9 ms·

I would strongly consider not running a money transmitter as a side business. If you do not understand that you are running a money transmitter, I will be happ

by patio11 13y ago

I would strongly consider not running a money transmitter as a side business. If you do not understand that you are running a money transmitter, I will be happy to elaborate. I would also mention, on the assumption you're not aware of it, that you are offering fairly effective money laundering for credit card thieves at below-market rates for that service, and you can expect heavy dedicated adversarial interest. I rather expect you are receiving it already and are as-yet unaware of it. Feel free to ask for more elaboration if you do not understand the mechanics of how this works, or why it will quickly dominate the pool of people willing to receive $50 in consideration for $100 of Starbucks cards.

foobarqux 13y ago
Do you have any good references on money transmission and how to operate one? What does and does not qualify, approaches to deal with the regulations as an upstart, etc.
- andrewfong 13y ago
  The short answer is (in California at least) it's a huge pain in the ass to comply with money transmission laws. You definitely need a lawyer. You might need a large amount of capital to backstop the business. You should also keep in mind that there is some uncertainty over what the law entails right now (hence the need for a lawyer), especially with respect to bitcoin. There is at least one ongoing lawsuit over California's money transmission laws. California info: http://www.dbo.ca.gov/Licensees/money_transmitters/ http://www.dbo.ca.gov/Licensees/money_transmitters/ Other states will have their own requirements. Depending on the nature of the business, you may have to interact with the SEC and FINRA. Again, get a lawyer.
  - foobarqux 13y ago
    Are there any small companies that may superficially appear to be money transmitters but are not?
    - andrewfong 13y ago
      The law here is uncertain and differs between states. Until we get some definitive court rulings or clarification from regulatory agencies, it's hard to say. There is one reading of California's law where practically anything that takes money from A and gives money to B is a money transmitter. Therefore, Uber (which takes money from passengers and gives it to drivers) or iTunes (which takes money from customers and gives it to artists) could be money transmitters. This is probably not the case (or at least, the law isn't being enforced that way), but it's far from settled. See http://www.businessinsider.com/california-rethinks-money-transmission-act-2013-3 http://www.businessinsider.com/california-rethinks-money-tra....
brd 13y ago
This is exactly why I am horrified by the number of bitcoin companies cropping up. I can only assume many of them have no idea what they are potentially exposing themselves to from a legal perspective.
- humanrebar 13y ago
  > I can only assume many of them have no idea what they are potentially exposing themselves to from a legal perspective. Or an ethical perspective even.
  - jbigelow76 13y ago
    Can you expand on this? Because the way I'm reading it it sounds like since it "could" be a tool for money laundering the OP shouldn't be doing it. But by that logic a car "could" be used to facilitate a bank robbery and therefore the salesman needs to consider those ethical ramifications.
    - orik 13y ago
      There's a huge difference between this and a car salesman. A car salesman goes through all sorts of paperwork and meets with the person they are selling the car too, and they hand the keys over. This is much more similar to the service where you take a photo of a Key and you get mailed a copy of it for 5$; except it's semi-anonymous with bitcoin.
      - maxerickson 13y ago
        Cars are probably one of the worst possible examples, since most transactions require the title.
      - 0xdeadbeefbabe 13y ago
        I think he's asking about ethics. Just because this could be used for money laundering doesn't mean it must be used for money laundering.
      - 13y ago
axefrog 13y ago
How is he a money transmitter? His business is buying a product (Starbucks gift cards) and paying for them with Bitcoin. By your definition, a used car dealership that buys cars from the public and pays for them with cash is also a money transmitter.
- JumpCrisscross 13y ago
  Gift cards are more like cash than goods. That is why "Federal tax law does not view giving an employee a turkey or a ham as the equivalent of giving an employee a gift card to purchase a turkey or a ham" [1]. [1] http://www.irs.gov/pub/irs-tege/p_4090_fed_0305_text.pdf http://www.irs.gov/pub/irs-tege/p_4090_fed_0305_text.pdf
- mhluongo 13y ago
  That was my thought too, but this is a common reaction so I'm definitely seeking clarification.
- jstalin 13y ago
  http://fincen.gov/statutes_regs/guidance/pdf/FIN-2013-G001.pdf http://fincen.gov/statutes_regs/guidance/pdf/FIN-2013-G001.p...
