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As of May 1, the state of Texas became the second US state to explicitly require foreign-located money transmitters (including Bitcoin exchangers and administrators) to obtain a state money transmitter license if their customers are residents of Texas. The state of New York had taken a similar stance back in March of 2011.
In no ambiguous terms, the Texas Banking Department ruling, states that:
” [...] it is the Department’s position that any money transmitter who allows Texas consumers to initiate transactions through its website is subject to the licensing requirements of the Money Services Act, regardless of where the transmitter is physically located.”
Equally clear had been the state of New York Banking Department in 2011 when ruling that:
” [...] there is no doubt that businesses located out-of-state are subject to the jurisdiction of the state in which they do business. [...] Likewise, it is clear that businesses located out-of-state that do business with residents and other persons located in state are properly subject to that state’s laws and licensing requirements.”
In what some will consider a mission to create a host of professional services jobs in the US, the Texas ruling goes even further to make explicit that, whether the money transmitter is located in Kazakhstan, Japan, Chile or Spain, if they are to obtain and maintain a Texas Banking Department license, they must also:
- Keep all records in English
- Demonstrate their corporate and regulatory good standing in their home countries
- Register with FinCEN
- Submit financials conforming to generally-accepted accounting principles (GAAP)
- Have their financials audited by a US-based certified public accountant (CPA)
- Hire a search firm to conduct background checks on all controlling individuals, executive officers, directors, general partners, trustees or managers
- Maintain security in the form of a surety bond (a form of insurance to protect consumer funds) or other collateral
- Provide a location in Texas where they can be examined by state authorities
As I explained in my April 14 post arguing that US regulation was a high barrier to entry for Bitcoin and other crypto-currency entrepreneurs, both US-based and foreign money transmitters must obtain state money transmitter licenses when so required, among a slew of other federal and state United States obligations.
In the United States there is no federal money transmitter license, so licensing of this type of business is left to the individual states of the Union. Some of the states requiring licensing use the “physical presence” test, and others the “customer residency” test. In the first one, a money transmitter must apply for a license if the company and its retail network are physically located in the state. In the second test (applied by New York and Texas), the company must be licensed in the state when its consumers are residents of that state, regardless of its physical presence (domestic or international). The only states in the US that currently do not require licensing are New Mexico, Montana and South Carolina.
Although all of this has been a hard fact since day one for all Bitcoin operators (and all other money transmitters), to what extent this applied to Bitcoin and other virtual currency operators was not clear until March 18 last, when the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), a federal agency tasked with protecting the financial system from money laundering, and terrorist financing, brought Bitcoin exchangers and administrators into the regulatory fold by making it clear that these activities are money transmission under US law.
As always, comments, questions, critique and venting are welcome, but please don’t shoot me, I’m just a messenger trying to help.