Op Ed: Understanding the Latest FinCEN Guidance for ...

What New FinCEN Guidance Means for US Bitcoin Companies

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What New FinCEN Guidance Means for US Bitcoin Companies

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Crypto Banking Wars: Can Non-Custodial Crypto Wallets Ever Replace Banks?

Crypto Banking Wars: Can Non-Custodial Crypto Wallets Ever Replace Banks?
Can they overcome the product limitations of blockchain and deliver the world-class experience that consumers expect?
This is the second part of Crypto Banking Wars — a new series that examines what crypto-native company is most likely to become the bank of the future. Who is best positioned to reach mainstream adoption in consumer finance?
While crypto allows the world to get rid of banks, a bank will still very much be necessary for this very powerful technology to reach the masses. As we laid out in our previous series, Crypto-Powered, we believe companies that build with blockchain at their core will have the best shot at winning the broader consumer finance market. We hope it will be us at Genesis Block, but we aren’t the only game in town.
So this series explores the entire crypto landscape and tries to answer the question, which crypto company is most likely to become the bank of the future?
In our last episode, we offered an in-depth analysis of big crypto exchanges like Coinbase & Binance. Today we’re analyzing non-custodial crypto wallets. These are products where only the user can touch or move funds. Not even the company or developer who built the application can access, control, or stop funds from being moved. These apps allow users to truly become their own bank.
We’ve talked a little about this before. This group of companies is nowhere near the same level of threat as the biggest crypto exchanges. However, this group really understands DeFi and the magic it can bring. This class of products is heavily engineer-driven and at the bleeding-edge of DeFi innovation. These products are certainly worth discussing. Okay, let’s dive in.

Users & Audience

These non-custodial crypto wallets are especially popular among the most hardcore blockchain nerds and crypto cypherpunks.
“Not your keys, not your coins.”
This meme is endlessly repeated among longtime crypto hodlers. If you’re not in complete control of your crypto (i.e. using non-custodial wallets), then it’s not really your crypto. There has always been a close connection between libertarianism & cryptocurrency. This type of user wants to be in absolute control of their money and become their own bank.
In addition to the experienced crypto geeks, for some people, these products will mean the difference between life and death. Imagine a refugee family that wants to safely protect their years of hard work — their life savings — as they travel across borders. Carrying cash could put their safety or money at risk. A few years ago I spent time in Greece at refugee camps — I know first-hand this is a real use-case.

Or imagine a family living under an authoritarian regime — afraid that their corrupt or oppressive government will seize their assets (or devalue their savings via hyperinflation). Citizens in these countries cannot risk putting their money in centralized banks or under their mattresses. They must become their own bank.
These are the common use-cases and users for non-custodial wallets.

Products in Market

Let’s do a quick round-up of some of the more popular products already in the market.
Web/Desktop The most popular web wallet is MetaMask. Though it doesn’t have any specific integration with DeFi protocols yet, it has more than a million users (which is a lot in crypto land!). Web wallets that are more deeply integrated with DeFi include InstaDapp, Zerion, DeFi Saver, Zapper, and MyCrypto (disclosure: I’m an investor and a big fan of Taylor). For the mass market, mobile will be a much more important form-factor. I don’t view these web products as much of a threat to Genesis Block.
Mobile The more serious threats to Genesis Block are the mobile products that (A) are leveraging some of the powerful DeFi protocols and (B) abstracting away a lot of the blockchain/DeFi UX complexity. While none get close to us on (B), the products attempting this are Argent and Dharma. To the extent they can, both are trying to make interacting with blockchain technology as simple as possible.
A few of the bigger exchanges have also entered this mobile non-custodial market. Coinbase has Wallet (via Cipher Browser acquisition). Binance has Trust Wallet (also via acquisition). And speaking of acquisitions, MyCrypto acquired Ambo, which is a solid product and has brought MyCrypto into the mobile space. Others worth mentioning include Rainbow — well-designed and built by a small indy-team with strong DeFi experience (former Balance team). And ZenGo which has a cool feature around keyless security (their CEO is a friend).
There are dozens of other mobile crypto wallets that do very little beyond showing your balances. They are not serious threats.
Hardware Wallets Holding crypto on your own hardware wallet is widely considered to be “best practice” from a security standpoint. The most popular hardware wallets are Ledger, Trezor, and KeepKey (by our friends at ShapeShift). Ledger Nano X is the only product that has Bluetooth — thus, the only one that can connect to a mobile app. While exciting and innovative, these hardware wallets are not yet integrated with any DeFi protocols.


Let’s take a look at some of the strengths with non-custodial products.
  1. Regulatory arbitrage Because these products are “non-custodial”, they are able to avoid the regulatory burdens that centralized, custodial products must deal with (KYC/AML/MTL/etc). This is a strong practical benefit for a bootstrapped startup/buildedeveloper. Though it’s unclear how long this advantage lasts as products reach wider audiences and increased scrutiny.
  2. User Privacy Because of the regulatory arbitrage mentioned above, users do not need to complete onerous KYC requirements. For example, there’s no friction around selfies, government-issued IDs, SSNs, etc. Users can preserve much of their privacy and they don’t need to worry about their sensitive information being hacked, compromised, or leaked.
  3. Absolute control & custody This is really one of the great promises of crypto — users can become their own bank. Users can be in full control of their money. And they don’t need to bury it underground or hide it under a mattress. No dependence, reliance or trust in any third parties. Only the user herself can access and unlock the money.


Now let’s examine some of the weaknesses.
  1. Knowledge & Education Most non-custodial products do not abstract away any of the blockchain complexity. In fact, they often expose more of it because the most loyal users are crypto geeks. Imagine how an average, non-crypto user feels when she starts seeing words like seed phrases, public & private keys, gas limits, transaction fees, blockchain explorers, hex addresses, and confirmation times. There is a lot for a user to learn and become educated on. That’s friction. The learning curve is very high and will always be a major blocker for adoption. We’ve talked about this in our Spreading Crypto series — to reach the masses, the crypto stuff needs to be in the background.
  2. User Experience It is currently impossible to create a smooth and performant user experience in non-custodial wallets or decentralized applications. Any interaction that requires a blockchain transaction will feel sluggish and slow. We built a messaging app on Ethereum and presented it at DevCon3 in Cancun. The technical constraints of blockchain technology were crushing to the user experience. We simply couldn’t create the real-time, modern messaging experience that users have come to expect from similar apps like Slack or WhatsApp. Until blockchains are closer in speed to web servers (which will be difficult given their decentralized nature), dApps will never be able to create the smooth user experience that the masses expect.
  3. Product Limitations Most non-custodial wallets today are based on Ethereum smart contracts. That means they are severely limited with the assets that they can support (only erc-20 tokens). Unless through synthetic assets (similar to Abra), these wallets cannot support massively popular assets like Bitcoin, XRP, Cardano, Litecoin, EOS, Tezos, Stellar, Cosmos, or countless others. There are exciting projects like tBTC trying to bring Bitcoin to Ethereum — but these experiments are still very, very early. Ethereum-based smart contract wallets are missing a huge part of the crypto-asset universe.
  4. Technical Complexity While developers are able to avoid a lot of regulatory complexity (see Strengths above), they are replacing it with increased technical complexity. Most non-custodial wallets are entirely dependent on smart contract technology which is still very experimental and early in development (see Insurance section of this DeFi use-cases post). Major bugs and major hacks do happen. Even recently, it was discovered that Argent had a “high severity vulnerability.” Fortunately, Argent fixed it and their users didn’t lose funds. The tools, frameworks, and best practices around smart contract technology are all still being established. Things can still easily go wrong, and they do.
  5. Loss of Funds Risk Beyond the technical risks mentioned above, with non-custodial wallets, it’s very easy for users to make mistakes. There is no “Forgot Password.” There is no customer support agent you can ping. There is no company behind it that can make you whole if you make a mistake and lose your money. You are on your own, just as CZ suggests. One wrong move and your money is all gone. If you lose your private key, there is no way to recover your funds. There are some new developments around social recovery, but that’s all still very experimental. This just isn’t the type of customer support experience people are used to. And it’s not a risk that most are willing to take.
  6. Integration with Fiat & Traditional Finance In today’s world, it’s still very hard to use crypto for daily spending (see Payments in our DeFi use-cases post). Hopefully, that will all change someday. In the meantime, if any of these non-custodial products hope to win in the broader consumer finance market, they will undoubtedly need to integrate with the legacy financial world — they need onramps (fiat-to-crypto deposit methods) and offramps (crypto-to-fiat withdraw/spend methods). As much as crypto-fanatics hate hearing it, you can’t expect people to jump headfirst into the new world unless there is a smooth transition, unless there are bridge technologies that help them arrive. This is why these fiat integrations are so important. Examples might be allowing ACH/Wire deposits (eg. via Plaid) or launching a debit card program for spend/withdraw. These fiat integrations are essential if the aim is to become the bank of the future. Doing any of this compliantly will require strong KYC/AML. So to achieve this use-case — integrating with traditional finance —all of the Strengths we mentioned above are nullified. There are no longer regulatory benefits. There are no longer privacy benefits (users need to upload KYC documents, etc). And users are no longer in complete control of their money.

Wrap Up

One of the great powers of crypto is that we no longer depend on banks. Anyone can store their wealth and have absolute control of their money. That’s made possible with these non-custodial wallets. It’s a wonderful thing.
I believe that the most knowledgeable and experienced crypto people (including myself) will always be active users of these applications. And as mentioned in this post, there will certainly be circumstances where these apps will be essential & even life-saving.
However, I do not believe this category of product is a major threat to Genesis Block to becoming the bank of the future.
They won’t win in the broader consumer finance market — mostly because I don’t believe that’s their target audience. These applications simply cannot produce the type of product experience that the masses require, want, or expect. The Weaknesses I’ve outlined above are just too overwhelming. The friction for mass-market consumers is just too much.

The winning bank will be focused on solving real user problems and meeting user needs. Not slowed down by rigid idealism like censorship-resistance and absolute decentralization, as it is with most non-custodial wallets. The winning bank will be a world-class product that’s smooth, performant, and accessible. Not sluggish and slow, as it is with most non-custodial wallets. The winning bank will be one where blockchain & crypto is mostly invisible to end-users. Not front-and-center as it is with non-custodial wallets. The winning bank will be one managed and run by professionals who know exactly what they’re doing. Not DIY (Do It Yourself), as it is with non-custodial wallets.
So are these non-custodial wallets a threat to Genesis Block in winning the broader consumer finance market, and becoming the bank of the future?
No. They are designed for a very different audience.
Other Ways to Consume Today's Episode:
Follow our social channels: https://genesisblock.com/follow/
Download the app. We're a digital bank that's powered by crypto: https://genesisblock.com/download
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I am a tax attorney, here are my answers to the most common questions about the taxation of bitcoins