  - panarky 13y ago
    That link is for "virtual currencies" and here's one for "prepaid access". http://www.fincen.gov/statutes_regs/frn/pdf/Prepaid_Final_7-22-201.pdf http://www.fincen.gov/statutes_regs/frn/pdf/Prepaid_Final_7-... In summary, in the US you must know your customer, have anti-money-laundering procedures, file suspicious activity reports, keep records for law enforcement, etc. Highly regulated.
- rwhitman 13y ago
  Starbucks gift cards are relatively anonymous, can store varying amounts of money without being suspicious and are easily transferred and sold. They are a fantastic vector for transfering dirty cash
rwhitman 13y ago
Agreed, I wouldn't be surprised if his runaway success is due to people leveraging the money laundering possibilities en masse. Thats a hell of a risky business to be in
- deleted 13y ago
  [deleted]
mhluongo 13y ago
I've been hand-verifying the transactions so far to try to keep abreast of fraud. I've also taken some automated steps (that I'm improving now). I've been reading quite a bit about the money transmitter stuff, but I'd appreciate your take on why this would be categorized.
- patio11 13y ago
  You should know that being a money transmitter is an exceptionally risky and time-intensive business to be in even if one is not "categorized as" a money transmitter. Even if the government ignores you, criminals will not. You are currently betting that your fraud prevention expertise is better than every criminal's fraud execution expertise. You will likely not win that bet. Do you understand that your adversary here has twenty people who are smarter than you and have years of experience on his payroll? I am not exaggerating in the slightest. Breaking your system wide open will not be his side project. It is his core line of business. You will just be a juicy target of opportunity, to the extent that you have worthwhile volumes. Note that four figures is already worthwhile. As for the regulatory side of things, I'll pull you the exact citations when I get back from (ironically) a coffee run.
  - mhluongo 13y ago
    Ha, thanks, I'm looking forward to the docs. Re: fraud I've definitely been disillusioned that I can handle the tide myself, but OTOH I imagine fraud prevention is a lot like security- make sure the wall is higher than the water. I'll just have to figure out how to do that in a way that's safe, economical, and keeps the core idea behind the service working. It will almost certainly involve hiring people, or cutting off the influx of business down to- say- 5 cards a day.
    - patio11 13y ago
      Here you go: http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&sid=d5570d7646c5fc13fe1fa42a61d1dcf1&rgn=div5&view=text&node=31:3.1.6.1.2&idno=31#31:3.1.6.1.2.1.3.1 http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&sid=d5570d7646c5... [(5) Money transmitter (i) In general. (A) A person that provides money transmission services. The term “money transmission services” means the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means. “Any means” includes, but is not limited to, through a financial agency or institution; a Federal Reserve Bank or other facility of one or more Federal Reserve Banks, the Board of Governors of the Federal Reserve System, or both; an electronic funds transfer network; or an informal value transfer system; or (B) Any other person engaged in the transfer of funds.] You unambiguously accept other value which substitutes for currency from one person. You equally unambiguously transfer value to another location or person, under multiple legal theories: a) the Starbucks card is one location, the Bitcoin account is another, b) the person holding the card and the bitcoin account may be different parties, c) your business operates as a transport layer between your customers and the company which you are unloading thousands of dollars of Starbucks cards on, and as those are different persons, that means you are transmitting that value. You might think "But wait, FinCEN narrowed the regulations a bit for 'sellers of prepaid access' specifically to avoid overburdening them." Great news for Starbucks, bad news for you. You are not a seller of prepaid access, which you can verify by reading pg 45403 on of the Federal Register. http://www.gpo.gov/fdsys/pkg/FR-2011-07-29/pdf/2011-19116.pdf http://www.gpo.gov/fdsys/pkg/FR-2011-07-29/pdf/2011-19116.pd... You are, instead, using Starbucks cards and Bitcoins as a transport layer for value. The government is astoundingly non-neutral about that choice of business.
anovikov 13y ago
How a bitcoin which is anonymous can be laundering? A bitcoin in my understanding is black by default, it is like cash. If i was that guy i'd be happy (of course taking some protective measures as working through tor and having hosting in a 3rd world, but this is something i suggest everyone who does any e-business).
- jacalata 13y ago
  You know you can launder cash, right?
- hueving 13y ago
