Bitcoin regulatory issues

Bitcoin Regulatory Considerations

2014 Ohio State Entrepreneurial Business Law Journal Symposium - February 21, 2014

Jim GattoPillsbury Winthrop Shaw Pittman LLPLeader – Social Media & Games TeamLeader – Open Source TeamTel: 703.770.7972Email: [email protected]

2 | Bitcoin | Regulatory Considerations

What is Bitcoin?

Decentralized, virtual currency protocol

Pseudononymous

Peer-to-peer

Generally irreversible

Not legal tender in US (but not necessarily illegal)


How Does Bitcoin Work?


Acquisition MinePurchase via exchangeAccept for goods/services

Storage WalletWeb-based

Transactions Public ledger of transactions

Categories of Entities

Users - a person that obtains virtual currency to purchase goods or services (on their own behalf)

Exchangers - a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency

Administrators - a person engaged as a business in issuing (putting into circulation) a virtual currency, and who has the authority to redeem (to withdraw from circulation) such virtual currency

Retailers/others

Banks/Financial Institutions/Payment Processors?


Enforcement Actions

Mt. Gox

Silk Road

BitInstant

Miami – money laundering case


Does Bitcoin Need Regulation?

Guns don’t kill people…people do!

Bitcoins don’t buy drugs … people do!

Regulation not so much about use…. but consumer protection

anti-money laundering

anti-tax evasion


Existing Regulatory Framework

Federal

• Federal Anti-money Laundering/Bank Secrecy Act• MSB

• record keeping/transaction reporting

• SARs

• KYC

• Securities Laws

• CFTC

• IRS

• DHS

State

International


Federal Regulatory Activity

November 2013 Congressional Hearings

"there are many legitimate uses. These virtual currencies are not in and of themselves illegal"

"Innovation is a very important part of our economy," …premature regulation could stifle Bitcoin innovation

Law enforcement has tools to get the bad guys


State Regulatory Issues

Silicon Valley v. Wall Street?

Tech v. Finance?


NY Hearings

Jan 28-29, 2014 - Public hearings held to consider whether to regulate virtual currency (including Bitcoin)

The question is what type of licensing, examination, and collateral requirements for the virtual currency industry will provide appropriate guardrails to protect consumers and our national security without stifling beneficial innovation.

BitLicense?

Strong Set of Consumer Disclosures Rules


California Pending Bill

SECTION 1. Section 107 of the Corporations Code is amended to read:

A person shall not issue or put in circulation, as money, anything but the lawful money of the United States. Nothing in this section shall prohibit the issuance and use of alternative currency that is redeemable for lawful money of the United States or that has value based on the value of lawful money of the United States but a person shall not be required to accept alternative currency.


International

Germany - Bitcoin should be considered as “private money”

EU – warning re fraud, tax evasion, crimes

UK – not treated as money …but subject to VAT

Belgium – no regs

France – no action

Finland – issued regulatory guide and capital gains tax

Sweden – bitcoin a means of payment; registration for exchanges

Slovenia – pro bitcoin; not currency or financial instrument; taxable

China – prohibitions on financial institutions/payment processors

Singapore - pro bitcoin; taxable


Russia on Virtual Currency

NYET! The Central Bank of Russia released a notice clarifying the treatment of

virtual currency, including Bitcoin, within the financial industry

Declared that Article 27 of the Law on Central Bank of Russia prohibits production of alternative monetary products.

Warned the public and financial industry that virtual currency is not regulated, and due to its anonymous nature, may be used to launder money and finance terrorism. Virtual currency also carries a high risk of loss of value.

The notice advised that any legal institution that or professional who provides services to exchange virtual currency to national or foreign currency, including to goods or services, will be treated as if they are potentially involved in suspicious activities, money laundering, or terrorism financing.


Other Regulatory Issues

FinCEN March 18, 2013 Guidance administrative rulings

to the extent a user creates or “mines” a convertible virtual currency solely for a user’s own purposes, the user is not a money transmitter under the BSA.

a company purchasing and selling convertible virtual currency as an investment exclusively for the company’s benefit is not a money transmitter

producing and distributing software that facilitates the sale of virtual currency , in and of itself, does not trigger MSB under BSA

SEC Investor alert on fraudulent investment schemes Investment funds – Winkelvoss Bitcoin Trust registration statement

IRS – May 2013 GAO request for guidance


More information?

for Bitcoin Legal Resource Guideemail me at

[email protected]
