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.