cryptocurrency, bitcoin, ethereum, crypto
Money transmission laws may play a big role in the development of the cryptocurrency industry. So what are they?
The Bank Secrecy Act and its related regulations impose anti-money laundering ("AML") regulations on money transmitters. A money transmitter is an entity that provides money transfer or payment services. Examples include PayPal, Western Union and Barclays.
Federal Money Transmitter Laws
The consequences of being labeled a money transmitter at the federal level (by FinCEN) are that the you must:
State Money Transmitter Laws
Under state laws, a money transmitter must get a license. Under federal law a money transmitter only needs to register with FinCEN (in addition to the above requirements). But under state laws, you have to apply to a license, which is granted at a state's discretion and, as a result, is not guaranteed even if you comply with all other requirements.
State licenses typically have higher standards, including providing audited financials, personal financial records of key personnel of the transmitter, background checks, fingerprinting, bond posting requirements and others.
Importantly, state money transmission laws can apply to businesses that have no physical presence in the state if that business solicits or services any state citizens. So they're pretty wide-reaching.
An just like with state securities laws, transmission laws are ancient and not built for crypto. While federal law is slow to change, state laws are usually even slower.
Money transmission laws could apply to anyone handling crypto (including traders and everyday investors), miners, exchanges and others. The application of these laws to different crypto entities could inhibit adoption, but also promote legitimacy.
For example, FinCEN's 2014 release sees miners as money transmitters, and not everyday traders and investors.
How these laws will apply to crypto in the future is uncertain, but will be an important piece of the regulatory puzzle to consider as you might tax and securities laws