Edit: On March 25, 2014 the IRS released Notice 2014-21 addressing the taxation of bitcoins. This post was updated on March 26, 2014 to reflect the IRS's positions contained in the Notice.
Last Edit: June 2017
I've noticed a significant amount of uncertainty around here about the taxation of bitcoins. In effort to provide some guidance , I've compiled some of the most common questions I've seen and tried to provide straight-forward, easy to understand answers. I am a tax attorney, but there is so much uncertainty surrounding bitcoins that I expect some people to disagree with one or more of my conclusions. If you have a contradictory opinion, please share it. We would all benefit from an educated discussion of this issue.
Keep in mind this post is intended for a layman audience. If you are a tax professional or want a detailed examination of this topic, you find this post lacking. Please don't nit pick this post with technicalities or narrow exceptions, I purposely excluded such nuances for the sake of readability.
I should note that this post does not address aggressive tax planning strategies. Such strategies are a lot of fun to discuss, but they do not belong in this type of post. If you are interested in such strategies, perhaps we can make a follow-up post on another day.
Legal Disclaimer
This post was created for general guidance on matters of interest only, and does not constitute legal advice. You should not act upon the information contained in this publication without obtaining specific advice from a tax professional. No representation or warranty (expressed or implied) is given as to the accuracy or completeness of the information contained in this post, and I do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this post or for any decision based on it.
CIRCULAR 230 DISCLOSURE To ensure compliance with requirements imposed by the IRS, I inform you that any U.S. federal tax advice in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.
THE AUTHOR Tyson P. Cross is a tax attorney licensed in California and Nevada. He represents individuals and businesses with tax issues related to Bitcoin and other cryptocurrencies, including tax return preparation, tax planning, and FinCEN compliance. He can be reached at Tel: +1 775-376-5690 or by visiting www.BitcoinTaxSolutions.com.
Topic 1: Realization
#1: Are gains on Bitcoins taxable? Yes. This is one of the only unequivocal answers you'll find in this post. All income is taxable, regardless of source or form, unless the Internal Revenue Code specifically states otherwise. Bitcoins present a lot of interesting tax questions, but whether gains are taxable is not one of them.
#2: When do my gains become taxable?*
Gains are taxable in the year they are realized. Realization occurs when you exchange bitcoins for any type of other property; such as cash, merchandise, or services. This includes everything from haircuts to yachts. Essentially, any transaction involving Bitcoin is a realization event and triggers taxable gain. Note: IRS Notice 2014-21 expressly confirms this treatment.
Because I've seen a lot of misinformation on this point, I want to make myself perfectly clear. If you own bitcoins that have appreciated in value, you cannot use them to purchase goods or services without realizing gain. Such a purchase is an accession to wealth. It puts you in the same position as if you had first sold the bitcoins for cash and then used the proceeds to purchase the goods or services directly. Yet, one would be a taxable transaction while the other would not? The IRS would never tolerate such a blatant loophole, and neither would the courts. In fact, this exact argument has already been rejected for other types of assets. The outcome for bitcoins will be the same.
Unfortunately, this has some serious implications for the future of bitcoin. I have to question the effectiveness of bitcoin as a medium of exchange when the user has to calculate his or her tax liability on every single transaction. As the saying goes, the power to tax is the power to destroy, and this is no exception.
Note: There is a code section that might provide some relief here, but only if bitcoins are categorized as a foreign currency. Under this code section, the use of bitcoin to buy goods and services would be tax free as long as the transaction was personal (i.e. not for business or investment) and did not generate more than $200 of gain. Unfortunately, the IRS ruled in Notice 2014-21 that bitcoin is not a currency for tax purposes. So, this code section is inapplicable unless the IRS changes its position sometime in the future.
#3: What if I sell my bitcoins but do not withdraw the proceeds from the exchange?
It doesn't matter, your gains were realized the moment you sold them. It is irrelevant whether the proceeds from the sale are kept in your bank account or your exchange account, you still have a realized gain for tax purposes.
#4: What if I exchange my bitcoins for altcoins? Is this a like-kind exchange?
This is a fair question and implicates what is known as a "like-kind exchange." Under Section 1031 of the tax code, exchanges of like-kind property do not trigger recognition of capital gains, and therefore are tax-free. Whether or not bitcoins/altoins are like-kind is uncertain to say the least. As intangible property, bitcoins/altcoins would qualify as like-kind only if they have the same rights, characteristics, and obligations. This is a very difficult test to apply to virtual currency.
Additionally, if characterized as a foreign currency, bitcoins would be automatically barred from like-kind treatment anyways. Thus, there are two significant legal hurdles that must be overcome before bitcoin and altcoins can qualify as for like-kind status. Although nothing is for certain when it comes to bitcoins, I'm fairly confident that the IRS would not agree with like-kind treatment and you run the risk of having the unrecognized gains added to your tax return (with penalties and interest added). Thus, I would not suggest that you try to qualify such a transaction as a like kind exchange until further guidance on this issue is given by the IRS or you obtain a tax opinion letter from an attorney concluding that your treatment of bitcoins/altcoins as like-kind appropriate.
Lastly, keep in mind that like-kind exchanges must still be reported on your tax return (using Form 8824).
edit: IRS Notice 2014-21 concluded that bitcoins are not a foreign currency, therefore it is possible that bitcoin can qualify for like-kind treatment if the "rights and characteristics" test is met.
#5: So how can I avoid realizing gains on my bitcoins?
The only way to avoid realization is to hold your bitcoins without selling or exchanging them. If you were hoping for a different answer, I'm sorry. Whether you decide to actually report you realized gains is of course a different matter, but as far as the law is concerned, you have realized gains upon any sale or exchange of your bitcoins.
#6: How does the IRS know about my gains? *
The IRS only knows what it is told. This means that it has no knowledge of your bitcoin transactions unless someone tells them. Here are four way that can happen (others may exist).
First, your bitcoin exchange or payment processor may report your transactions to the IRS. This would be done with a Form 1099, which you’ve probably encountered at one time or another in a different context. However, it does not appear that bitcoin transactions are currently subject to the 1099 reporting requirements (although that will probably change). Thus, unless they voluntarily file a 1099 against you, it is unlikely that the IRS will receive a report of your bitcoin transactions. Note that they would need your social security number to file a 1099 in your name. Edit: IRS Notice 2014-21 clarifies that "payment settlors" who convert bitcoin payments to cash for merchants will have to file 1099s. IF you are not a merchant, than this does not impact you.
Second, your bank or bitcoin exchange might file a Suspicious Activity Report ("SAR"). US banks and bitcoin exchanges are required to file SARs for wire transfers that are “suspicious” and larger than $5,000 ($2,000 in the case of bitcoin exchanges). The meaning of “suspicious” is very vague and highly discretionary. Out of an abundance of caution, many banks automatically treat all international transfer as “suspicious.” So, if you’ve sent or received a wire transfer of more than $5,000 to/from an international bitcoin exchange like Mt. Gox or BTC-e, you can be pretty sure that your bank has already filed a SAR against you (although they are prohibited from telling you if they did, so you'll never know for sure). The larger and/or more frequent you SAR filings, the more likely they will become a legitimate red flag and trigger an investigation. Although FinCEN is generally concerned with money laundering activities, the IRS does have access to FinCEN filings and it is common for IRS special agents to participate in FinCEN investigations.
Third, someone can rat you out to the IRS, which happens far more often than you might think. The simple fact is that people get jealous, and if they've heard that you've made lots of tax free money with bitcoin, they might get tempted to make sure justice is served. There's also that nice reward the IRS will pay them for snitching.
Fourth, you voluntarily and accurately report your gains on your tax return. That might sound ridiculous to some people given the inherent anonymity of bitcoin, but there are some very rich people in prison right now who used to think the same thing about their Swiss bank accounts. The fact is that penalties for failing to report income are significant. This includes the possibility of criminal prosecution. You can also add to this the additional penalties for failing to report foreign financial accounts (discussed below), which can be even more severe.
At the end of the day, you have a decision to make. You can comply with the law and pay taxes just like everyone else, which is admittedly unpleasant. Alternatively, you can violate the law and hope that you don't get caught. Maybe you will, maybe you won't. If you are caught, though, the amount of money you'll be forced to pay in penalties and interest will drastically exceed the amount you saved. That's not to mention the possibility of a felony criminal conviction and a prolonged stay at Club Fed. Personally, I have seen the havoc wreaked on people's lives by tax crimes and I would never want to be in their shoes. Neither should you.
TL; DR: Gains on bitcoins are taxable income. They become taxable when you sell bitcoins for cash or exchange them for goods or services. The IRS does not receive any direct information regarding your bitcoin transactions, but it has other ways of finding out. The monetary and criminal penalties for failing to report gains are not worth the taxes you'd save.
Continued Below Edit: This post has been edited since it was first posted. An asterisk was placed next to the questions that underwent more than just grammatical changes. Additionally, questions related to losses were inadvertently omitted from the first post, but have since been added back.
submitted by dblcross121 to Bitcoin [link] [comments]

I am a tax attorney, here is what the IRS notice means to you

Edit: This post discusses the tax treatment for US Citizens. I thought that was apparent when the IRS is involved, but apologies if the title confused any non-US bitcoin users.
Hey guys, I've received a lot of questions about the IRS notice and how it affects the post I wrote a couple of months ago. The short answer is that nothing really changes, other than we can stop speculating about possible tax treatments in the event bitcoin is treated as a foreign currency. I've updated my post to reflect this change.
Here's a quick rundown of the how the Notice affects most people. Just keep in mind that these topics are covered in more detail in the original post in case you want more information.
#1 Bitcoins are property, not foreign currency. This means that capital gains treatment will apply to most people. This really isn't a surprise and basically everyone expected this result (although some hoped for the longshot possibility of foreign currency treatment). The biggest exception is if you are engaged in a trade or business and hold bitcoin as inventory for sale to customers. This is probably a pretty small group of people, though.
#2 Every bitcoin transaction is taxable. As I said in my first post, Bitcoin users will have to calculate their gain or loss every time they purchase goods or services with bitcoin. Yes, this is a very onerous burden and creates a significant threat to the widespread adoption of bitcoin. However, this outcome is not very surprising and is consistent with US tax laws. Hopefully the Treasury Department or Congress can be convinced to apply a "personal transaction" exception similar to the one that exists for foreign currency. But for now, this is how it will have to work.
When calculating your gain or loss, you must determine "amount realized" and "basis." When buying goods or services with bitcoin, the amount realized is equal to the fair market value of whatever you received. When selling bitcoin, the amount realized is the sales price less any transaction fees.
The biggest issue for most bitcoin users is determining their basis. Because bitcoins are fungible, you run into the problem of tracing the cost of each bitcoin you hold. You cannot just arbitrarily choose your basis. The IRS will permit you to use the FIFO method (First in, First out). Any other method such as LIFO or Average Cost Basis is not advisable, particularly now that we know foreign currency rules do not apply.
#3 Miners recognize income in the year the bitcoin is mined.
This was a big unresolved question prior to the Notice. The amount of income is equal to the market value of bitcoin on the day it was mined. You can use any exchange price as long as its reasonable and you use it consistently going forward. The market price also becomes your basis in that bitcoin going forward. Therefore, when you sell it sometime in the future, you will subtract this amount from the sales price in order to determine your taxable gain.
Note that you can deduct your mining expenses in the same year, such as electricity and depreciation (subject to loss limitations).
#4 Miners are subject to self-employment tax if their activity rises to the level of a trade or business.
The IRS notice did not provide any guidance on when a mining activity constitutes a trade or business. A "trade or business" is generally defined as an activity engaged in on a substantial and continuing basis for the purpose of generating a profit. This does not have to a full-time activity, just one that you regularly pursue with a profit motive. Obviously, whether or not your specific activity is a "trade or business" depends on your particular situation. The more substantial and continuous your activity, the more likely it is that you're a trade or business. You can read a little bit more about the test here. If your mining activity consists of more than just an old GPU card (or two), I suggest you consult with a tax professional to determine if you're a trade or business. You'll also need to get guidance on making estimated Self Employment tax payments (which is done in quarterly deposits with the IRS).
#5 The IRS Notice is retroactive.
Okay, "retroactive" is not technically the right term. The law has not changed, the IRS is just informing everybody of how they interpret it. But, they will apply these interpretations to past tax years as well as the current one. So, if you already filed 2013 taxes (or earlier years) in a manner not consistent with the Notice, you should consider amending your return because the IRS will apply the rules in the Notice to your situation.
Feel free to ask any questions.
Legal Disclaimer
This post was created for general guidance on matters of interest only, and does not constitute legal advice. You should not act upon the information contained in this publication without obtaining specific advice from a tax professional. No representation or warranty (expressed or implied) is given as to the accuracy or completeness of the information contained in this post, and I do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this post or for any decision based on it.
CIRCULAR 230 DISCLOSURE To ensure compliance with requirements imposed by the IRS, I inform you that any U.S. federal tax advice in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.
THE AUTHOR Tyson P. Cross is a tax attorney in San Diego, California representing individuals and businesses with tax issues related to Bitcoin and other cryptocurrencies , including tax return preparation, tax planning, and FinCEN compliance. He can be reached at Tel: +1 619-786-0641 or Email: [email protected][1] . (this information is necessary due to attorney advertising rules).
submitted by dblcross121 to Bitcoin [link] [comments]

itBIT exchange is asking me questions. Am I being investigated by U.S authorities?