  Cash IS what people launder.
  - anovikov 13y ago
    Yes sorry, my mistake came from that i forgot that money laundering in west vs third world means opposite things. There is no money laundering in U.S. understanding of the term say, in Russia (because there is no need for it), and what's called money laundering is a completely different business, that escaped my attention, so i completely agree my comment was nonsense.
- rgbrenner 13y ago
  The chain is: stolen credit card or cash > starbucks gift cards > mhluongo's service > bitcoins > back to cash so useful for laundering, and easily converting your stolen credit cards into cash before starbucks receives the chargebacks.
ekanes 13y ago
patio11 is right, you're about to have a major problem with gift cards going bad, which were bought with stolen credit cards. Happy to give more advice, you can reach me via my HN profile. Source: In a similar business for 16 months. (We sell gift cards for $ or BTC, but don't buy gift cards with bitcoin)
- ashray 13y ago
  How do you handle compliance for your business (the bitcoin->giftcard one). From this discussion it seems like a total minefield. Do you ask your customers for their ID Proof/Address Proof ? (KYC/AML style) I know fraud isn't an issue for you at all because the bitcoin payments would be irreversible. I took a look through your site and there are some really great deals (7% cheaper! wow!), great work btw!
  - ekanes 13y ago
    Thanks! In a nutshell, the higher the dollar amount, the more care we put into transactions and relationships.
- wcummings 13y ago
  I'm confused, isn't he selling cards for BTC. How does credit card fraud enter into this? EDIT: OH HE'S BUYING THE CARDS THIS IS A REALLY BAD IDEA
lifeisstillgood 13y ago
Can I check my logic: Our OP has acquired BTC through thrift and hard CPU pounding. And has a desire to drink much caffeine. So he realises that he can pour dollars held in starbucks cards out of person A's card and onto (his starbucks card?/his bank account? Not sure how that works as not got a starbucks card) Anyway, he thinks he is onto a good deal, getting a latte at 30% off. However 10,000 dollars worth of latte requests later, and our OP smells a rat? Someone has bought starbucks gift cards with stolen CC details and then found a BTC owner willing to swap those gift cards for nice anonymous BTC. I think that starbucks here is at least one money transmitter - they are taking payment at the NY branch, and guaranteeing the funds to our OP when he gets the card number. However, there are a number of betwix and between issues - how do you buy a starbucks card with a stolen CC number? Is this a walk round the stores process? I would assume no-one saw his site and then went shopping, which implies that quite a large amount of starbuck's float will come from stolen CC - can anyone verify that? But this one looks like everyone is in breach of some law some where. Starbucks, the OP, the credit card thieves. Unless Starbucks has a license as a money transmitter (transfer service for us in the UK) There is a nice idea here - if you can automate throwing 5 bucks from one Starbucks gift card to another, you can invite someone to have a virtual coffee. How did you do that? edit: The Financial Crimes Enforcement Network (FinCEN) of the U.S. Treasury Department requires MSBs to register.[9] It is also a felony to engage in money transmission without a license in any state that requires a license to operate.[10] http://en.wikipedia.org/wiki/Money_transmitter http://en.wikipedia.org/wiki/Money_transmitter I would give those guys a call - but probably after calling your own lawyer. IANAL, but this is a sticky situation, and probably unique to date. Hope all goes well. I expect intention will count for a lot here. Edit: according to random site on inter web (http://qz.com/166193/why-a-start-up-coffee-company-is-now-accepting-starbucks-gift-cards/ http://qz.com/166193/why-a-start-up-coffee-company-is-now-ac...) Starbucks cards can only transfer balance to another Starbucks card, and be redeemed at Starbucks for goods. So I think they still need to be considered a money transmitter. Anyway the upshot is that about 4bn is put on these cards yearly and 650m was left as cash on the cards at end of last year. Which is nice for Starbucks. And I think the "have a coffee on me" idea is quite workable - I could happily sip a latte and join a webinar if you paid for the latte. maybe not - sounds a bit cheap.
brianbarker 13y ago
How about this for everyone: regardless what you think about money laundering, if a financial institution in the US doesn't have the proper Anti-Money Laundering (AML) checks in place there are HUGE fines and legal trouble. Ask any bank or broker. Once groups start using your cards as a way to send money to their people inside, you'll have all kinds of new friends in the government. At that point, your ethics are no longer up for debate and the law is coming for you.

