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Theresa Tetley, or “Bitcoin Maven” as she was known on the peer-to-peer exchange Localbitcoins, has just been sentenced to spend one year in US federal prison. Her crime? Buying and selling bitcoin as an “unregistered money services business”.
Money services businesses are heavily regulated in the US, and are under the supervision of the Financial Crimes Enforcement Network (FinCEN), a bureau of the US Treasury tasked with preventing money laundering and other financial crimes. To put it bluntly, FinCEN wields tremendous power and is not one to be ignored.
For crypto-related businesses, the term “money services business” includes any person doing business as a:
- Currency dealer,
- Check casher,
- Issuer, seller or redeemer of traveler’s checks, money orders or stored value, or a
- Money transmitter.
Money services businesses must be registered and licensed by FinCEN. Failure to do so can have serious consequences, as Theresa Tetley has just learned.
But Tetley is not the only bitcoin trader that has found herself in trouble with the law. In fact, she is just one of many who have been arrested for buying and selling bitcoin without a license. She was arrested through a DEA undercover sting operation, but we are seeing multiple law enforcement agencies converging on this same “crime”. The Immigration and Customs Enforcement (ICE), FBI, and others have been pursuing similar investigations.
So it might appear as though there is regulatory certainty in this matter, right? Maybe not.
Consider the case of Michell Espinoza. Espinoza is another Localbitcoins trader arrested and charged with operating an unregistered money services business in yet another undercover law enforcement sting operation. Espinoza was “caught” selling $1,500 worth of bitcoin to undercover Secret Service agents and promptly arrested and tried for illegal money transmission and money laundering.
But unlike Tetley, Espinoza is a free man. Why? In his case, the judge threw out the felony charges stating,
“The court is not an expert in economics; however, it is very clear, even to someone with limited knowledge in the area, that Bitcoin has a long way to go before it is the equivalent of money.”
Her ruling, that bitcoin is not money, sent shockwaves through the industry and illustrated a split between what regulators consider criminal and what the judicial system considers criminal.
What does this mean for Crypto Law Insiders?
Given the great uncertainty surrounding crypto-related activity and the unpredictable path to regulatory certainty, industry participants must be prepared for inconsistent enforcement of laws. Some people will be punished for engaging in a particular activity. Others will not.
It’s unfair, but it’s the reality of the ecosystem we operate in. That is why preparation and knowledge are so important.
Thus, it is absolutely critical that if you buy and sell crypto that you determine whether or not you can be classified as a business. If you can, then make sure that you are registered. Don’t count on getting lucky like Espinoza.
A person or company appears to be classified as a “money services business” as opposed to an individual buyer or seller when they advertise their services and/or collect fees for providing their services. If you are unsure if this applies to you, be sure to consult with a legal expert in this area.
If you do plan to operate a money services business, at a minimum you’ll need to:
- Register with FinCEN and the individual States you operate in,
- Follow KYC AML rules and regulations,
- Implement well-drafted policies and procedures for your team, and
- Be independently reviewed by third-party professionals periodically.
Keep in mind that getting a license to run a money services business is costly and time-consuming. It is also increasingly difficult to open a bank account for such businesses, as banks are reluctant to take on what they see as “risky” clients.
Independent of your involvement with cryptocurrencies, cash-based businesses typically attract the attention of regulators and thus rack up additional compliance costs for the banks. At the end of the day, it’s more work than it’s worth for banks to take these businesses on as clients.
It’s not going to be easy. It will take time, money and energy to do things right. But there should be no alternative. Ending up like Theresa Tetley is not an option for Crypto Law Insiders.