I received and email from itBIT exchange in New York:
From time to time, we will ask our clients questions to ascertain the nature of their activity. We do this to ensure the safety and security of our trading platform. We would like some further information regarding your activity:
1) What is the source of funds for your account? Please provide, in detail, how the source of funds is generated. For example, if the account is funded by Bitcoin, please indicate how and where the Bitcoin deposits were sourced. If the account is funded by USD, please indicate source of funds for the USD deposits.
2) Please provide the name and location of your employer, your title/position and your annual salary.
3) What is the purpose of your itBit Account?
4) What is your estimated monthly trading volume on our platform?
A. 0-5,000 USD/month B. 5,000-10,000 USD/month C.10,000-50,000 USD/month D. Over 50,000 USD/month. Please specify:____________
As a regulated financial institution, we are required to know our customers and gain insight as to source of funds, background information, employment and other factors that will help us develop a client profile. The information that clients provide us is maintained in a secure and private environment. The regulations that guide us in collecting and analyzing the information include the USA Patriot Act, the Bank Secrecy Act and the various FinCEN and FATF guidance documents that have been published.
We fully respect the privacy of each client, however, we also must complete client due diligence to meet our regulatory obligations regarding the aforementioned regulations.
Please answer the questions as soon as possible. itBit
Im a non U.S citizen and have never worked there. I dont have any records with IRS and no obligations to them.
Im wondering if they are trying to ascertain why I sent funds from my country to their exchange in U.S$ to buy bitcoin.
Im a non resident for tax purposes in my own country where I was born. Where I live now in xyz country the tax authorities are hopeless. Thus Im not worried either way but thought I would ask what you think about all this.
submitted by advanceb to BitcoinMarkets [link] [comments]

I am a tax attorney, here is why you should strongly consider filing an FBAR by the June 30th deadline if you had an account at MtGox prior to its collapse (US taxpayers only).

RETRACTED 4/3/2018: I have decided to retract and revise this position on FBAR filings for cryptocurrency assets in light of inaction by the IRS and unofficial statements by IRS personnel. This post should not be relied upon in determining whether you have an obligation to report your cryptocurrency assets or trading accounts on the FBAR or Form 8938. I am leaving the original post unedited below for posterity's sake, but it should not be considered my current view or opinion.
Hey Guys,
I know that many people in the bitcoin community don't really care about complying with US reporting requirements. While I generally don't recommend that course of action, I especially urge you to reconsider if you had an account at MtGox prior to its collapse. That's because MtGox is no longer in a position to safeguard your confidentiality (if it ever was in the first place). The US has been ruthless in recent years in chasing down US taxpayers with undisclosed foreign accounts, and bitcoin holders are not likely to catch any breaks. The US Attorney's office has already issued a subpoena to MtGox for it's records, and given that Japan already cooperates with US account holder disclosure initiatives, I find it unlikely that the subpoena will go unenforced. Additionally, many large bitcoin holders have joined the class action lawsuit against MtGox/Karpeles for their lost coins, or at the very least filed a claim with the court-appointed bankruptcy trustee. These are tacit admissions in open court of your prior bitcoin holdings. It would take almost no effort on the part of the US Justice Department to obtain and cross-check these records. So, those with qualifying account balances at MtGox prior to it's collapse should strong consider filing an FBAR by the June 30th deadline.
Before anyone says it, I am not trying to spread FUD. I care about this community and do not want to see any of you go to prison or pay outrageous fines that can easily wipe out your bitcoin holdings (and then some). To say the US Government has been ruthless when it comes to FBAR non-filers is an understatement. The MtGox fiasco provides a perfect opportunity for the government to crackdown on the wide spread non-compliance among the bitcoin community. I wouldn't bet against it.
Here is some additional information for those who want to know more:
How do I know if I need to file an FBAR? The FBAR requirement applies if you have more than $10,000 in foreign accounts at any given time during the year. This test looks at the total of all your foreign accounts, not just MtGox. So, you're technically required to look at the daily account balance of the BTC and USD in all your foreign financial accounts and add them up. If the total exceeds $10,000 on any given day, then you are supposed to disclose each account on the FBAR form (even if the individual accounts are less than $10,000). Now, I'm sure many will consider disclosing just their MtGox accounts and leaving off other foreign bitcoin accounts, but recognize that your FBAR in this case would be false and you could be subject to additional criminal prosecution. More information on FBAR filings are available on the [IRS website]
What are the penalties for failing to file an FBAR? The penalty for failure to file an FBAR starts out at $10,000 for non-willful violations. If your failure was willful, the penalty is the greater of $100,000 or 50% of the highest account balance for each account per year. Criminal prosecution is also known to occur.
Willfulness is defined generally as the intentional disregard of a known legal duty. The IRS will typically asserts willfulness if you fail to file FBARs in multiple years. Otherwise, the determination will depend on your knowledge, sophistication, and experience as an investor.
How do I file the form? The FBAR form is actually called FinCEN Form 114 and is e-filed with FinCEN. Here is the link. Note that you will also have to amend your 2013 tax return to check the disclosure box on line 7a of Schedule B. You should also add any unreported income while you're at it, see below.
Which bitcoin exchanges are "foreign?" Most bitcoin exchanges to my knowledge are foreign. MtGox, Bitstamp, BTC-e, BTC-China, BitFinex, and OKcoin are just a few that come to mind. You'll have to do some research if your account is with a different bitcoin exchange. One redditor suggested in the comments that http://bitcoinx.io provides the country information of various bitcoin exchanges.
What if my MtGox account was worth more than $10,000 for just one day? That's all it takes, one-day is enough. You need to file.
What if I can't access my MtGox records? Many former MtGox account holders may find that their records are unavailable. If you are certain that your account balance exceeded $10,000 even without being able to look at your prior records, then I suggest you make a good-faith estimate of your highest account balance. Although guessing is not ideal, it is all you can do under the circumstances and filing your best-guess is better than not filing at all.
Is my paper wallet a "foreign account?" Probably not. It's pretty difficult to imagine that a paper wallet containing would qualify as a “financial account” held at “foreign financial institution”.
Is my blockchain.info or similar online wallet a "foreign account?" These are probably not subject to the reporting requirements either, although it depends on the nature of your account. The most important factor is whether you give custody of your bitcoins to the e-wallet provider. If you do, then your e-wallet is likely subject to the reporting requirements.
On the other hand, if you maintain control of the e-wallet and the provider has no access to your bitcoins, then it’s unlikely your e-wallet is a “financial account.” Without a financial account, you cannot be subject to the reporting requirements.
A simple test is to check if you are given a personal key for the wallet. Most custodial e-wallets do not provide you with a personal key, meaning that you must request a transfer of your bitcoin, which they then execute on your behalf. A noncustodial e-wallet, on the other hand, gives you the personal key and you can transfer bitcoins out of the wallet without any interaction with the e-wallet provider. They have no access to your bitcoins and essentially just generate a valid wallet address for you without keeping any control over your account. Therefore, it would be unlikely that they are maintaining an account on your behalf.
What if I need to file an FBAR for 2012 also? Since the value of bitcoins was much lower in 2012, this is not a problem for most people. However, if you were over the $10,000 minimum in 2012 (or earlier) and did not file an FBAR, I suggest you talk to a tax attorney about your next step. Late FBARs implicate some very serious penalties, and it would be wise to consider all of your options with a knowledgeable attorney before choosing the best course of action.
What if I didn't report the income from my MtGox account (and/or other bitcoin exchange accounts)? You're going to need to amend your returns to include the missing gains, in addition to filing the FBAR forms. If you situation extends back to 2012 or earlier, I suggest you discuss the matter with a tax attorney. Unreported income and missing FBARs for multiple years can trigger criminal prosecution.
FBARs are tricky business and the stakes are exceptionally high. If you are in doubt about your situation, I strongly suggest you contact a tax attorney to discuss your options, particular if your case involves multiple years of missing FBARs with unreported income. Also, this post does not discuss Form 8938, which is an additional foreign disclosure requirement for higher balance accounts and was due April 15th.
Legal Disclaimer
This post was created for general guidance on matters of interest only, and does not constitute legal advice. You should not act upon the information contained in this publication without obtaining specific advice from a tax professional. No representation or warranty (expressed or implied) is given as to the accuracy or completeness of the information contained in this post, and I do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this post or for any decision based on it.
CIRCULAR 230 DISCLOSURE To ensure compliance with requirements imposed by the IRS, I inform you that any U.S. federal tax advice in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.
THE AUTHOR Tyson P. Cross is a tax attorney in Reno, Nevada. He can be reached at Tel: +1 775-376-5690 or Email: [email protected].
submitted by dblcross121 to Bitcoin [link] [comments]

I am a tax attorney, here are my answers to common questions about bitcoin losses and the rule against wash sales.