by patio11 13y ago

foobarqux 13y ago

Do you have any good references on money transmission and how to operate one? What does and does not qualify, approaches to deal with the regulations as an upstart, etc.

andrewfong 13y ago
The short answer is (in California at least) it's a huge pain in the ass to comply with money transmission laws. You definitely need a lawyer. You might need a large amount of capital to backstop the business. You should also keep in mind that there is some uncertainty over what the law entails right now (hence the need for a lawyer), especially with respect to bitcoin. There is at least one ongoing lawsuit over California's money transmission laws. California info: http://www.dbo.ca.gov/Licensees/money_transmitters/ http://www.dbo.ca.gov/Licensees/money_transmitters/ Other states will have their own requirements. Depending on the nature of the business, you may have to interact with the SEC and FINRA. Again, get a lawyer.
- foobarqux 13y ago
  Are there any small companies that may superficially appear to be money transmitters but are not?
  - andrewfong 13y ago
    The law here is uncertain and differs between states. Until we get some definitive court rulings or clarification from regulatory agencies, it's hard to say. There is one reading of California's law where practically anything that takes money from A and gives money to B is a money transmitter. Therefore, Uber (which takes money from passengers and gives it to drivers) or iTunes (which takes money from customers and gives it to artists) could be money transmitters. This is probably not the case (or at least, the law isn't being enforced that way), but it's far from settled. See http://www.businessinsider.com/california-rethinks-money-transmission-act-2013-3 http://www.businessinsider.com/california-rethinks-money-tra....

brd 13y ago

This is exactly why I am horrified by the number of bitcoin companies cropping up. I can only assume many of them have no idea what they are potentially exposing themselves to from a legal perspective.

humanrebar 13y ago
> I can only assume many of them have no idea what they are potentially exposing themselves to from a legal perspective. Or an ethical perspective even.
- jbigelow76 13y ago
  Can you expand on this? Because the way I'm reading it it sounds like since it "could" be a tool for money laundering the OP shouldn't be doing it. But by that logic a car "could" be used to facilitate a bank robbery and therefore the salesman needs to consider those ethical ramifications.
  - orik 13y ago
    There's a huge difference between this and a car salesman. A car salesman goes through all sorts of paperwork and meets with the person they are selling the car too, and they hand the keys over. This is much more similar to the service where you take a photo of a Key and you get mailed a copy of it for 5$; except it's semi-anonymous with bitcoin.
    - maxerickson 13y ago
      Cars are probably one of the worst possible examples, since most transactions require the title.
    - 0xdeadbeefbabe 13y ago
      I think he's asking about ethics. Just because this could be used for money laundering doesn't mean it must be used for money laundering.
    - 13y ago

axefrog 13y ago

How is he a money transmitter? His business is buying a product (Starbucks gift cards) and paying for them with Bitcoin. By your definition, a used car dealership that buys cars from the public and pays for them with cash is also a money transmitter.

JumpCrisscross 13y ago
Gift cards are more like cash than goods. That is why "Federal tax law does not view giving an employee a turkey or a ham as the equivalent of giving an employee a gift card to purchase a turkey or a ham" [1]. [1] http://www.irs.gov/pub/irs-tege/p_4090_fed_0305_text.pdf http://www.irs.gov/pub/irs-tege/p_4090_fed_0305_text.pdf
mhluongo 13y ago
That was my thought too, but this is a common reaction so I'm definitely seeking clarification.
jstalin 13y ago
http://fincen.gov/statutes_regs/guidance/pdf/FIN-2013-G001.pdf http://fincen.gov/statutes_regs/guidance/pdf/FIN-2013-G001.p...
- panarky 13y ago
  That link is for "virtual currencies" and here's one for "prepaid access". http://www.fincen.gov/statutes_regs/frn/pdf/Prepaid_Final_7-22-201.pdf http://www.fincen.gov/statutes_regs/frn/pdf/Prepaid_Final_7-... In summary, in the US you must know your customer, have anti-money-laundering procedures, file suspicious activity reports, keep records for law enforcement, etc. Highly regulated.
rwhitman 13y ago
Starbucks gift cards are relatively anonymous, can store varying amounts of money without being suspicious and are easily transferred and sold. They are a fantastic vector for transfering dirty cash

