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It crossed their mind quite a bit. Constant topic of conversation - the implication here that it's "easy" to file as an MSB is ridiculous. It's easy to file, ha

It crossed their mind quite a bit. Constant topic of conversation - the implication here that it's "easy" to file as an MSB is ridiculous. It's easy to file, harder to "be".

ethanbond 11y ago
Is this distinct from a money transmitter? I know transmitters must be registered in each state that a user might originate from, and each registration costs around $50,000.
- Animats 11y ago
  Yes, it's distinct. FinCen is only about money laundering. Money transfer licensing is about the money transfer firm not stealing your money. California is particularly strict about this, because so many people in California are sending money home to Mexico, and there have been some bad actors. If any of these Bitcoin operators were serious, they'd register with the SEC as broker/dealers and as exchanges. That covers the whole US; no need to deal with individual states. Every stock broker does this. Customers then get investor protection - SIPC insurance up to $500,000 if the broker goes bust. That works quite well. Even Madoff's investors got everything back up to $500K, and slowly, the SIPC has clawed money back from the "winners" of Madoff's Ponzi, Overall, Madoff investors now have about 50% of their money back. Investor protection doesn't mean you can't lose money through investment risk, but it means that you're protected from theft by the broker, for both cash and securities held by the broker. So why don't Bitcoin startups do that? 1) The broker has to pass background checks (Roger Ver has a criminal conviction and would fail.) 2) There are financial strength requirements (if you're handling millions of other people's money, you need to have a few yourself). 3) There are detailed accounting, audit, and reporting requirements. 4) FINRA can fine brokers for violating the rules for brokers. About once a day, FINRA takes disciplinary action against some broker. 5) There are exams to work in a brokerage. Individual brokers must pass the FINRA Series 7 set of exams. There are exams for top management, for inside auditors, and even for customer service reps. (Customer service reps have to know what they are and are not allowed to do.) 6) Segregation of customer funds from brokerage funds is required. (MF Global didn't do that and went bust. The case against their CEO is still in discovery and he may yet go to jail.) Until Bitcoin startups start doing this, it's still amateur hour.
  - mike_hearn 11y ago
    The AML laws require that you be a licensed MSB in each state that you operate in though (in the USA). Filing with FinCEN is indeed easy, however, it doesn't really accomplish anything. The requirements themselves are entirely subjective and almost impossible to comply with if the regulators in question decide they don't like you. For instance: take the requirement to report "suspicious" transactions. What does suspicious mean? It's left undefined. In practice, suspicious means any transaction the government doesn't like, and if it decides that retroactively ...... well, now you have a pickle on your hands. It doesn't matter if you genuinely didn't think it was suspicious at the time because it's not you who get to decide. So complying with this requirement effectively means an unlimited investment into analysts and risk managers (detectives) who try and spot anything that might be suspicious, and enforce US foreign policy via sanctions. Coinbase are doing this. But they have tens of millions of dollars in venture capital to spend, and even then, I expect them to get fined/prosecuted/both at some point, simply because it appears to be impossible to run a financial institution in the USA without that happening.
    - Animats 11y ago
      If you just send the transaction and customer data for every transaction over $2000 to FinCen, you're good. Now that they accept this as a data file (they were accepting paper until a few years ago), there's no problem doing that.
      - mike_hearn 11y ago
        That's not correct. You are expected to file SARs, but only for suspicious transactions (you have to specify why they are suspicious on the form). You can't just blindly upload every transaction to FinCEN and have discharged your responsibilities. The laws are much, much more complicated than that.
- tomasien 11y ago
  Extremely, extremely different.

It crossed their mind quite a bit. Constant topic of conversation - the implication here that it's "easy" to file as an MSB is ridiculous. It's easy to file, harder to "be".

ethanbond 11y ago

Is this distinct from a money transmitter? I know transmitters must be registered in each state that a user might originate from, and each registration costs around $50,000.

Animats 11y ago
Yes, it's distinct. FinCen is only about money laundering. Money transfer licensing is about the money transfer firm not stealing your money. California is particularly strict about this, because so many people in California are sending money home to Mexico, and there have been some bad actors. If any of these Bitcoin operators were serious, they'd register with the SEC as broker/dealers and as exchanges. That covers the whole US; no need to deal with individual states. Every stock broker does this. Customers then get investor protection - SIPC insurance up to $500,000 if the broker goes bust. That works quite well. Even Madoff's investors got everything back up to $500K, and slowly, the SIPC has clawed money back from the "winners" of Madoff's Ponzi, Overall, Madoff investors now have about 50% of their money back. Investor protection doesn't mean you can't lose money through investment risk, but it means that you're protected from theft by the broker, for both cash and securities held by the broker. So why don't Bitcoin startups do that? 1) The broker has to pass background checks (Roger Ver has a criminal conviction and would fail.) 2) There are financial strength requirements (if you're handling millions of other people's money, you need to have a few yourself). 3) There are detailed accounting, audit, and reporting requirements. 4) FINRA can fine brokers for violating the rules for brokers. About once a day, FINRA takes disciplinary action against some broker. 5) There are exams to work in a brokerage. Individual brokers must pass the FINRA Series 7 set of exams. There are exams for top management, for inside auditors, and even for customer service reps. (Customer service reps have to know what they are and are not allowed to do.) 6) Segregation of customer funds from brokerage funds is required. (MF Global didn't do that and went bust. The case against their CEO is still in discovery and he may yet go to jail.) Until Bitcoin startups start doing this, it's still amateur hour.
- mike_hearn 11y ago
  The AML laws require that you be a licensed MSB in each state that you operate in though (in the USA). Filing with FinCEN is indeed easy, however, it doesn't really accomplish anything. The requirements themselves are entirely subjective and almost impossible to comply with if the regulators in question decide they don't like you. For instance: take the requirement to report "suspicious" transactions. What does suspicious mean? It's left undefined. In practice, suspicious means any transaction the government doesn't like, and if it decides that retroactively ...... well, now you have a pickle on your hands. It doesn't matter if you genuinely didn't think it was suspicious at the time because it's not you who get to decide. So complying with this requirement effectively means an unlimited investment into analysts and risk managers (detectives) who try and spot anything that might be suspicious, and enforce US foreign policy via sanctions. Coinbase are doing this. But they have tens of millions of dollars in venture capital to spend, and even then, I expect them to get fined/prosecuted/both at some point, simply because it appears to be impossible to run a financial institution in the USA without that happening.
  - Animats 11y ago
    If you just send the transaction and customer data for every transaction over $2000 to FinCen, you're good. Now that they accept this as a data file (they were accepting paper until a few years ago), there's no problem doing that.
    - mike_hearn 11y ago
      That's not correct. You are expected to file SARs, but only for suspicious transactions (you have to specify why they are suspicious on the form). You can't just blindly upload every transaction to FinCEN and have discharged your responsibilities. The laws are much, much more complicated than that.
tomasien 11y ago
Extremely, extremely different.