Hey guys, you might remember my post on bitcoin taxation last year, and a couple follow up posts I made on 1099s, FBARs, and the IRS Notice.
I've been getting a lot of questions about losses on bitcoins and other virtual currencies. So, I thought I'd share some answers here with all of you. I hope this post is helpful given that bitcoin is hovering around 12 month lows and you might be holding bitcoins that have dropped substantially in value or have already sold those coins and realized a loss for the year.
Keep in mind this post is intended for a layman audience. If you are a tax professional or want a detailed examination of this topic, you find this post lacking. Please don't nit pick this post with technicalities or narrow exceptions, I purposely excluded such nuances for the sake of readability.
Legal Disclaimers
This post was created for general guidance on matters of interest only, and does not constitute legal advice. You should not act upon the information contained in this publication without obtaining specific advice from a tax professional. No representation or warranty (expressed or implied) is given as to the accuracy or completeness of the information contained in this post, and I do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this post or for any decision based on it.
CIRCULAR 230 DISCLOSURE To ensure compliance with requirements imposed by the IRS, I inform you that any U.S. federal tax advice in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.
THE AUTHOR Tyson Cross is a tax attorney licensed in California and Nevada. He represents individuals and businesses with tax issues related to Bitcoin and other cryptocurrencies , including tax return preparation, tax planning, and FinCEN compliance. He can be reached at Tel: +1 775-376-7306 or Email: [email protected]. (this information is required by attorney advertising rules).
Topic 1: Losses
Beginning Assumption: This post deals only with "capital losses." If your bitcoin losses are characterized as "ordinary losses," then these rules wouldn't apply. However, very, very few people will have "ordinary losses" from bitcoin. Unless you qualify as a "day trader" (which is not easy to do) and have elected to use the mark to market method for determining your gains/losses, it's very likely that your bitcoin losses are "capital losses." If you're unsure, talk to a tax professional to determine whether your losses are ordinary or capital.
#1 Do capital losses offset capital gains? Yes. We'll get more into the mechanics of calculating gains and losses below, but for now all that matters is that capital gains are determined on a net basis. This means that all your gains and losses for the year are added against each other to reach either a "net gain" or a "net loss." So, yes, losses do offset gains.
Example: Bob owns three bitcoins and sells all of them in 2014. He had a gain of $600 on coin #1, a gain of $400 on coin #2, and a loss of ($900) on coin #3. Bob has a net gain of $100 for the year.
#2 What about long-term vs. short-term? Do these apply to losses also?
Yes. This is where the mechanics of the calculation start to come into play. Remember that when calculating gain or loss, all gains and losses are sorted into either "short-term" or "long-term" depending on whether the underlying bitcoin was held for more than one year. So, this means that there are actually four categories of gains and losses: (1) short-term gains, (2) short-term losses, (3) long-term gains, and (4) long-term losses.
The short-term gains and short-term losses are added together to reach a net short-term gain or a net short-term loss.
The long-term gains and long-term losses are also added together to reach a net long-term gain or a net long-term loss.
Finally, the long-term and short-term gain/loss are added together to reach one final number: your "net capital gain or loss."
#3 So what does that even mean? Can long-term losses be used to offset short-term gains? Or visa-versa?
Yes. The above calculation boils down to one important point: If you end up with a net loss in one category, that loss will carryover and offset your gains in the other category. So, yes, long-term losses can be used to offset short-term gains.
Keep in mind that this is all handled by your tax preparation software, so if your head is spinning a little bit, don't worry about it. All you need to remember is that losses offset gains of the same character first, and then any excess will carryover to offset gains of the other character second.
Example: Bob sold 2 bitcoins in 2014 that he's owned for 2 years. He had a gain of $1,000 on this sale. Bob also sold 3 bitcoins that he's owned for 13 months. He had a loss of ($1,500) on this sale. Finally, Bob sold 1 bitcoin that he's owned for 9 months. He had a gain $750 on this sale.
Bob has a long-term loss of ($500). Bob has a short-term gain of $750. * *Bob will report a net capital gain of $250 on his tax return (characterized as short-term).
note: For the sake of simplicity, I'm going to purposely disregard the short-term/long-term distinction for the rest of this post since it has very little impact on the issue of losses and would unnecessarily complicate the examples.
#4 Can bitcoin losses offset gains from other types of assets?
Yes. Bitcoins are a capital asset (except in a few limited circumstances), and therefore gains and losses from bitcoins are mixed together with the gains and losses from other capital assets.
Example: Bob sold 2 bitcoins in 2014 for a total loss of ($1,000.) Bob also sold shares of stock in Apple Corporation for a gain of $600 and shares of stock in Netflix for a gain of $400.
Bob has zero capital gains in 2014. Note: Bob still needs to include a Schedule D with his tax return, which will show these transactions and the calculation of his $0 net capital gain.
#5 What happens if my losses exceed my gains?
If you had more losses than gains during the taxable year, then the above calculation will result in a "net capital loss." A net capital loss is reported on your tax return as a negative number.
However, there is a ($3,000) limitation on capital losses. No matter how big your capital loss ends up being, you can only use $3,000 of it on your tax return.
Example: Bob decided that he made a bad investment in bitcoins and decided to cash out entirely. He sells all of his bitcoins for a loss of ($12,000) at the end of the year. Bob also sold some shares of stock for a $2,000 gain earlier in the year.
When Bob calculates his capital gains for the year, he ends up with a ($10,000) net capital loss for the year. However, he can only take ($3,000) of the loss on his tax return. The remaining ($7,000) of losses are put on hold and again carried forward to future years.
#6 What do I do with carried losses in the future? Can I use them to offset future gains?
Yes. Any losses in excess of the $3,000 limitation are carried forward and included in the net gain calculation in future years. There is no limit to how long you carry your capital losses.
*Example: Bob has ($7,000) of carried losses from 2013. In 2014, Bob sold shares of stock for a gain of $7,000. *
Bob will include his carried losses of ($7,000) in the calculation of his net capital gain for 2014. So, Bob has zero capital gains for 2014. Remember: bitcoins are a capital asset, and therefore gains/losses are combined with other capital assets like shares of stock.
Suppose instead that Bob had carried losses of ($15,000) from last year. When Bob's carried losses are included in the calculation of his net capital gains, he'll end up with a capital loss of ($8,000). Bob can report ($3,000) of this loss on his tax return, and the remaining ($5,000) becomes a carried loss and will be carried forward once again.
#7 Can I carry losses backwards to earlier tax years?
Unfortunately, the answer is no. Capital losses can only be carried forward. So, for example, losses realized in 2014 from the price collapse in bitcoin cannot be used to offset gains in 2013 (when bitcoin hit all-time highs).
Topic #2: Wash Sales
#8 What is a Wash Sale?
A wash sale is a transaction where an investor sells stocks or securities for a loss, but then repurchases the same stocks or securities within 30 days. The investor gets to claim a capital loss for tax purposes, but he or she is in essentially the exact same economic position. The loss really only exists on paper, nothing else about the investors position has changed.
Wash sales are prohibited by Section 1091 of the Internal Revenue Code. If a transaction qualifies as a "wash sale," it is essentially disregarded and the investor is not allowed to use the loss it generated (I'm choosing to skip the mechanics of the wash sale rule and how exactly it disallows the loss for the sake of simplicity). This led to a lot of gamesmanship over the years to get around the rules, with the result that Section 1091 and the Regulations cover just about every possible trick you can imagine.
Example: Bob owns 100 shares of Apple stock. On May 1st, Bob sells 50 shares for a loss of ($500). Three weeks later on May 21st, Bob purchases 50 shares of Apple stock. This second purchase of Apple stock triggers the wash sale rule under Section 1091 and Bob will not be allowed to use the $500 loss when calculating his gain/loss at the end of the year.
Note that the rule also applies backwards. So, if Bob tried to get around the 30 day rule by buying the 50 shares of replacement stock ahead of time on April 15th, the wash sale rules would still apply.
#9 Do the wash sale rules apply to bitcoin?
Probably not. The wash sale rules under Section 1091 apply only to "shares of stock or securities." Therefore, they do not apply to bitcoins unless bitcoins (and virtual currencies in general) qualify as "shares of stock or securities." This qualification would seem highly unlikely. There's just really no argument that bitcoins are "shares of stock or securities." The definition for these terms (taken from Section 1236, for example) is "any share of stock in any corporation, certificate of stock or interest in any corporation, note, bond, debenture, or evidence of indebtedness, or any evidence of an interest in or right to subscribe to or purchase any of the foregoing." Bitcoins would not appear to meet this definition.
So, as it's currently written, it does not look like Section 1091 applies to bitcoins and other virtual currencies. That could change in the future of course, but for the moment it seems to be the case.
#10 So can I use a wash sale to generate losses on bitcoin?
Yes. If bitcoins do not qualify as "shares of stock or securities" under Section 1091, then the rules do not apply. This mean that you can sell bitcoins to realize a loss, and then buy them back again to preserve your investment. However, that's not the end of the story. The IRS can attack this transaction with the "economic substance" doctrine, discussed below.
Example: Bob has capital gains from the sale of stock in Apple. He also has some bitcoins that he purchased for $1,200 each last November, but are worth only $300 currently. In order to offset the gains on his shares of stock, Bob sells his bitcoins for a loss of $900 each. He immediately repurchases the same amount of bitcoin, thereby creating a tax loss but not actually giving up his investment in bitcoin.
#11 What is the Economic Substance Doctrine?
The "economic substance doctrine" is a doctrine in US tax law that says a transaction must have economic significance aside from it's tax effects. Basically, a transaction that does nothing else but generate tax benefit is invalid under this doctrine. The parties to the transaction must actually incur some economic benefit or suffer some economic loss in order for it to be recognized by the IRS. A transaction that does neither, but still manages to generate some kind of tax benefit, will be invalid under this doctrine. It's become a very powerful tool for the IRS in attacking tax shelters and the courts are generally pretty supportive of the doctrine.
Because a bitcoin wash sale leaves you in the same economic position, but has generated a tax loss for your benefit, I wouldn't be surprised to see the Economic Substance Doctrine used to invalidate wash sales of bitcoins that would otherwise avoid Section 1091.
Example: The IRS audit's Bob from the previous example and discovers that he sold bitcoins in order to generate a tax loss, and then immediately repurchased the same amount of coins just moments later. The IRS will claim the transaction lacked economic substance and will disallow the loss.
#12 Is it possible to generate tax losses without running afoul of the Economic Substance Doctrine?
It's possible, yes. There is a tried a true principle of the Economic Substance Doctrine under which a transaction has "economic substance" if it exposes the parties to "market risk." This is true even if the market risk doesn't end up doing anything to change the economic position of the parties. As long as the parties put their economic interests at risk, the transaction has economic significant apart from the tax benefits it created.
So, this means that you can avoid the economic substance doctrine by waiting to repurchase your bitcoins. This waiting period exposes you to market risk due to the fact that you might be forced to repurchase at a higher price, and therefore it adds economic substance to the transaction.
**** Continued Below ****
submitted by dblcross121 to Bitcoin [link] [comments]

US Bitcoin traders who identify as users are under siege. Do you have the same issue in your country?

