Regulatory Review for 2014

Bitcoin  •  BitLicense  •  CFTC  •  Criminal Action  •  CSBS  •  FinCEN Guidance  •  FTC  •  IRS  •  Money Transmission  •  NYDFS  •  Regulatory Action  •  SEC  •  Virtual Currency

Happy New Year! With the bottles popped and the confetti descended, we take a look at the some of the most important  legal and regulatory developments in the U.S. this past year.

Federal Money Transmitter Law

The most prolific regulatory actor in 2014 was by far the Financial Crimes Enforcement Network (FinCEN), part of the Department of the Treasury. The agency issued five rulings specific to virtual currencies, all dealing with federal money transmitter law:

  • FIN-2014-R001 – miners are exempt from FinCEN’s regulation provided they mine and use virtual currency for their own purposes.
  • FIN-2014-R002 – companies purchasing and selling virtual currency as an investment for their company’s own benefit are not acting as money services businesses (MSBs).
  • FIN-2014-R007 – the rental of computer systems to third parties is not covered by FinCEN regulations.
  • FIN-2014-R011 – a virtual currency trading platform that matched offers to buy and sell virtual currency for real currency must register with FinCEN as a money services business.
  • FIN-2014-R012 – a business converting credit card payments into virtual currency using its stored cache of bitcoin would also fall under FinCEN’s rules, whether acting as a broker or a dealer.

State Law

States also got in on the action, entering the fray with official statements on how to regulate virtual currency.

In New York, the Department of Financial Services issued proposed regulations and collected over 3,000 comments for its BitLicense, to be finalized some time in 2015. New York’s Tax Department also issued its policy on transactions using convertible virtual currency. Other states, including Texas, Kansas, and Washington, also issued various forms of guidance.

In addition, the Conference of State Bank Supervisors issued two resources for states – first, in April, Model State Consumer Guidance on Virtual Currency, geared to help states inform consumers about virtual currencies. And towards the year’s end, it released a more general Draft Model Regulatory Framework for state regulators, on which it has sought comments.

Criminal Cases

Also in the headlines this year, Charlie Shrem, former Compliance Officer of BitInstant, pled guilty in federal court to aiding and abetting unlicensed money transmission, and was sentenced to two years in jail.  In addition, in November the U.S. Attorney’s Office for the S.D. of NY charged Trendon Shavers in Texas with running a bitcoin Ponzi scheme.

Other Agency Actions

The Securities and Exchange Commission (SEC) was also relatively busy. In June, the agency charged Erik Voorhees with publicly offering shares in two Bitcoin-related websites, SatoshiDICE and FeedZeBirds, without registering the offerings. Throughout the year, the SEC had been litigating a civil action against Trendon Shavers (mentioned above), who in September was ordered to pay $40 million in disgorgement and penalties for operating a Ponzi scheme. And in December, the SEC sanctioned computer programmer Ethan Burnside for conducting unregistered offerings of securities using Bitcoin and Litecoin.

Finally, the Federal Trade Commission (FTC) asked a federal court to shut down bitcoin mining hardware company Butterfly Labs because of delayed shipping practices; the Internal Revenue Service (IRS) issued a notice on bitcoin stating how to treat it for filing purposes; and a commissioner at the Commodity Futures Trading Commission said the agency could have authority to classify bitcoin as a commodity.

We look forward to see what legal and regulatory changes 2015 will bring!

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