bitcoin regulatory issues
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legal and regulatory issues with bitcoinTRANSCRIPT
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]
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What is Bitcoin?
Decentralized, virtual currency protocol
Pseudononymous
Peer-to-peer
Generally irreversible
Not legal tender in US (but not necessarily illegal)
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How Does Bitcoin Work?
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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?
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Enforcement Actions
Mt. Gox
Silk Road
BitInstant
Miami – money laundering case
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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
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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
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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
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State Regulatory Issues
Silicon Valley v. Wall Street?
Tech v. Finance?
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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
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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.
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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
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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.
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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
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More information?
for Bitcoin Legal Resource Guideemail me at
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