FEDERAL AGENCIES WITH JURISDICTION
IRS (Internal Revenue Service) – responsible for collecting taxes and administering the Internal Revenue Code.
FinCEN (Financial Crimes Enforcement Network) – collects and analyzes information about financial transactions in order to combat domestic and international money laundering, terrorist financing, and other financial crimes.
DOJ (Department of Justice) – responsible for the enforcement of federal law.
SEC (Securities and Exchange Commission) – responsibilities include enforcing federal securities laws, proposing securities rules, and regulating the securities industry, the nation's stock and options exchanges, and other activities and organizations, including the electronic securities markets in the United States.
CFTC (Commodity and Futures Trade Commission) – tasked with regulating futures and options markets for commodi**ties.
CFPB (Consumer Financial Protection Bureau) – responsible for consumer protection in the financial sector. (Just formed in 2011.)
STATUTES
• U.S. Const., Art. I, §8, cl. 5
Grants Congress the authority to coin and regulate the value money; provides Congress authority over virtual currencies and (many, at least for now) tokens and (many, at le**ast for now) tokens.
• Federal Election Campaign Act, 2 U.S.C. § 431 et seq.
Regarding political contributions, bitcoins fall under the category of “anything of value.” Thus, coins/tokens can be donated.
• Commodity Exchange Act, 7 U.S.C. §§ 6–7
Prohibits trading unregulated options and on unregistered swap execution facilities.
• 12 U.S.C. § 4008
Delegates the responsibility of regulating payment systems to the Board of Governors of the Federal Reserve System.
• 12 U.S.C. §5491(a)**
Gives the Consumer Financial Protection Bureau authority to implement federal laws that cover financial services provided to consumers.
• Federal Trade Commission Act, 15 U.S.C. §§ 41–58**
Prohibits “unfair or deceptive practices in or affecting commerce.” This statute is has been used to charge cryptocurrency related enterprises.
• Securities Act of 1933, 15 U.S.C. §§ 77a et seq.
Regulates securities exchanges in interstate commerce.
• Securities Exchange Act of 1934, 15 U.S.C. §§ 78a et seq.
Regulates registration of exchanges, including (although not specifically mentioned) coin/token/cryptocurrency exchanges.
• Electronic Transfer Fund Act: 15 U.S.C. §§ 1693 et seq.
Applies to the electronic transfer of funds initiated by from a consumer’s account held at a financial institution.
• ****Stamp Payments Act of 1862, 18 U.S.C. § 336**
When Bitcoin first began being widely discussed in the legal realm, many speculated that Congress would invoke this rarely cited law to eliminate Bitcoin. So far, this law—which prohibits circulating money in place of U.S. dollars—has not been applied to any tokens or virtual currencies or tokens.
**• 18 U.S.C. §§ 1341, 1343
Respectively, the federal mail and wire fraud statutes. These statutes may apply to the buying, selling, and trading of virtual currencies or tokens.
• 8 U.S.C. §§ 1956, 1957
Criminal anti-money laundering laws.
• 18 U.S.C. § 1960
Makes operating an unlicensed money service or money transmitting businesses illegal.
• Anti-Money Laundering Regulations 31 C.F.R. § 1010.100
Defines “currency” and regulates money service businesses. “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.”
REGULATORY GUIDANCE
• CFTC Primer on Virtual Currencies(2017):
http://www.cftc.gov/PressRoom/PressReleases/pr7631-17
• SEC Investor Bulletin on ICOs (2017):
https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_coinofferings
• IRS Notice 2014-21
This notice states that, for tax purposes, Bitcoin and other “convertible virtual currency” is treated as property, not currency. Bitcoin is taxed at the fair market value. The sale or exchange of convertible virtual currency, or its use to pay for goods or services in a real-world economy transaction, has real tax consequences, and may result in a tax liability.
• FinCEN Ruling 2015-R001
This redacted guidance letter involves a company that provides Internet-based brokerage services between buyers and sellers of precious metals, and buys precious metals itself. One of the methods of payment accepted on the website is Bitcoin. FinCEN found that, although this company would not have been a money transmitter were its only service brokering, because the company was engaged in exchanging virtual currency, FinCEN considered the company a money transmitter.
• FinCen Ruling 2013-G001
This ruling clarifies that a user of virtual currency is not considered a money service business (“MSB”) under FinCEN’s regulations, and therefore is not subject to MSB registration, reporting, and record keeping regulations. However, an administrator or exchanger is an MSB under FinCEN’s regulations. Specifically, an administrator or exchanger is considered to be “a money transmitter,” unless a limitation to or exemption from the definition applies to the person. An administrator or exchanger is not a provider or seller of prepaid access, or a dealer in foreign exchange, under FinCEN’s regulations.
• Remarks by Comptroller of the Currency (2015)
This is a transcript of the remarks by Thomas J. Curry, Comptroller of the Currency, before the Federal Home Loan Bank of Chicago, on August 7, 2015. In this speech, Mr. Curry discusses mobile payments and virtual currencies in the context of lending—an area that is becoming increasingly interesting for regulators because of the low transaction costs and the benefits of the blockchain technology.
CASES
• United States v. Ulbricht, 31 F. Supp. 3d 540 (S.D.N.Y. 2014)
This case (and its lineage) is the most widely recognized Bitcoin case. The case concerns the now infamous website called “The Silk Road.” This is the first case to mention and define Bitcoin. The charges against the plaintiff, Ross Ulbricht (a.k.a. Dread Pirate Roberts), included narcotics trafficking conspiracy, continuing a criminal enterprise, computer hacking conspiracy, and money laundering conspiracy—all of which arose out of the plaintiff’s alleged creation and operation of The Silk Road, which functioned to facilitate the anonymous online sale of various sorts of illicit goods and services. One method of payment on the Silk Road website was Bitcoin.
• Sec. & Exch. Comm'n v. Shavers, 2013 WL 4028182 (E.D. Tex. Aug. 6, 2013)
Finding that bitcoins are the equivalent of cash when determining whether there has been an investment of money under the Howey test. The Howey test is a four-element test used to determine whether a financial opportunity is an investment contract.
• Hashfast Technologies LLC v. Lowe, In re Hashfast Technologies, LLC (Bankr. N.D. Cal., No. 14-30725DM)
This is the first bankruptcy court to address Bitcoin. The court found that bitcoins are not the equivalent of dollars, but declined to decide whether bitcoins are currency or commodities for purposes of the fraudulent transfer provisions of the bankruptcy code.
• United States v. Faiella, 39 F. Supp. 3d 544 (S.D.N.Y. 2014)
Classifying Bitcoin as money for the purposes of a federal money laundering statute.
• United States v. Brown, 68 F. Supp. 3d 783 (M.D. Tenn. 2014)
This case involves Bitcoin in the context of extortion—an increasingly common association. Due to Bitcoin’s inherent anonymity, it functions much like cash, so those who extort their targets at a distance (or anonymously) will sometimes demand payment in Bitcoin so that the value cannot be traced directly to the extorter.
• FTC v. BF Labs Inc., 2014 U.S. Dist. LEXIS 174223 (W.D. Mo. 2014)
The FTC brought this action against the defendant claiming that the defendant falsely represented its products and services to consumers. The defendant sold Bitcoin mining machines—computers that solve advanced algorithmic equations in order to generate new bitcoins.
#blockchain #bitcoin
(E.E.M.)*