Did FinCEN & SEC Just Destroy Bitcoin’s Future In The US?

Two government agencies came out with new rulings and requests for the Bitcoin community, and many in the Bitcoin community see this as a possible end for Bitcoin-related businesses in the US.

Ultimately, while the actions have implications for Bitcoin businesses, bitcoin use among individuals will largely remain unchanged, and the actions will push the community towards further decentralization and less dependence on few players in the space.

The US Securities Exchange Commission sent out letters to upwards of hundreds of bitcoin-related companies asking them to hand over documentation regarding their crowdsales of what the SEC views as unregistered securities offerings.

The SEC requests each company provide a detailed description of the company’s records (all of them):

“Document” shall include, but is not limited to, any written, printed, or typed matter including, but not limited to all drafts and copies bearing notations or marks not found in the original, letters and correspondence, interoffice communications, slips, tickets, records, worksheets, financial records, accounting documents, bookkeeping documents, memoranda, reports, manuals, telephone logs, telegrams, facsimiles, messages of any type, telephone messages, voice mails, tape recordings, notices, instructions, minutes, summaries, notes of meetings, file folder markings, and any other organizational indicia, purchase orders, information recorded by photographic process, including microfilm and microfiche, computer printouts, spreadsheets, and other electronically stored information, including but not limited to writings, drawings, graphs, charts, photographs, sound recordings, images, and other data or data compilations that are stored in any medium from which information can be retrieved, obtained, manipulated, or translated.

According to CryptoCoin news, the SEC is hiring researchers to track down people associated with domains, BitcoinTalk accounts and companies associated with IPOs.

The SEC’s actions are not the only recent US-based actions with implications for Bitcoin.

FinCEN Elucidates Policy

The Financial Crimes Enforcement Network (FinCEN) released new guidance for Bitcoin exchanges and payment processors yesterday, designating such companies as money service businesses under US law.

As the main US money laundering and terrorist financing regulator, FinCEN has effectively countered the interpretations of companieslike BitPay, which in the past suggested their services were exempt from FinCEN’s guidance.

Pillsbury Winthrop Shaw Pittman attorney Marco Santori told CoinDesk:

“What most payment processors do today is just accept peoples bitcoin, from wherever those bitcoins may be, possibly their own wallet software […] and accept those coins and send them on to the merchant using whatever software they might be running. What this is saying is that if you’re a merchant payment processor and you’re doing that you’re not exempt from the rules, in fact, you’re a money services business.”

Other attorneys agree with Santori’s interpretation.

“Based on my reading of these documents, I’m not sure if there’s a limit to the breadth of [the MSB] definition,” Andrew Ittleman, an attorney at David & Joseph, PL said. “It seems to me that, according to FinCEN, any company that’s dealing with bitcoin is a money transmitter, and I don’t know if I could have said that before before I read the payment processor note.”

FinCEN says the documents might not pertain to everybody.

“We encourage businesses to ask us directly if they are uncertain about their status as money transmitters, and to determine if they need to register with FinCEN,” a FinCEN spokesperson said. “Depending on the specific facts and circumstances described to us, we offer an official opinion. These rulings are not meant to signal trends or to be interpreted as some broad pronouncement for the industry.”

BitPay and Vaurum both announced a day after the FinCEN ruling that Aruthur Levitt, a former Chairman at the SEC, will advise both companies, with BitPay as the largest bitcoin payment processor and Vaurum as an institutional bitcoin exchange.

“Bitcoin is a fascinating new product in the rapidly changing world of financial service,” said Levitt. “I hope to help BitPay and Vaurum blend their new business models with core monetary methods and transparency practices in order to ensure their long term success.”

For FinCEN rulings, see links below:

FIN-2014-R011: http://www.fincen.gov/news_room/rp/rulings/pdf/FIN-2014-R011.pdf

FIN-2014-R012: http://www.fincen.gov/news_room/rp/rulings/pdf/FIN-2014-R012.pdf

Although these rulings have major implications for the Bitcoin space, the Bitcoin space is made up of many individuals, many of whom will, at least at first, not be beholden to these regulations.