On March 18, 2013, the Financial Crimes Enforcement Network (“FinCEN”) issued guidance (the “Guidance”) on whether “persons creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies,” categorized in the Guidance as either “users,” “administrators,” or “exchangers,” constitute money transmitters, and therefore money services businesses (each an “MSB”), under FinCEN’s regulations. The Guidance specifically addresses “convertible” virtual currency, and stated that while a “user” is not an MSB, an “administrator” or “exchanger” is a money transmitter, and therefore an MSB, unless an exception applies to such administrator or exchanger.
FinCEN’s regulations define a money transmitter as: (1) “A person that provides money transmission services (i.e., 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;” or (2) “Any other person engaged in the transfer of funds.” 31 CFR 1010.100(ff)(5). FinCEN’s regulations clarify that “[w]hether a person is a money transmitter … is a matter of facts and circumstances,” and exclude certain categories of persons, including a person who “[a]ccepts and transmits funds only integral to the sale of goods or the provision of services, other than money transmission services, by the person who is accepting and transmitting the funds.” Id.
The Guidance defines “convertible virtual currency” as a type of virtual currency (itself defined as “a medium of exchange that operates like a currency in some environments,” but which lacks some “attributes of real currency,” including having “legal tender status in any jurisdiction”) that “has an equivalent value in real currency, or acts as a substitute for real currency.” The Guidance notes that FinCEN’s definition of money transmitter does not distinguish between real and convertible virtual currency. The Guidance defines a “user” as “a person that obtains virtual currency to purchase goods or services,” an “exchanger” as “a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency,” and an “administrator” as “a person engaged as a business in issuing (putting into circulation) a virtual currency, and who has the authority to redeem (to withdraw from circulation) such virtual currency.”
The Guidance clarifies that a user is by definition not a money transmitter. On the other hand, the Guidance states: “An administrator or exchanger that (1) accepts and transmits a convertible virtual currency or (2) 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.” The Guidance addresses administrators and exchangers under three scenarios: (1) brokers and dealers of e-currencies and e-precious metals; (2) centralized convertible virtual currencies; (3) and de-centralized convertible virtual currencies.
As is the case with brokers or dealers in real currencies or commodities, brokers and dealers of e-currencies or e-precious metals are not money transmitters as long as such brokers or dealers transfer funds for the purpose of effecting a bona fide purchase or sale of e-currency or e-precious metals for or with a customer.
To the extent that the administrator of a centralized repository of virtual currency allows transfers of value between persons or from one location to another, such administrator is a money transmitter. An exchanger that uses its access to the convertible virtual currency services provided by an administrator to accept and transmit the convertible virtual currency on behalf of others is also a money transmitter. The Guidance contemplates that the exchanger’s activities will be of two types. In the first, the exchanger acts as a seller of the virtual currency to the user-purchaser by accepting real currency or its equivalent from such user and transmitting the value of the real currency to fund the user’s convertible virtual currency account with the administrator. The Guidance deems such activity the transmission of currency to another location, and therefore money transmission. In the second, a de facto sale of convertible virtual currency occurs, in which the exchanger accepts currency from a user, credits the user with a commensurate portion of the exchanger’s own convertible currency held with the administrator or repository, and then transmits the credit value to third parties at the user’s discretion. Such activity constitutes transmission to another person, and is therefore money transmission.
De-centralized virtual currency activity refers to virtual currency without a central repository and single administrator, which persons may obtain through their own computing or manufacturing efforts. A person that so creates convertible virtual currency and uses such currency to purchase goods or services is a user and not a money transmitter. However, a person that creates such currency and sells it to another person for real currency or its equivalent, or who accepts such currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds or other value substituting for currency, is a money transmitter.
The Guidance notes that an exchanger or administrator of convertible virtual currency is neither a provider or seller of prepaid access nor a dealer in foreign exchange, two other categories of MSBs.