Limitation On MSB Regulations For Infrequent Trading
Thousands of individuals in the U.S. have offers to trade bitcoins through a number of online services include eBay, Craigslist, LocalBitcoins.com, the #bitcoin-otc marketplace, and more.
However, at the same time recent guidance from FinCEN (a department of the U.S. Treasury) states:
[A virtual currency] exchanger is an MSB under FinCEN’s regulations […]
The response to this guidance has been that many Bitcoin and digital currency exchanges have either shut down (or have been shut down), or they have since registered as an MSB and have implemented anti-money laundering (AML) and know-your-customer (KYC) compliance practices.
But what about these thousands of individuals in the U.S. who are buying bitcoins or cashing out their coins? Are they out of compliance with FinCEN’s guidance?
After seeing trade offers on LocalBitcoins.com AML expert Carol Van Cleef, a partner at Patton Boggs, LLP, provided a warning:
You better get yourself registered, or you better get your name off the list real fast,
Is she right? Or could one ignore her advice?
The statement from the FinCEN guidance shown above also states:
unless a limitation to or exemption from the definition applies to the person.
A relevant section of FinCEN regulations describes a limitation that reads:
8) Limitation. For the purposes of this section, the term “money services business” shall not include:
(iii) A natural person who engages in an activity identified in paragraphs (ff)(1) through (ff)(5) of this section on an infrequent basis and not for gain or profit.
Those regulations don’t define the activity threshold for “infrequent" activity however a section on MSB compliance in an AML report from consultant McGladrey reads:
There are also exceptions for infrequent activity, which is defined as five times per year, […]
So it would seem an individual person trading their own coins fives times a year or less, and exchanging them at the market exchange rate (i.e., not receiving a profit from a buyer paying a premium) would not be considered an MSB and thus not be burdened further with the MSB regulations.
This post is not providing legal advice. The author has no legal training and cannot provide advice on this topic. Individuals should seek legal counsel themselves should they have concerns about trading bitcoins.
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