Federal and state laws require people to be licensed as money transmitters if they transmit funds from one person to another. Over the past few years, a number of individuals and businesses have been arrested and charged with financial crimes related to the unlicensed transmission of Bitcoin or other crypto coins. But does that mean you must register yourself as a money transmitter if you buy virtual currencies for friends or family?
What’s A Money Transmitter?
Transmitting money without a license is outlawed in 48 states and the District of Columbia, and it was made a federal offense under the Patriot Act in 2001. This is mostly a consumer protection policy meant to make sure people’s money isn’t transmitted by fraud or mistake.
Money transmitters must register with the proper state agency as well as the Financial Crimes Enforcement Network (“FinCEN”). They are also required to implement specific anti-money laundering policies and file regular reports.
Money transmission is a broad term, but its legal definition is much more narrow. Cryptocurrency investors are not automatically subject to state and federal regulation simply because they send Bitcoin or other virtual currencies from one person to another. Rather, a money transmitter must be licensed if it exchanges virtual currency for real currency, other virtual currency, or other value.
Unlicensed Money Transmission Can Get You in Serious Trouble
Ripple (“XRP”) has risen to the top of the cryptocurrency market. But back in 2015, Ripple, Inc. was facing a FinCEN enforcement action for operating as a currency exchange service without properly registering. The Feds claimed that Ripple facilitated transfers of virtual currencies in exchange for traditional money or other virtual currencies. The case was settled for fees and penalties, and Ripple was allowed to continue operating. However, the agencies didn’t stop there.
Recently, the FBI and the Treasury Department have been going after individuals for offering in-person cash exchanges for electronic transfers of Bitcoin. This type of service is relatively common, and websites like LocalBitcoins.com connect cryptocurrency investors with people willing to send them cryptocurrency for in-person cash payments. However, some members of the cryptocurrency community may be surprised to find out that this practice is most likely illegal.
While you shouldn’t expect the FBI to come knocking on your door if you helped your friends or family buy virtual currencies, the federal government takes illegal money transmission very seriously. For example, a Michigan man recently pled guilty to violating federal money transmission laws after exchanging Bitcoin for cash to undercover agents he met through LocalBitcoins.com. He is now looking at up to five years behind bars. Another individual in New York was charged with running an illegal money transmitting business after accepting cash for Bitcoin. He also pled guilty and was hit with the maximum sentence of 5 years in federal prison, although the hefty penalty was likely related to the man’s prior record as a cybercriminal.
When in Doubt, Call a Professional
When it comes to financial crimes, it’s always better to be safe than sorry. If you believe you may have transmitted money without a license in violation of federal or state laws, consult an attorney immediately. After clearing things with your lawyer, the trained professionals at Happy Tax can help you make sure you don’t run afoul of government regulations regarding the transmission of virtual currency in the future.