As a bitcoin trader myself, I follow all the news of us trader arrests. These fall into two categories. First, the user did something otherwise unlawful such as trafficking drugs or committing money laundering and was charged with "operating an unlicensed money servicing business" and "conspiracy for agreeing to distribute controlled dangerous substances". In these types of cases I agree that the user should be punished for conspiracy to distribute drugs and money laundering. The second type of case that is becoming far more prevalent now is where the bitcoin user has simply made sales and purchases of bitcoin for his or her own account. These users are still charged with "Operating an unlicensed money services business."
This I do not agree with at all because FIN-2008-G008 declared that "When a broker or dealer in currency or other commodities accepts and transmits funds solely for the purpose of effecting a bona fide purchase or sale of currency or other commodities for or with a customer, such person is not engaged as a business in the transfer of funds, and is not acting as a money transmitter as that term is defined in our regulations.8 In such circumstances, the transmission of funds is a fundamental element of the actual transaction necessary to execute the contract for the purchase or sale of the currency or the other commodity. The transmission of funds is not a separate and discrete service provided in addition to the underlying transaction. It is a necessary and integral part of the transaction."
This determination was reiterated in subsequent guidance FIN-2013-G001 & response FIN-2014-R002. Simply put a bitcoin user who only purchases or sells bitcoin of his own account to or from a customer is not a money transmitter.
Most simple bitcoin traders operate under this guidance and are simply flabbergasted when confronted with charges for operating an "unlicensed money services business" or "operating an unlicensed bitcoin exchange". When the government makes their case the conveniently only quote the portion of the rule that states " An exchanger is a person engaged as a business in theexchange of virtual currency for real currency, funds, or other virtual currency". [FIN-2013-G001] Except that it is clearly explained in FIN-2008-G008 that "When a broker or dealer in currency or other commodities accepts and transmits funds solely for the purpose of effecting a bona fide purchase or sale of currency or other commodities for or with a customer, such person is not engaged as a business in the transfer of funds, and is not acting as a money transmitter as that term is defined in our regulations." This is carried forward and reiterated in FIN-2013-G001 where it states "In 2008, FinCEN issued guidance stating that as long as a broker or dealer in real currency or other commodities accepts and transmits funds solely for the purpose of effecting a bona fide purchase or sale of the real currency or other commodities for or with a customer, such person is not acting as a money transmitter under the regulations. However, if the broker or dealer transfers funds between a customer and a third party that is not part of the currency or commodity transaction, such transmission of funds is no longer a fundamental element of the actual transaction necessary to execute the contract for the purchase or sale of the currency or the other commodity. This scenario is, therefore, money transmission. Examples include, in part, (1) the transfer of funds between a customer and a third party by permitting a third party to fund a customer’s account; (2) the transfer of value from a customer’s currency or commodity position to the account of another customer; or (3) the closing out of a customer’s currency or commodity position, with a transfer of proceeds to a third party. Since the definition of a money transmitter does not differentiate between real currencies and convertible virtual currencies, the same rules apply to brokers and dealers of e-currency and e-precious metals.
A simple way to think about the definition of a money transmitter is that a money transmitter typically collects funds from one customer and transmits those funds to another customer via its agents in a remote location. So A western Union agent for example collects $100 from Bob Smith in Iowa and deposits this money into its Bank of America Account. Peggy Sue in Ohio goes to a western union agent where the agent prints out a check from western union or gets an ach credit into its business checking account from Bank of America and pays out a portion of the received funds to Peggy Sue. Western Union is transmitting money by accepting it from agent A and transmitting it to agent B for further credit to Peggy Sue. So let's think about this in terms of bitcoin. Bitcoin is a centralized ledger of funds for each public key or "account". If I have 0.05 bitcoin in account 1001 and I want to pay my landlord 0.05 bitcoin rent,I send the bitcoin to account 1002. All this does is make a notation on the blockchain that account 1001 now has 0 bitcoin and account 1002 now has 0.05 bitcoin. This is simplified a bit so you programmers out there don't cringe over the details of constructing a bitcoin transaction, inputs, and outputs. Suffice it to say, that sending my landlord who is standing next to me, 0.05 bitcoin, does not make me a money transmitter any more than paying him with my VISA card. In fact in both cases we could consider VISA or bitcoin a money transmitter since they take funds from person A and transmit them to person B via their agents. In VISA's case the party's banks are the agents, while in bitcoin's example the agents could be the wallet program on each phone or computer that reads the person's wallet or account balance.
Circle back to our friendly traders under siege. No, not the criminals slinging drugs, they knowingly committed their actions. I'm speaking about the bitcoin users, only selling or purchasing bitcoins from their own account to or from a customer. These traders haven't committed an offenses at all according to fincen's directions. What does the government do? Do they engage in a public information campaign to inform these traders of their rights and responsibilities? Do they create a new MSB category for digital currency and define rules and responsibilities for a virtual currency trader? No, instead they try to mislead traders in these cases where a secondary offense such as drug trafficking hasn't been committed. "You have got to be kidding me. Right?" No, I'm really not. If you start reading into these cases you'll find literally hundreds of examples of agents encouraging traders to send bitcoin to a trader in Africa for example so that trader can disburse local currency to a friend. Agents buying bitcoin for less than $10,000 USD without ID and considering this illegal behavior in the indictment! Remember a user doesn't need to report any transaction unless it exceeds $10,000 USD if it is part of his trade or business. If an auto worker who is a casual user that only trades bitcoin 3 times a year sold his for Christmas money to a friend, he wouldn't even need to report the $15,000 sale. But most traders who trade on a daily basis or do it for a living will need to file either an IRS 8300 or a Fincen CTR. Such agents who approach these casual traders entice them with inflated rates and use such phrases as "I'm going to make you rich!'". And they often ask questions about limits and regulations that don't apply to the bitcoin user. They consider all responses as violations of the money transmitter regulations that aren't supposed to apply.
So what is a trader to do? You have two choices. You can follow the law literally as most have done and have countless agents come and test you...and then worry about being arrested on charges that don't even apply to you except when acting unlawfully when strongly encouraged or even elicited under duress in some cases by government agents. Or you can falsely claim you are a money transmitter and follow those rules.
On my own personal journey I decided in October of 2014 to register with Fincen because I saw that one of my suppliers had done so on his website. I asked him about it and he said it was a precautionary measure. I asked around and I was told by many that I had to select money transmitter and other and write in bitcoin trader because there was no selection for bitcoin trader. This in spite of not being a money transmitter. After I had registered I received a call from a man in "Internal Revenue" in Boston about my registration. He asked me about my bitcoin trading and then he said he had to consult with a supervisor. About 15 minutes later he returned my call and told me, "You are not a money transmitter, so I don't need anything from you." A couple months after that, I received a call from Key Bank's compliance office in Cleveland. They had detected my registration as a money transmitter with Fincen and wanted to ask me a few questions. After questioning me, the lady told me that she previously worked for fincen and that I was not an MSB. Key bank had me sign an affidavit that I wouldn't perform any money services businesses activities such as cashing checks for profit, transmitting money, issue money orders, or create gift cards. This compliance officer understood that I was not an exchange in any way and that I only purchased and sold bitcoin of my own account. She understood I didn't hold funds for customers to trade with each other of their own accord like Bitstamp, Kraken, or Gemini.
In the years that would follow, I would have many bank accounts shut down due to this registration as a money transmitter. Most banks simply looked and said, you are a money transmitter. After all, you registered as one. I called Ficen and asked if I could un-register. "No, you cannot". The banks wouldn't even listen to the facts and make a decision. The only other business to actually study my investment model and grant me user status was Gemini. They also agreed I was a user. I think years later they came under pressure to terminate all localbitcoins accounts because many were terminated and at the end of those, mine was too. Was it a coincidence? Or could one of my customers have sabotaged me? It is possible for a user to lie about his wallet address and give out one belonging to a site such as Alphabay. I had one customer do this to me when I was selling him coin from Alphabay. Coinbase questioned me about the transaction and I informed them that someone I was sending money give that wallet out as his own. They reinstated my account since I had years of history with them and it was only one transaction. After that I was careful not to send to customer wallets directly from coinbase. I guess my point is here, if you don't register as a money transmitter they want to harass and prosecute you; but if you do register as a money transmitter they still want to harass and shut down your business. I have recently been engaged in conversations with Fincen by email and by phone and other traders. I haven't been able to speak with many compliance people who are knowledgeable about bitcoin. When I do, for example I've spoken with BitAML on this subject, they agree with me about being a user as a trader. Other compliance people won't even answer my emails or call me back. Now I'm on the verge of either retiring or going the whole money transmitter route and even following the $3,000 ID requirement that only applies to money orders, traveler's checks, and money transfers, but not virtual currency. So my question to you is, do you have the same kinds of problems in your country? Is it better, or worse where you are? Tell me your stories. From my perspective now at least, it seems like the USA has the most malfeasance and harassment of the simple bitcoin traders, excluding those who commit crimes.
Thanks for reading
submitted by scottemick to Bitcoin [link] [comments]

The ticking time bomb of crypto exchanges and compliance

I believe the next "black swan" event for bitcoin is when the US comes down hard on almost all the exchanges out there which are brazenly flouting the regulations.
Some common fallacies:
Fallacy 1: Exchange is based in [some remote country], so they don't have to worry about US laws.
Fact 1. Most people don't realise, it's not sufficient to be based outside of the US to be free of their jurisdiction. If an exchange is serving US citizens they must comply with the regulations, regardless of which country their exchange is based in.
Fallacy 2: Exchange XYZ doesn't accept fiat and it's crypto to crypto only. Therefore it doesn't need a money transmission license.
Fact 2. Fincen has issued multiple statements very clearly stating that a business which exchanges a virtual currency in exchange for another virtual currency is a money transmitter and thus requires a money transmission licence. Similarly for fiat to crypto. Some sources: (http://fincen.gov/statutes_regs/guidance/html/FIN-2013-G001.html http://globalcryptonews.com/fincen-ruling-on-cryptocurrency-exchanges-explained-part-1-definition-of-money-transmitter-and-msb/). Here fincen publishes a redacted letter to a crypto exchange telling them they are a money transmitter: http://www.fincen.gov/news_room/rp/rulings/pdf/FIN-2014-R011.pdf
Fallacy 3: Exchange XYZ is a money service business and is therefore compliant
Fact 3. It's actually a piece of piss to get registered as a money service business and I wish people wouldn't look at it as a symbol of authenticity. If the exchange doesn't have the money transmission licenses and is serving customers in most states of america it's only a matter of time until they get a knock on the door.
Fallacy 4: Most other exchanges aren't compliant so we have safety in numbers.
Fact 4. That is not a robust legal defense.
Exchanges which aren't compliant and therefore are NOT safe places to leave your money at:
And probably almost all of the others! I've listed the above as they are exchanges which qualify as money transmitters and are operating without the correct licenses. An exchange I am fairly certain has no licenses is:
If someone can prove me wrong, let me know.
Exchanges that are doing things by the book:
tldr: Use Coinbase or Kraken if you don't want to run the risk of an exchanges funds being seized.
submitted by blackcoinprophet to Bitcoin [link] [comments]