rwhitman 13y ago

Agreed, I wouldn't be surprised if his runaway success is due to people leveraging the money laundering possibilities en masse. Thats a hell of a risky business to be in

deleted 13y ago
[deleted]

mhluongo 13y ago

I've been hand-verifying the transactions so far to try to keep abreast of fraud. I've also taken some automated steps (that I'm improving now). I've been reading quite a bit about the money transmitter stuff, but I'd appreciate your take on why this would be categorized.

patio11 13y ago
You should know that being a money transmitter is an exceptionally risky and time-intensive business to be in even if one is not "categorized as" a money transmitter. Even if the government ignores you, criminals will not. You are currently betting that your fraud prevention expertise is better than every criminal's fraud execution expertise. You will likely not win that bet. Do you understand that your adversary here has twenty people who are smarter than you and have years of experience on his payroll? I am not exaggerating in the slightest. Breaking your system wide open will not be his side project. It is his core line of business. You will just be a juicy target of opportunity, to the extent that you have worthwhile volumes. Note that four figures is already worthwhile. As for the regulatory side of things, I'll pull you the exact citations when I get back from (ironically) a coffee run.
- mhluongo 13y ago
  Ha, thanks, I'm looking forward to the docs. Re: fraud I've definitely been disillusioned that I can handle the tide myself, but OTOH I imagine fraud prevention is a lot like security- make sure the wall is higher than the water. I'll just have to figure out how to do that in a way that's safe, economical, and keeps the core idea behind the service working. It will almost certainly involve hiring people, or cutting off the influx of business down to- say- 5 cards a day.
  - patio11 13y ago
    Here you go: http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&sid=d5570d7646c5fc13fe1fa42a61d1dcf1&rgn=div5&view=text&node=31:3.1.6.1.2&idno=31#31:3.1.6.1.2.1.3.1 http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&sid=d5570d7646c5... [(5) Money transmitter (i) In general. (A) A person that provides money transmission services. The term “money transmission services” means the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means. “Any means” includes, but is not limited to, through a financial agency or institution; a Federal Reserve Bank or other facility of one or more Federal Reserve Banks, the Board of Governors of the Federal Reserve System, or both; an electronic funds transfer network; or an informal value transfer system; or (B) Any other person engaged in the transfer of funds.] You unambiguously accept other value which substitutes for currency from one person. You equally unambiguously transfer value to another location or person, under multiple legal theories: a) the Starbucks card is one location, the Bitcoin account is another, b) the person holding the card and the bitcoin account may be different parties, c) your business operates as a transport layer between your customers and the company which you are unloading thousands of dollars of Starbucks cards on, and as those are different persons, that means you are transmitting that value. You might think "But wait, FinCEN narrowed the regulations a bit for 'sellers of prepaid access' specifically to avoid overburdening them." Great news for Starbucks, bad news for you. You are not a seller of prepaid access, which you can verify by reading pg 45403 on of the Federal Register. http://www.gpo.gov/fdsys/pkg/FR-2011-07-29/pdf/2011-19116.pdf http://www.gpo.gov/fdsys/pkg/FR-2011-07-29/pdf/2011-19116.pd... You are, instead, using Starbucks cards and Bitcoins as a transport layer for value. The government is astoundingly non-neutral about that choice of business.

anovikov 13y ago

How a bitcoin which is anonymous can be laundering? A bitcoin in my understanding is black by default, it is like cash. If i was that guy i'd be happy (of course taking some protective measures as working through tor and having hosting in a 3rd world, but this is something i suggest everyone who does any e-business).

