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FinCEN Issues Money Services Businesses (MSB) Guidance for Bitcoin Miners, Investors and Software Developers

On January 30, 2014 the Financial Crimes Enforcement Network (FinCEN) published two administrative rulings (Administrative Rulings) clarifying that certain participants in the Bitcoin economy (and other convertible virtual currency economies) do not constitute money services businesses (MSBs) under the Bank Secrecy Act (BSA).  The Administrative Rulings elaborate upon guidance issued by FinCEN on March 18, 2013 (Guidance), which excluded from the definition of MSB “users” (Users) that obtain convertible virtual currency and use such convertible virtual currency to purchase real or virtual goods or services. In the Guidance, FinCEN established that Users are not MSBs since they are not engaged in money transmission services (i.e., “accepting” and “transmitting” currency, funds or other value).

In its first Administrative Ruling, FinCEN ruled that a Bitcoin miner does not constitute an MSB to the extent that it uses the Bitcoins it mines solely for its own purposes and not for the benefit of any other person. FinCEN further ruled that such Bitcoin miner may convert Bitcoin into a real currency or another convertible virtual currency provided that the conversion is executed for the Bitcoin miner’s own purposes and not as a business service performed for the benefit of another. A Bitcoin miner that limits its activities to the foregoing constitutes a User under the terms of the Guidance and is therefore excluded from the definition of MSB. Similarly, in its second Administrative Ruling, FinCEN ruled that an investor in convertible virtual currencies constitutes a User under the Guidance to the extent that such investor purchases and sells convertible virtual currency exclusively as investments for its own account. FinCEN also addressed the activities of software providers in its second Administrative Ruling, concluding that the production and distribution of software, standing alone, do not constitute money transmission services even when the software is intended to facilitate the sale of virtual currencies. 

The Administrative Ruling regarding virtual currency mining operations is available here

The Administrative Ruling regarding virtual currency software development and certain investment activity is available here.

©2020 Katten Muchin Rosenman LLPNational Law Review, Volume IV, Number 32

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About this Author

Claudia Callaway, Litigation Lawyer, Katten Muchin
Partner

Claudia Callaway is chair of Katten’s Consumer Finance Litigation practice and co-chair of the Class Action and Multidistrict Litigation practice. She focuses her practice on the defense of state and federal class actions regarding consumer protection and consumer finance laws and representation of clients before the Consumer Financial Protection Board (CFPB), the Federal Trade Commission (FTC) and state banking agencies.

Claudia represents consumer lenders, third-party debt collectors and other consumer  financial services clients in class action suits and...

202-625-3590
Christina J. Grigorian, Banking legal Specialist, Katten Muchin Law firm
Special Counsel

Christina J. Grigorian counsels clients in all matters related to banks, bank holding companies, and state and foreign-licensed consumer and commercial lenders. Ms. Grigorian provides advice to the firm’s financial institution clients concerning structural and operational issues, including legislative developments impacting such operations, and has worked with companies and individuals in the establishment of de novo entities, including national banks, federal savings banks and state-chartered institutions, as well as state-licensed lenders. She has also counseled clients with respect to state and foreign licensing regulations and applications. In addition, Ms. Grigorian has extensive experience in electronic payment networks, network processing and network participation agreements, and innovative uses of electronic funds transfers in areas such as state-funded childcare provider reimbursements. She also counsels numerous clients in the area of credit card operations, including private label card agreements and consumer documentation. Ms. Grigorian also has extensive experience with issues related to Internet commerce, including Internet lending and Internet sales.

202-625-3541
Michael Rosensaft, white collar criminal litigator, Katten, New York Law Firm
Partner

Michael M. Rosensaft focuses his litigation practice on representing individuals and businesses in white collar criminal matters, regulatory enforcement matters, corporate internal investigations, insurance and health care fraud and complex civil litigation.

Prior to joining Katten, he served as an Assistant US Attorney for the Southern District of New York. In that capacity, Michael oversaw the investigation and prosecution of numerous criminal cases involving terrorism, international money laundering, export violations, bribery of foreign...

212-940-6631