Corporate Finance & Securities

An Overview of Laws Governing Bitcoin and Other Digital Currency

BitcoinsBitcoin and other crypto currencies are currently subject to limited regulation. While lawmakers ponder the merits of new regulatory schemes targeted for crypto currency, we’ll take a look at some of the existing legal frameworks that could cause problems for Bitcoin businesses and Bitcoin users:

Money Laundering Laws

You can’t use Bitcoin to knowingly facilitate illegal purchases. For example, if you’re a payment processor and you know you are processing payments to facilitate purchases of heroin, you’re going to be subject to some serious penalties.

Washington’s money laundering law provides:

(1) A person is guilty of money laundering when that person conducts or attempts to conduct a financial transaction involving the proceeds of specified unlawful activity and: (a) Knows the property is proceeds of specified unlawful activity; or (b) Knows that the transaction is designed in whole or in part to conceal or disguise the nature, location, source, ownership, or control of the proceeds, and acts recklessly as to whether the property is proceeds of specified unlawful activity; or (c) Knows that the transaction is designed in whole or in part to avoid a transaction reporting requirement under federal law.

Monetary Transfer Regulation

Bitcoin businesses may also be required to comply with monetary transfer regulation, including implementing anti-money laundering controls, reporting suspicious activity and transactions of more than $10,000, registering with the US Treasury’s Financial Crimes Enforcement Network, and obtaining state licenses.

Businesses that violate money laundering and monetary transfer laws will end up on the wrong side of a complaint like the one that could land BitInstant CEO Charlie Shrem in jail for 30 years:

Greenberg (Usa vs Faiella-criminal Complaint)

Taxes

Tax treatment of digital currency is still evolving. While it may be possible to use digital currency as a mechanism for achieving tax haven type treatment, there’s a good chance you’ll be subject to income tax for mining Bitcoins and subject to capital gains tax for recognized gain from Bitcoin trading.

Currency Regulation

The US Constitution and the Stamp Act give the federal government power to regulate currency in the United States. But there seem to be some persuasive arguments that digital currency doesn’t run afoul of these regulations so long as there is no physical currency associated with the digital currency. And to our knowledge no government agency has brought any legal action alleging that crypto currency violates these laws.

Photo: Marc van der Chijs | Flickr

If you want to know more about digital currency law or how bitcoin and other crypto currencies may affect your business, please comment below or contact us.

          


Kyle Hulten

When I'm not in the office I enjoy cooking, gardening, and watching my toddler son explore his little universe.


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