Prompted by requests, FinCEN published two administrative rulings on the application of its regulations requiring money services businesses to be registered under the Bank Secrecy Act. The first ruling, Application of FinCEN’s Regulations to Virtual Currency Mining Operations, addressed whether certain methods of disposing of Bitcoins “mined” by someone would make that person a money services business under the BSA. At the outset, FinCEN noted that the label used to describe a particular process of obtaining a virtual currency has no bearing on whether a person is a money services business under the BSA. The critical focus is on the use of the virtual currency and who such use benefits. FinCEN observed that “Bitcoin mining imposes no obligations on a Bitcoin user to send mined Bitcoin to any other person or place for the benefit of another.” Accordingly, so long as a miner uses a virtual currency for their own purposes and not for another’s benefit, that miner would not be considered a money services business. It was additionally noted that a miner’s conversion of virtual currency into real currency (or some other convertible virtual currency) does not, in and of itself, make the miner a money services business.
The second ruling, Application of FinCEN’s Regulations to Virtual Currency Software Development and Certain Investment Activity, addressed whether periodic investment in convertible virtual currency, and the production and distribution of software to facilitate purchase of virtual currency for a company’s own investment, makes a company a money service business under the BSA. According to FinCEN, so long as a company buys and sells convertible virtual currency exclusively as investments for its own account, it would not be considered a money services business because it is not exchanging the convertible virtual currency for other persons. FinCEN also noted, however, that any transfers to third parties at the behest of others “should be closely scrutinized, as they may constitute money transmission.” The ruling further provided that the production and distribution of software that facilitates the collection of virtual currency and payment for such currency, in and of itself, would not make a company a money services business.
FinCEN previously issued interpretive guidance on the application of the regulations implementing the BSA to “users”, “exchangers”, and “administrators” of convertible virtual currency (see April 2, 2013 Alert). The administrative rulings further delineate the extent to which a person’s conduct related to convertible virtual currency requires that person to be licensed as a money services business under the BSA.