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Interviews, Virtual Currencies

Bitcoiners In Denial + Compliance Just the Beginning (Redux)

[Reading Time: 4 minutes] 

For the benefit of those whose low tolerance for verbosity may have caused them to miss my insights-laden interview with David Landsman, Executive Director of the National Money Transmitters Association, the industry’s leading advocate for the rights of state-licensed US money transmitters, I have abridged it considerably and converted it into a more digestible format.

In PART ONE of the interview, David talked about the image problems that all money transmitters have in the United States, the fragmented regulatory regime and the likelihood of a federal license, now that the Bitcoin community has begun to join the fray.

In PART TWO David offered his strong viewpoint on US banks, federal and state regulators.  Also, he provided more details about the legal and PR efforts in fighting the closing of accounts, including anti-trust, administrative and civil rights causes of action.

On the fragmented US regulatory regime and the likelihood of a federal license

  • I believe rational regulation can be good for the industry as well as for the government and consumers.
  • Some large, politically powerful money transmitters have told me they are against centralized reform, because it would remove a barrier to entry.
  • Companies of a certain size are not feeling their bank accounts to be in jeopardy right now, so there is no real motive for them to support a federal license.  So […] a national license would be’ torpedoed’ by ‘the powers that be.’
  • FinCEN and the states make up their minds independently from each other and each state has its own laws to follow.     

On whether Bitcoin companies are money transmitters

  • Most of [the state money transmitter] laws define money transmission broadly enough to include stored value (‘by any and all means’), and define stored value broadly enough to include Bitcoin (‘monetary value evidenced by an electronic record’).
  • The US Department of Justice will not be bothered by any fine points of state law and, indeed, most states will tell you that you need a license to do the Bitcoin business with their residents even if you are located out-of-state.
  • I think the main defining characteristic will wind up being whether you are ‘engaged in the business of’ trading Bitcoin, in either direction.

On the loss of bank accounts

  • The right of state-licensed US money transmitters to maintain bank accounts has been decimated as the result of an inconsistent and overly complicated regulatory system.
  • Bitcoiners are coming late to the game.  This has been going on a long time.  We have been living with this problem since the early 90s, and it has only gotten worse, despite all our efforts.
  • The first problem is that under current practice, banks are held way too responsible for the bad acts of their customers and for knowing in advance such acts would occur.  This refers mostly to the account-opening phase, as opposed to the need for ongoing monitoring.  This pre-crime, this assumption of guilt, is intensified in the case of certain ‘high-risk’ customer classes, as in the general case of MSBs, and is most intense in the specific case of money transmitters.  We are flagged as belonging to the highest of the high-risk categories, despite our licenses.
  • The second problem is that even the best state supervision is no guarantee of compliance program quality.   […] It would help to let banks see our state audits, something that is prohibited now by all the states’ laws.
  • Banks are legitimately concerned about regulatory and reputational risk.
  • Don’t think a Federal license would cure the problem. Nor will getting compliance right. Bitcoiners should be clear about that.

On what crypto-preneurs should do to face these challenges

  • Number one, [Bitcoiners should] recognize and acknowledge the regulatory challenges they face.
  • Since we do not have a ‘rational’ state of affairs and since it is doubtful we ever will, the only thing left to us, is to deal with the state licensing system as it stands.
  • Don’t be stupid: register with FinCEN –NOW– and maintain your registration as required.  Furthermore, put a good compliance program in place and learn all about the Bank Secrecy Act, OFAC requirements and the AML statutes.
  • Do not take state licensing lightly […] The lack of a state license where such license is required can –in and of itself– result in federal money laundering charges (see 18USC1960this and this).
  • It is your responsibility, they say, to develop a credible ‘Know-Your-Customer’ program, one that is ‘reasonably designed’ to prevent, detect and report illegal money that moves through, or is in any way facilitated by, your company.
  • I would not recommend applying for a state license unless you are sure it is required.
  • I am certainly hoping the Bitcoin community will now join the fray and help to re-vitalize that debate on federal licensing.
  • Compliance is just the beginning.  Lobbying and self-regulation will also be necessary.
  • Just as all regulation gets done through institutions, so all work should get done through institutions.  We need to create our own industry institutions.  We have to create the future we want to see.  Having a ‘regular’ regulated system will benefit everybody.  You have the right to have a bank account without having to dissemble.
  • A strong, united, broad-based association would help, even without legislation, but getting to that point is impossible without the promise of some legislative help, even if it’s only down the road.

On the NMTA

  • Our main objective is to defend freedom and achieve a level-playing field for the licensed money transfer industry.
  • Our strategy is threefold: to improve our image, to reform the way we are regulated and to promote consistent and high standards of industry compliance.
  • We continue to work toward a legislative solution that would grant a narrow safe harbor to banks who wish to open accounts for us, and to establish a more centralized, federal coordination of money transmitter regulation.  The path toward legislative reform has proven a very steep hill to climb but, no matter, the fight goes on.

 David can be reached at david@nmta.us.

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About Juan Llanos

Innovative compliance, operations and technology executive leveraging emerging technologies, management and leadership best practices (and, above all, common sense!) to empower businesses and compliance professionals for success.

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