jacalata 13y ago
You know you can launder cash, right?
hueving 13y ago
Cash IS what people launder.
- anovikov 13y ago
  Yes sorry, my mistake came from that i forgot that money laundering in west vs third world means opposite things. There is no money laundering in U.S. understanding of the term say, in Russia (because there is no need for it), and what's called money laundering is a completely different business, that escaped my attention, so i completely agree my comment was nonsense.
rgbrenner 13y ago
The chain is: stolen credit card or cash > starbucks gift cards > mhluongo's service > bitcoins > back to cash so useful for laundering, and easily converting your stolen credit cards into cash before starbucks receives the chargebacks.

ekanes 13y ago

patio11 is right, you're about to have a major problem with gift cards going bad, which were bought with stolen credit cards. Happy to give more advice, you can reach me via my HN profile. Source: In a similar business for 16 months. (We sell gift cards for $ or BTC, but don't buy gift cards with bitcoin)

ashray 13y ago
How do you handle compliance for your business (the bitcoin->giftcard one). From this discussion it seems like a total minefield. Do you ask your customers for their ID Proof/Address Proof ? (KYC/AML style) I know fraud isn't an issue for you at all because the bitcoin payments would be irreversible. I took a look through your site and there are some really great deals (7% cheaper! wow!), great work btw!
- ekanes 13y ago
  Thanks! In a nutshell, the higher the dollar amount, the more care we put into transactions and relationships.
wcummings 13y ago
I'm confused, isn't he selling cards for BTC. How does credit card fraud enter into this? EDIT: OH HE'S BUYING THE CARDS THIS IS A REALLY BAD IDEA

lifeisstillgood 13y ago

Can I check my logic: Our OP has acquired BTC through thrift and hard CPU pounding. And has a desire to drink much caffeine. So he realises that he can pour dollars held in starbucks cards out of person A's card and onto (his starbucks card?/his bank account? Not sure how that works as not got a starbucks card) Anyway, he thinks he is onto a good deal, getting a latte at 30% off. However 10,000 dollars worth of latte requests later, and our OP smells a rat? Someone has bought starbucks gift cards with stolen CC details and then found a BTC owner willing to swap those gift cards for nice anonymous BTC. I think that starbucks here is at least one money transmitter - they are taking payment at the NY branch, and guaranteeing the funds to our OP when he gets the card number. However, there are a number of betwix and between issues - how do you buy a starbucks card with a stolen CC number? Is this a walk round the stores process? I would assume no-one saw his site and then went shopping, which implies that quite a large amount of starbuck's float will come from stolen CC - can anyone verify that? But this one looks like everyone is in breach of some law some where. Starbucks, the OP, the credit card thieves. Unless Starbucks has a license as a money transmitter (transfer service for us in the UK) There is a nice idea here - if you can automate throwing 5 bucks from one Starbucks gift card to another, you can invite someone to have a virtual coffee. How did you do that? edit: The Financial Crimes Enforcement Network (FinCEN) of the U.S. Treasury Department requires MSBs to register.[9] It is also a felony to engage in money transmission without a license in any state that requires a license to operate.[10] http://en.wikipedia.org/wiki/Money_transmitter http://en.wikipedia.org/wiki/Money_transmitter I would give those guys a call - but probably after calling your own lawyer. IANAL, but this is a sticky situation, and probably unique to date. Hope all goes well. I expect intention will count for a lot here. Edit: according to random site on inter web (http://qz.com/166193/why-a-start-up-coffee-company-is-now-accepting-starbucks-gift-cards/ http://qz.com/166193/why-a-start-up-coffee-company-is-now-ac...) Starbucks cards can only transfer balance to another Starbucks card, and be redeemed at Starbucks for goods. So I think they still need to be considered a money transmitter. Anyway the upshot is that about 4bn is put on these cards yearly and 650m was left as cash on the cards at end of last year. Which is nice for Starbucks. And I think the "have a coffee on me" idea is quite workable - I could happily sip a latte and join a webinar if you paid for the latte. maybe not - sounds a bit cheap.

brianbarker 13y ago

How about this for everyone: regardless what you think about money laundering, if a financial institution in the US doesn't have the proper Anti-Money Laundering (AML) checks in place there are HUGE fines and legal trouble. Ask any bank or broker. Once groups start using your cards as a way to send money to their people inside, you'll have all kinds of new friends in the government. At that point, your ethics are no longer up for debate and the law is coming for you.