Right now, Senator Tom Carper is giving an introduction into what bitcoin can be used to buy. He mentioned buying all goods but specifically spoke of drugs, weapons, and how it can be used to exploit children.
Carper mentioned how the silk road was taken down in a joint effort by the CIA, FBI and dept. of Homeland security.
BITCOIN TIP: public address- 1AkF4HaJrJzXVYuSxifwLUWNEwhbGv5sXu
3:10 EST: jennifer Shasky calvery- Treasury Department - Financial Crimes Mythili Ramen (head of the Dept. of Justic Crimnal Division) Edward Lowry- special agent in charge of criminal investigation division
3:13 EST - jennifer Shasky calvery statement. 'Recognizing new payment methods must keep pace with laws against money laundering and illegal money transfers. Users of virtual currencies don't have transaction limits, is secure, can be used for money laundering. Illicit actors use virtual currencies in order to launder money, enable drug trafficking and move child abuse forward.
For businesses, complying with Federal laws is good for the business integrity.
Bringing virtual currencies into regulation will be positive for the US financial system.
3:20 EST: Mythili Raman
Virtual currencies are viewed through the lens of crimnal activity. Criminals will always look for new ways to hide their crimes. The criminal division's main aim is to reduce the ability of criminals to use virtual currencies for illegal activity.
Virtual currencies (as long as the comply with laws) are not illegal. They can be convenient for consumers because they are quick. These same currencies can also be used by criminals for drugs, weapon sales, and child pornography.
In 2007 - EGOLD moved 6 million dollars per day which may have been used for sale of drugs and child pornograpgy
When virtual currencies fail to live up to their Financial Laws, the Justice division will come after them.
Silk road- the largest online marketplace for illegal substances accepts BITCOINs exclusively for payment. When silk road was shut down, the US sized upwards of 70 million dollars from the silk road website.
The US justice department is encouraged by virtual currencies reaching out to comply with FINCEN's laws. (Financial Crimes. Enforcement Network)
3:27 EST- Edward Lowry Digital currencies have continually grown over the past 17 years. Since Criminals and other illegal organizations use virtual currencies such as E-gold and Liberty reserve for illegal operations
As FINCEN emphasized, digital currency exchanges MUST comply with money laundering laws.
The secret service has successfully found and arrested leaders of illegal organizations whom use digital currencies to fund their activities.
Digital currencies are tools used by a wide variety of criminals. The secret service and ICE (immigration and customs enforcement) cooperate with FINCEN in order to find criminals who use virtual currencies for money laundering.
3:34 EST Sen. Tom Caper Asks about the early days of virtual currencies as well as what the future holds for future currencies.
3:35 EST- Jennifer Shasky Calvery When there is a new "player" in the currency industries, most people think about the gaps that will exist in the market and how criminals will use it for illegal activity. Moving forward with change is very important though, so regulation is necessary.
3:36 EST- Mythili Ramen Virtual currencies are not illegal as long as they comply with money laundering laws. The Criminal division needs to be vigilant towards virtual currencies in order to make sure they actively attempt to comply with laws.
3:38 EST -Edward Lowry The secret service's hallmark is to adopt their defenses to an ever changing threat.
3:39 EST- Sen. Tom Carper "what roll does the legislative body need in order to combat the dark side of this technology?"
3:41 EST - Edward Lowry Device fraud- today anyone in the world can reach anyone else in the world. This has changed how ICE and the secret service must combat illegal activity.
making his case for more money to his department
3:42 EST- Sen. Tom Carper - Can Law enforcement keep up with the changing technology?"
3:44 EST- Mythili Ramen Liberty reserve was taken down in a coordinated arrest done by the US branches joined with other governments. The ability of the criminal division is evolving just as much as criminal activity is evolving.
3:47 EST- jennifer Shasky calvery Congress passing the Bank secrecy act. in 2011, the justice dept needed flexibility in order to combat digital currencies. With the USA patriot act sec 311, gives FINCEN the authority to name a foreign entity as using money laundering, and thus cut off from the US market.
3:49 EST- Sen. Tom Carper - "Give examples of how virtual currencies have worked out for the good"
3:50 EST- jennifer Shasky calvery
Online banking and ACH (picture deposit) makes money exchange much easier for the consumer. But with each of these, we had to think about how criminals could exploit it.
3:52 EST- Sen. Tom Carper " Do you see gaps in our legislation regarding virtual currencies?"
3:53 EST- Edward Lowry
The secret service recognizes that the high level cyber criminals HAVE NOT moved towards P2P currencies such as bitcoin. Many high-level criminals use centralized online currencies based in places with less regulatory laws.
3:54 EST- Sen. Tom Carper "Which agencies need to be at the forefront of recognizing virtual currencies"
3:55 EST- Mythili Ramen The FBI, DEA, OFAC, IRS are necessary participators but are already participators. The National crime agency in the UK has also participated. The Criminal division invites any other entities for help in identifying emerging threats and what governments can do about them
Currently, the criminal statutes used thus far have been effective. The substantive criminal statute, murder statute, and money laundering statutes have already been used to prosecute criminals that use virtual currencies.
Many updates to laws can still be made.
3:59 EST- Sen. Tom Carper The JAO reports with the help of the IRS on "tax gap." 100's of millions of dollars in taxes that are owed to the treasury. The number is going down over the past 10 years
In may of this year, "virtual currencies could prevent a real vulnerability in the current system."
Question, "do you know the current guidance of that status?"
4:02 EST- Jennifer Shasky Calvery
FINCEN, once it collects financial data, disseminates the information to law enforcement. This is not only for taxes but also for evidence against criminals.
The JAO and FINCEN are working diligently to modify tax laws to incorporate virtual currencies.
The focus of FINCEN is to combat illegal use of virtual currencies while still within U.S laws. Conveniently, many of the laws are very flexible.
4:06 EST- Sen. Tom Carper After the SILK ROAD shut down, many have popped up in its place. "How do we combat these websites?"
4:07 EST- Edward Lowry
We believe there are 3 infrastructures in place. The SILK ROAD forums, the digital currencies (those which fall outside of the guidance of FINCEN), and "bulletproof hosting" -an organization that provides web hosting to anyone with servers in countries with little regulation.
4:09 EST- Mythili Ramen
The main problem is anonymity. The criminal division has created tools and strategies to combat this. (not said) but this is the TOR javascript exploit We have been successful in combating criminals who use anonymity to continue illegal activity.
4:10 EST- Sen. Tom Carper
Bitcoin and virtual currencies may move overseas to countries with less regulatory agencies. What can we do to combat this? How do we make business stay in the US?
4:12 EST-jennifer Shasky Calvery
Bitcoin is going to be a big player in the future of the exchange of goods and services. The financial action task force does a good job at making the countries around the world comply with regulatory laws.
4:15 EST - Mythili Ramen
This hearing is important for the law agencies because talking about these problems is not easy. Virtual currencies in of themselves are not illegal. Innovation is important. Just as criminals have done for ages, this is just another means for illegal activity. We need to stay vigilant in keeping pace with evolving virtual currencies.
4:17 EST- Edward Lowry The secret service will continue to work strategically to remove the gravest structures to the [US] infrastructure. We are going to have to adopt and jump over hurdles but we will work with foreign partners to make this happen. We will continue to work as a part of DHS to eliminate these threats. We believe that aggressive acts by law enforcement will benefit the world as a whole
4:18 EST-Jennifer Shasky Calvery
I heard a CEO of a fairly large bank say, "having the privilege to be a part of the financial industry comes with great responsibility. While innovation is a wonderful thing, it does come with obligations to become part of the US financial system. Regulation in place have help in minimizing the risk and the burden. We ask that businesses do this, put in place AML protections, register with FINCEN, maintain records (including suspicious reports)
We believe that these requests are reasonable because these currencies have already been used for illicit activity.
4:21 EST- Sen. Tom Carper
"This has been a thought provoking and encouraging discussion"
"It's not true We have to choose between a stronger economy and a clean environment"
"Is it possible to reap the benefits of this virtual currencies while still being able to clean up criminal activity?"
-RECESS- and change of panel
4:28 EST Introduction by Sen. Tom Carper Ernie Allen- Centre for missing & Exploited children Patrick Murck-General council of BITCOIN foundation Jerry Brito-Senior researcher of Technology at George Mason university. Jeremy Allaire- Circle Internet Financial CEO
4:30 EST- Ernie Allen Our goal is to bring people together to protect the digital economy while combating its misuse. We are excited for digital currencies to give "banking" to adults all over the world. Our concern today is the use of digital currencies in child pornography. Most countries have not added regulation to digital currencies.
Over the past year, I have consulted financial experts of this issue. Child pornography is being created and disseminated by using anatomizing technologies and virtual currencies.
Freedom hosting was shut down by law enforcement by penetrating a loophole in freedom hosting's servers which gave users identities away.
Most of the arrests of those using anonymous networks are of those who are misusing the network. Because of this, we believe that we are not catching the high-level criminals who are using these networks.
We can press for global cooperation to solve these problems. Digital currencies move from nation to nation.
We need to address the core problem which is internet anonymity. An environment in which child exploiters can thrive and not be caught should not be allowed.
Anonymity allows illegal activity, but also acts to give a voice to those against oppressive regimes.
4:39 EST- Patrick Murck There is no single bitcoin company that manages the value of bitcoin or the trade of bitcoins.
Bitcoin is like email for money. It is secure any completely transparent. Bitcoin can operate without 3rd parties.
Financial exclusion is a problem for the US. There is a rising tide of un-banked people within our borders. Bitcoin can help move people from a trapped economy to a globally connected economy.
Just like any currency, bitcoin can be used for illegal activity. It is no easier to commit crime with bitcoin then it is with any other currency.
Keeping the bitcoin network safe is all of out opportunity. When the SILK ROAD was shut down, the bitcoin community was excited.
Bitcoin is not some magical cloaking device that allows criminals free reign. The use of bitcoins is not un-regulated. The exchanges have a deep understanding of how to effectively allow users to trade bitcoin with fiat currencies.
Bitcoin exchanges- "If you give us clear rules, we will work to abide by them"
We would like to thank FINCEN to opening up the dialog about bitcoin. The bitcoin foundation looks forward to continuing in this dialog with the government and the public.
4:47 EST- Jeremy Allaire
As bitcoin moves into mainstream acceptance, it is important that governments fully understand how to include bitcoin into existing laws.
Bitcoin allows innovation in currency, exchange, and payment that many other currencies cannot offer. Much of our current infrastructure for finances has existed before the internet was invented.
It is a risk if the government doesn't support businesses that want to use bitcoins. Such businesses may be encouraged to move offshore.
The U.S. falls behind in this critical economic innovation. A bitcoin exchange in CHINA has become the single largest currency exchange in the world . We need to be open and evolving.
4:53 EST Jerry Brito
From facebook credit to world of warcraft gold, Virtual currencies are nothing new.
Prior to Bitcoins invention in 2009, all virtual currencies needed to be exchanged through an intermediary.
Emerging technologies allow great benefits but great risks. 3-d printers revolutionize personal creation, but also creation of guns.
While Bitcoin transactions don't need intermediaries, many exchanges can still convert government currency to bitcoins.
Criminals are more likely to use centralized currencies because they can lie about how much money has been moved. Currencies such the bitcoin infrastructure show every transaction that happens.
The U.S. could loose it's headstart on an emerging economy if it chooses to create strong regulatory laws.
4:59 EST- Sen. Tom Carper
"Where is the general agreement on the panel, and if not, how can we make agreement?"
5:00 EST- Ernie Allen There is clear agreement that we can't just ignore the misuse, and that the misuse jeopardizes the currency in the long run.
5:02 EST Patrick Murck
There is a real need to create on ramps into the traditional economic system. The biggest obstacle to that happening is the ability of businesses to get bank accounts in the current system, even a checking account.
If you have the word "bitcoin" anywhere around you, your file will be cast aside.
5:04 EST- Jeremy Allaire
Anonymity needs to be addressed in some way
submitted by hand_jibber to Bitcoin [link] [comments]

There is a 30 day comment period for the current Bitlicense proposal. Unless there are substantial changes, New York will be a Bitcoin dead zone

The 30 day comment period starts next week. Bitlicense, as proposed will force most companies that store customer BTC deposits to block New York IP addresses. There is very little chance that Lawsky will make any further changes to it, so what will this mean for Bitcoin around the world?
EDIT, as a reminder:
This is how the Bitlicense will affect Bitcoin businesses, taken from here:
(I've added modifications in light of changes in the new proposal and information that I found was missing in the original write-up)
Entities are considered dealing in virtual currencies if:
.. to any resident in New York. Web services, even those incorporated overseas, must either comply or block access for NY users. (200.2n)
Entities 'dealing in virtual currency' must:
The (only?) good news: Merchants do not need a BitLicense to accept Bitcoin for a good or service. (200.3c2).
> This post was created for general guidance, and does not constitute legal advice. You should not act upon the information contained in this publication without obtaining specific advice from a professional. No representation or warranty (expressed or implied) is given as to the accuracy or completeness of the information contained in this post.
EDIT 2, targetpro suggested expressing any concerns you may have about the proposed regs to the NY Dept. of Finan. Services:
submitted by aminok to Bitcoin [link] [comments]

Marco Santori (Reg Affairs Committee Chair at the Bitcoin Foundation) breaks down the BitLicense

