The Financial Crimes Enforcement Network, or FinCEN—the Treasury Department agency that oversees anti-money laundering efforts—has recently sent letters to several Bitcoin-related businesses saying that they may be engaging in money transmission without being registered with FinCEN. Under FinCEN’s regulations, any entity engaging in money transmission must register as a “money service business,” or face potentially severe civil and criminal penalties.
While reports of the letters began to circulate only after Wired broke the story on December 12th, FinCEN apparently began its letter-writing campaign several weeks ago. At least one recipient—Casascius Coin founder Mike Caldwell—received a letter dated November 15th. According to a FinCEN spokesman, FinCEN has sent roughly a dozen letters to date, and will continue to send them as it identifies additional Bitcoin businesses that it believes should be registered.
FinCEN’s spokesman said that it is directing its inquiries at businesses that appear to be engaging in money transmission based on FinCEN’s review of their businesses activities. FinCEN is asking the recipients to provide additional information about their businesses so that it can make a determination as to their regulatory status.
At least one letter recipient, Casascius Coin, has opted to cease operations pending FinCEN’s determination. Casascius Coin creates handmade metal coins and embeds its customers’ Bitcoin private keys into the coins, which it mails to the customer. According to the company’s lawyer, it does not believe its business constitutes money transmission, yet it has suspended operations and registered with FinCEN “out of an abundance of caution.”
Whether ceasing operations makes sense for other letter recipients depends on their individual circumstances. The determination as to whether activity is or is not money transmission is highly fact-specific. If it is not clear one way or the other, given the potentially severe penalties, taking the conservative route of ceasing operations until a regulatory determination is made may be a prudent course. If however, a company believes it can successfully demonstrate to FinCEN’s satisfaction that it is not in fact a money transmitter, there may be no good reason to cease operations. In any case, companies receiving a letter from FinCEN should consult with a lawyer to discuss their options.