status.

The Company wishes to set up a System that will provide virtual currency-based payments to merchants in the United States and (mostly) Latin America, who wish to receive payment for goods or services sold in a currency other than that of legal tender in their respective jurisdictions. The Company would receive payment from the buyer or debtor in currency of legal tender (“real currency”), and transfer the equivalent in Bitcoin to the seller or creditor, minus a transaction fee. The current intended market for the System is the hotel industry in four Latin American countries where, because of currency controls and extreme inflation, merchants face substantial foreign exchange risks when dealing with overseas customers.

Customers purchasing the merchant’s goods or services (e.g., hotel reservations) will pay for the purchase using a credit card. Instead of the credit card payment going to the merchant, it will go to the Company, which will transfer the equivalent in Bitcoin to the merchant.

You maintain that the Company should not be regulated as a money transmitter because it does not conform to the definition of virtual currency exchanger, due to the fact that the Company makes payments from an inventory (of bitcoins) it maintains, rather than funding each individual transaction.

An exchanger will be subject to the same obligations under FinCEN regulations regardless of whether the exchanger acts as a broker (attempting to match two (mostly) simultaneous and offsetting transactions involving the acceptance of one type of currency and the transmission of another) or as a dealer (transacting from its own reserve in either convertible virtual currency or real currency).

FinCEN concludes that the Company would be a money transmitter, specifically because it is acting as an exchanger of convertible virtual currency, as that term was described in the Guidance.

As a money transmitter, the Company will be required to (a) register with FinCEN, (b) conduct a comprehensive risk assessment of its exposure to money laundering, (c) implement an Anti-Money Laundering Program based on such risk assessment, and (d) comply with the recordkeeping, reporting and transaction monitoring obligations.

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