Note: This is NOT the Foundation's official response, just Marco's gut reactions...
"Breaking Down the BitLicense" | Marco Santori, Regulatory Affairs Committee Chairman, The Bitcoin Foundation
Hi everyone. I’m Marco Santori. For those of you who don’t know me, I’m a lawyer here in New York City. About 90% of my practice is digital currency clients. My team represents some of the biggest names in crypto, and even more of the littlest names I hope you’ll all have to learn one day. I am also Chairman of the Bitcoin Foundation’s Regulatory Affairs Committee, but the thoughts in this post are my own, not those of the Foundation. Believe me, those are forthcoming.
You’ve likely felt the shockwaves of today’s seismic news: New York’s Department of Financial Services (DFS) has released proposed “BitLicense” regulations. Here is a quick rundown of some of the more interesting terms, along with my gut reactions – in no particular order and with very little filter.
Definition of Virtual Currency: “Virtual Currency” seems to include bitcoin and other convertible currencies, but specifically exclude WOW [World of Warcraft] gold and customer affinity points. Expectedly, there is no carve-out for coins used to track digital assets and there is no specific treatment of branded coins that are quasi-convertible.
Who Requires a License: Surprise! Everyone does. Direct purchasers and sellers, multi-sig wallet providers, merchant payment processors, custodial exchanges, hell, even local wallet software providers probably need one. Payment processors and payment networks all need licenses. Anyone who receives or transmits crypto as a business needs one. This is because the BitLicense language is even broader than the federal language, which only regulates those receiving and transmitting funds.
Identity Verification: If a BitLicense holder “opens an account” for a customer, then that firm must collect and retain the customer’s name and address, check the names against the OFAC SDN lists and retain that information for ten years. It’s difficult to know what “opens an account” means. Even if we figured that out, this is more than even traditional money transmitters are required to do.
Crypto is not a “Permissible Investment”: A BitLicense holder can only invest its earnings in: government securities, money market funds, insured CDs. No investing in Bitcoin. Strange – Moneygram is permitted to invest in dollars…
Full Reserve: A BitLicense holder may not lend or spend bitcoins that it is holding on its customers’ behalf. Those bitcoin “banks” out there promising returns on your “deposits” are going to be “felons”.
State-level AML Reporting: I’ve saved the best for last. NY is taking the first steps to create yet another anti-money laundering program. FinCEN – the federal regulator - already requires reporting cash transactions over $10k. Now, NY is requiring reporting to it for any crypto transactions over $10k. BitLicense holders must also file state Suspicious Activity Reports with NY, not just the ones required to file with FinCEN. I wonder how the boys at FinCEN feel about this.
There will be a 45-day comment period beginning on July 23rd. If you disagree with any of these proposals, you should submit comments. If there is anything you agree with, and are happy to see, you should submit comments. If there is anything you don’t understand, and so aren’t sure if you agree or disagree, guess what? You should submit comments. DFS is giving the industry an opportunity to engage in a dialogue that never existed when FinCEN and IRS published their famous virtual currency guidance. We should not ignore that opportunity.
If you’re looking for assistance or just want to talk crypto law, you can reach me at [email protected].
(Back to TBI)
There is much work to be done with this BitLicense proposal. It will be a defining bit of regulation for the industry, which means that the amount of constructive feedback and proactive effort needed from everyone in this industry must be nothing short of herculean if bitcoin is to evolve unencumbered in the US. This proposal simply cannot survive as is. So if you are an entrepreneur, investor or just general enthusiast, you better step up this summer. If we can make our case effectively, we should be able to keep the sane, legitimizing parts and scrap the stifling, unnecessary parts of the proposal.
Many more of my organized thoughts tomorrow…
Cheers, TBI
submitted by twobitidiot to Bitcoin [link] [comments]

Lightning Network and US FinCEN regulations

In light of the fact that the state of Washington has recently enacted digital currency regulations that have forced some Bitcoin businesses to leave the state, I think the writing is on the wall for Lightning Network. Onchain Bitcoin is hard to regulate but they're doing it anyway. I hope this post makes it clear why Lightning Network greatly amplifies the likelihood of regulatory involvement.
Onchain Bitcoin is a "fire and forget" broadcast system. There is no one relay or miner who transmits your funds: it is instead the entire network - all miners and relays - that transmits your funds. No one miner or relay is responsible for or can affect the transmission. This is in no small part why onchain Bitcoin - real Bitcoin - is so very subversive. You can participate literally by connecting one time to the network, broadcasting a few bytes, and disconnecting. To regulate money transmission onchain would require regulating essentially all actors.
Lightning Network on the other hand is a point to point network. Users lock funds in a channel with hub who can unilaterally decide to route, or not route funds; and which can exclusively place a hold on funds. The hubs will charge a fee for routing. The channels are persistent. Unlike fire and forget, the Lightning user must monitor the channel for the life of the channel, and must be online any time they wish to receive money through the channel.
Now let's read this quote posted earlier by skyhookuser
FinCEN guidance on virtual currencies couldn't make it much clearer. Here are 4 different direct quotes from it:
  1. “FinCEN's regulations define the term "money transmitter" as a person that provides money transmission services, or any other person engaged in the transfer of funds. 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. The definition of a money transmitter does not differentiate between real currencies and convertible virtual currencies. Accepting and transmitting anything of value that substitutes for currency makes a person a money transmitter under the regulations implementing the BSA.”
  2. The administrator of that repository will be a money transmitter to the extent that it allows transfers of value between persons or from one location to another. This conclusion applies, whether the value is denominated in a real currency or a convertible virtual currency. In addition, any exchanger that uses its access to the convertible virtual currency services provided by the administrator to accept and transmit the convertible virtual currency on behalf of others, including transfers intended to pay a third party for virtual goods and services, is also a money transmitter.”
  3. “Under FinCEN's regulations, sending "value that substitutes for currency" to another person or to another location constitutes money transmission”
  4. “a person is an exchanger and a money transmitter if the person accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency.”
submitted by jessquit to btc [link] [comments]

List of USA Government Policy Statements and Guidance

Here is a Regulation Dump about Government Websites and PDFs discussing Regulations on Cryptocurrency
Visit ALL Links at: https://originalcryptocoin.com/knowledgebase/government-policy-statements-and-guidance/
United States
Financial Crimes Enforcement Network (FinCEN) FIN-2013-G001 Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies https://www.fincen.gov/sites/default/files/shared/FIN-2013-G001.pdf
FIN-2015-R001 Application of FinCEN’s Regulations to Persons Issuing Physical or Digital Negotiable Certificates of Ownership of Precious MetalsR001.pdf https://www.fincen.gov/sites/default/files/administrative_ruling/FIN-2015-R001.pdf
FIN-2014-R001 Application of FinCEN’s Regulations to Virtual Currency Mining Operations https://www.fincen.gov/sites/default/files/shared/FIN-2014-R001.pdf FIN-2014-R002 Application of FinCEN’s Regulations to Virtual Currency Software Development and Certain Investment Activity FIN-2014-R012 Request for Administrative Ruling on the Application of FinCEN’s Regulations to a Virtual Currency Payment System FIN-2014-R011 Request for Administrative Ruling on the Application of FinCEN’s Regulations to a Virtual Currency Trading Platform Financial Industry Regulatory Authority (FINRA) What you should know about Bitcoin Bitcoin – Know before you invest Bitcoin: More than a Bit Risky US Securities and Exchange Commission (SEC) Investor Alert – Bitcoin And Other Virtual Currency-Related Investments Statement on Cryptocurrencies and Initial Coin Offerings Internal Revenue Service (IRS) Notice 2014-21 https://www.irs.gov/pub/irs-drop/n-14-21.pdf Consumer Financial Protection Bureau Risks to Consumers Posed by Virtual Currencies European Union European Banking Authority Warning to Consumers on Virtual Currencies United Kingdom HM Revenue & Customs Revenue and Customs Brief 9 (2014): Bitcoin and other cryptocurrencies Money (including transfer of money) and related services: examples of services and products falling within item1: Bitcoin and similar cryptocurrencies https://www.gov.uk/hmrc-internal-manuals/vat-finance-manual/vatfin2330
submitted by 2electric4life to CryptoCurrency [link] [comments]

MtGox summary of events, March 2013 - Feb 2014.

If anyone gives a damn about my opinion, here's what I've pieced together in this MtGox saga. The following is speculation and all info I've gathered from public sources and reddit speculation.
Early 2013 and prior, MtGox was solvent and 'above the law'.
March 2013, FinCEN issued guidance stating Bitcoin Exchanges, such as Mt Gox, who had business with customers in the US had to register as a "money services business" (MSB), lest they be subject to law enforcement.
On 15 May 2013, Mt Gox, had their US bank accounts seized for failing to register as MSB in the US.
We've learned that this seizure was ALSO due to investigations into links with Silk Road (SR). Lack of MSB license made FBI's job much easier.
Added: http://thegenesisblock.com/mt-gox-seizures-linked-silk-road-fed-testimonies/
After May 2013, it's my opinion that MtGox was running a fractional reserve exchange. Why? Because the FBI seizure included, not JUST their bank account, but also assets containing the cold storage private keys for MtGox customer's deposits (744,000+ bitcoins).
At this point, we can presume FBI was monitoring ALL MtGox internal trades, and external deposits and withdrawals. The FBI would also be receiving ALL MtGox customer verification information. Without exception. Including me (grrrr)
MtGox were likely told to continue operating normally so that the FBI had an opportunity to catch SR-related and money laundering activity. FBI issues a gag-order against Mark Karpeles/MtGox. Utter a word about this and go to jail. This in itself is the reason for recent horrible Psilence.
MtGox could continue operating because the FBI didn't confiscate the hot wallet running on the servers, since this would prevent them from operating 'as normal'.
October 2013, U.S. law enforcement officials from the FBI shut down Silk Road, following the arrest of Ross William Ulbricht, the site's alleged proprietor.
MtGox were likely told to continue operating so the FBI can continue to monitor and catch SR users, or those of SR2.0
The run up in Bitcoin price and increased deposits from October to December 2013 resulted in MtGox returning to some kind of solvency. Mark possibly saw light at the end of the tunnel.
December 2013, alleged top moderators of Silk Road 2 forums are arrested in Ireland.
Jan 2014, seeing the light at the end of the tunnel, MtGox create the 27 page business plan. http://www.scribd.com/doc/209535200/Business-Plan-MtGox-2014-2017
Jan - Feb 2014, Transaction Malleability/incompetence begin to drain MtGox hot wallet.
The hot wallet, as we have learned in the leaked 'Crisis Strategy' doc, contains around 2000 BTC by the time MtGox stop BTC withdrawals in Feb 2014.
Now, instead of seeing the light at the end of the tunnel, Mark sees the writing on the wall. MtGox cannot operate 'as normal' as instructed by the FBI. Mark is desperate and needs a BTC injection.
What happens next is possibly illegal and certainly immoral.
This is speculation, although it's alluded to in the Crisis Strategy doc. Mark uses the lower MtGox BTC price for arbitrage, (ie, market manipulation), buying cheap coins on MtGox and selling on other exchanges for higher price. Bringing the $ back to MtGox to buy more cheap bitcoins, rinse and repeat.
At the same time, Mark puts the feelers out for a buyer, someone, anyone to bail out or take over MtGox. Potential Buyer (dont know who) does their due diligence and starts deep investigation. They stumble across the Crisis Strategy doc and immediately notify the authorities and their colleagues in the industry (ie, dont bail out Gox, here's why, authorities notified)
EDIT added: 24 Feb 2014, several businesses issue the joint statement regarding MtGox solvency and 'tragic violation of the trust'. They likely had seen the Crisis Strategy doc before ‏@twobitidiot released it publicly.
end edit
Now MtGox is closed. The FBI have seized fiat dollars AND cold storage private keys containing the supposed 744,000 BTC.
Those 744,000 BTC could be argued by the FBI to be the proceeds of crime.
submitted by bitpotluck to Bitcoin [link] [comments]


BITCOIN TIP: public address- 1AkF4HaJrJzXVYuSxifwLUWNEwhbGv5sXu
5:05 EST Jerry Brito A decentralized currency are not a greater risk than centralized currencies for money laundering.
The danger is that real hardworking entrepreneurs looking to comply will not find that the US is helpful in economic prospect.
5:07 EST- Jeremy Allaire
the digital currency business may be different from other internet businesses. I do not think that two men should not be able to start a business unless it has capital to keep users safe.
5:10 EST Patrick Murck
The states have an interest in protecting their consumers. In the EU, there is a system of reciprocity. Perhaps that is a system that would work here [the us] but that is up to legislators. 5:11 EST- Jerry Brito
guidance says that you are not required to register with FINCEN if you are buying goods or services, only if you are sending money and exchanging it back into government money.
This is a new industry that is still trying to find it's way. The folks trying to participate in this economy are not your average consumers. During this time, we can learn if the existing laws are working or even if they are enough.
Digital currencies provide a new choice for users. Currently, If you want to send money electronically, you will be have to pay a fee. This is so most of your transactions can be reversed.
With BITCOIN, payments cannot be reversed but the fees are very very low.
5:19 EST- Jeremy Allaire When we pay a bill online, or a check in a restaurant, we are effectively giving away the keys to our bank accounts. When using bitcoin, you never give away your account information when making a transaction.
Increasingly, because of ease of use, consumers are using services that host their bitcoins on the internet.
5:23 EST Patrick Murck
Bitcoin is still at version 0.9. We have yet to make it to version 1.0. Because of this, the market is still very volital and consumers should be aware of this.
The creator or creators go by the nickname "Satoshi Nakamoto." Much of their original code has been reinforced and changed so who he is is nearly irrelevant.
5:27 EST - Jerry Brito
Patrick is right in saying that the creator is not important. Much of the code actually has been changed. Additionally, all of the code that represents the bitcoin protocol is open source so anyone can see how it works.
5:29 EST Sen. Tom Carper
We wanted to hold this hearing to understand the pitfalls of the currency but also the benefits. The testimonies from our panel have been encouraging.
We all have work to do to minimize the bad and maximize the good.
The vote will stay open for 15 days. (janet yellen vote) Link:http://www.marketwatch.com/story/senate-banking-panel-sets-thursday-vote-on-yellen-2013-11-18?mod=latestnews&link=sfmw
submitted by hand_jibber to Bitcoin [link] [comments]

Bitcoin ATM's and FinCen. Are you acting as an exchange when you own a Bitcoin ATM?

This only applies to US people, but wouldn't the owners of Bitcoin ATM's be considered to be running an "exchange" according to the March FinCen guidance letter? See http://cryptome.org/2013/03/fincen-bitcoin.htm.
If this is the case, the legal and regulatory hurdles to own and run an ATM would be prohibitive to most people.
Here are the relevant parts:
"An exchanger is a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency."
"An administrator or exchanger that ... buys or sells convertible virtual currency for any reason is a money transmitter under FinCEN's regulations, unless a limitation to or exemption from the definition applies to the person.10"
"The definition of a money transmitter does not differentiate between real currencies and convertible virtual currencies."
submitted by bitaccumulation to Bitcoin [link] [comments]

Building a United Platform

No matter which coin you're backing (or how many), the regulations coming out of New York State have large, overreaching and severe consequences for all cryptocurrencies.
You can read the proposed BitLicense Regulations here.
AmericanBitcoin has put together a TL;DR of the proposed reglations
In response, you can read the in-progress GitHub Fork of those same regulations here.
If you'd like to see a quick breakdown of examples of what's wrong with the proposed regulations, I highly recommend you read this comment by MrMadden over in /Bitcoin, which is utterly fantastic.
Instead of standing 'against' these regulations, let's stand for:
The problems, right now:
These regulations are vague in some important areas and could have unintended consequences.
For example, here's a great breakdown from goldcakes (originally made here)
Entities are considered dealing in virtual currencies if:
.. to any resident in New York. Web services, even those incorporated overseas, must either comply or block access for NY users. (200.2n)
Entities 'dealing in virtual currency' must:
The (only?) good news: Merchants do not need a BitLicense to accept Bitcoin for a good or service. (200.3c2).
This post was created for general guidance, and does not constitute legal advice. You should not act upon the information contained in this publication without obtaining specific advice from a professional. No representation or warranty (expressed or implied) is given as to the accuracy or completeness of the information contained in this post.
submitted by GoodShibe to CryptosUnited [link] [comments]

Prediction: Coinbase will be shut-down...Do not keep coins or funds in Coinbase (or any other exchange or startup) .

I predict that at some point unless something changes, Coinbase (And many, many other Bitcoin related businesses) will eventually be shut down/investigated just like Mutum Sigillum LLC currently is.
The reason is simple: Almost all of the current wave of bitcoin -related startups (even well-funded ones) seem to be simply ignoring the plain-english wording in the FinCEN and State guidelines for the regulatory environment.
For example: From Coinbase's FAQ:
Coinbase is not a money transmitter. Coinbase assists its users in Bitcoin transactions.
Then, from FinCEN regulations and guidelines:
By contrast, a person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter. In addition, a person is an exchanger and a money transmitter if the person accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency.
What does coinbase DO if not *accept virtual currency from one person (itself or sellers) and transmit it to others in exchange for USD?
Even if there was no USD involved, EVER, (which it clearly is), then we have
The definition of a money transmitter does not differentiate between real currencies and convertible virtual currencies. Accepting and transmitting anything of value that substitutes for currency makes a person a money transmitter under the regulations implementing the BSA.
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.
This strongly implies that even if you simply assist users to transfer BTC, or hold BTC, or manage online wallets (like blockchain.info), then you are operating as a money transmitter under the law.
So what do money transmitters have to do to comply?
1) they have to be licenced, in EVERY state which they do business in.
2) They have to register with FinCEN and are subject to FinCEN regulations.
3) In particular, among other things, they must:
Before concluding any transaction with respect to which a report is required under § 1010.311, § 1010.313, § 1020.315, § 1021.311 or § 1021.313 of this chapter, a financial institution shall verify and record the name and address of the individual presenting a transaction, as well as record the identity, account number, and the social security or taxpayer identification number, if any, of any person or entity on whose behalf such transaction is to be effected. Verification of the identity of an individual who indicates that he or she is an alien or is not a resident of the United States must be made by passport, alien identification card, or other official document evidencing nationality or residence ( e.g., a Provincial driver's license with indication of home address). Verification of identity in any other case shall be made by examination of a document, other than a bank signature card, that is normally acceptable within the banking community as a means of identification when cashing checks for nondepositors ( e.g., a driver's license or credit card).
When was the last time you supplied a drivers licence and Photo ID to buy bitcoin? Hell coinbase even says EXPLICITLY that they don't intend on obeying this regulation:
We do not guarantee the identity of any user or other party or ensure that a buyer will complete a transaction.
And this doesn't even cover the dozens of different STATE laws, all of which are significantly more complex and onerous, including minimum-asset requirements and surety bond requirements.
Of course, all of this is absolutely asinine. Its totally useless and causes extreme regulation that stifles innovation.
HOWEVER, unless the bitcoin community and bitcoin startups start lobbying to get some of these rules changed, then you have two options if you want to operate a bitcoin-related business in the US:
1) comply with the (idiotic) regulatory environment of legitimate businesses in the united states.
2) Run a black-market business until you get caught and your assets are seized and your customers get shafted by the Fed.
Since all of the current Bitcoin-related enterprises seem to be aiming for option 2), I strongly recommend that anyone in the community avoid storing or holding any kind of long-term value in these systems until a startup shows up that has an interest in actual regulatory compliance or the asinine laws are changed.
submitted by Steve132 to Bitcoin [link] [comments]

Startup: Decentralized bank to scale credit where it couldn't reach before

Hi /startups!
We’re (michwill and mswilkison) looking for feedback on the project we’re working on: LoanCoin (a decentralized bank/crowdlending network):
Our vision is to make LoanCoin decentralized and trustless but for the time being, we’re running a centralized version on top of Counterparty. Due to the recent FinCen/SEC rulings, we’re making sure all our legal/regulatory ducks are in a row before publicly launching.
The final goal is to make credit scalable without spending tons of money on “bank branches”. Anybody can be a “branch” and make money on it, without a risk of defrauding the system.
We have a bit more information on our website
submitted by michwill to startups [link] [comments]

Coin Center: US Senate's Digital Currency Bill Is 'Counterproductive'

This is the best tl;dr I could make, original reduced by 45%. (I'm a bot)
An anti-money laundering bill before the US Senate and focused in part on digital currencies "Could upset years of policy and compliance work", according to Washington, DC, advocacy group Coin Center.
A new blog post penned by Coin Center executive director Jerry Brito dives into the specifics of the bill, arguing that the Combating Money Laundering, Terrorist Financing and Counterfeiting Act of 2017 - introduced in late May by a group of influential senators - largely replicates rules put in place by the Financial Crimes Enforcement Network, which first issued guidance on digital currency activities in 2013 and later 2014.
"Almost all of the digital currency specific language in the bill is now covered under existing money laundering law, and, if left as drafted, the proposed changes would be counterproductive to combatting money laundering."
In the post, Coin Center takes aim at the addition of "Issuer, redeemer, or cashier of ... digital currency ... or any digital exchanger or tumbler of digital currency" to the definition of what constitutes a financial institution under the US Bank Secrecy Act, which was first instituted in the 1970s.
According to Brito, the addition is again redundant in the context of FinCEN rules, "Making this section of S. 1241 bill redundant with current law."
Coin Center also honed in on fears that digital currency holdings could be subject to declaration and seizure at the US border, with Brito noting that, at present, the bill calls for a report on how customs agents might approach this process.
Summary Source | FAQ | Feedback | Top keywords: digital#1 currency#2 Brito#3 bill#4 new#5
Post found in /Bitcoin, /BitcoinAll and /BTCNews.
NOTICE: This thread is for discussing the submission topic. Please do not discuss the concept of the autotldr bot here.
submitted by autotldr to autotldr [link] [comments]

FinCEN Director Notes Improved Oversight of Cryptocurrency Industry US CRYPTO REGULATIONS SOON Steve Mnuchin Trump IMF - Binance US & BRD XRP - Bitcoin Miner Stock Up BITCOIN OVER $20,000 Says Novogratz - FinCen & Liechtenstein Crypto Regulation - Medici Bank Crypto Ripple FinCen Letter , OCC & SEC Issue Guidance And XRP ... FinCEN Hits Bitcoin Mixer With USD 60m Fine - YouTube

FinCEN is issuing this guidance under its authority to administer the Bank Secrecy Act. See. Treasury Order 180-01 (March 24, 2003). This guidance explains only how FinCEN characterizes certain activities involving virtual currencies under the Bank Secrecy Act and FinCEN regulations. It should not be interpreted as a statement by FinCEN about the extent to which those activities comport with ... According to FinCEN, Bitcoin peer-to-peer trading platforms like Localbitcoins are money transmitters. The regulatory watchdog characterized P2P exchanges as entities engaged in trading bitcoin and other cryptocurrencies. Thus, BTC traders on Localbitcoins who have dealings in the U.S. must perform mandatory know-your-customer (KYC) processes and abide by AML laws. This guideline also means ... FinCEN Hits Helix and Coin Ninja Operator with $60M Fine Prosecutors said Larry Dean Harmon laundered more than $300 million worth of cryptocurrency often used for illegal transactions. Aziz Abdel-Qader News (CryptoCurrency ) Tuesday, 20/10/2020 00:09 GMT+2 2020-10-19T22:09:18+00:00 2020-10-20T06:43:52+00:00. Photo: Finance Magnates. Share this article. Finance Magnates Telegram Channel ... What New FinCEN Guidance Means for US Bitcoin Companies Faisal Khan is a payments consultant and digital money evangelist. He is the co-host of Around the Coin, a weekly podcast on banking, money ... The guidance considers the use of virtual currencies from the perspective of several categories within FinCEN's definition of MSBs. FinCEN's mission is to safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities.

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FinCEN Director Notes Improved Oversight of Cryptocurrency Industry

The US Financial Crimes Enforcement Network (FinCEN) said it has assessed a USD 60m civil money penalty against Larry Dean Harmon, the founder, administrator... FinCen Regulation - https://twitter.com/el33th4xor/status/1126516792510361602 Get the Ledger Nano X to Safely store your Crypto - https://www.ledgerwallet.co... In May, FinCEN published guidance for crypto businesses that clarified how its regulations relating to money services businesses (MSBs) apply to certain business models in the crypto industry and ... This video is unavailable. Watch Queue Queue. Watch Queue Queue The Gentleman of Crypto is a daily live broadcast that explores Bitcoin and cryptocurrency market. We discuss international topics, news updates, and future innovations in blockchain, digital ...