On July 25, a Florida judge for the Eleventh Judicial Circuit dismissed criminal charges against an individual engaged in the business of selling bitcoin. Florida v. Espinoza, No. F14-2923 (Fl. Cir. Ct. July 26, 2016). The defendant conducted various bitcoin transactions with an undercover detective. The State of Florida had charged the individual with one count of unlawfully engaging in business as a money services business in violation of § 560.125(5)(a), Fla. Stat. and two counts of money laundering, in violation of § 896.101(5)(a) and (5)(b), Fla. Stat. The State later amended its filing to include charges of unlawfully operating as a “payment instrument seller” in violation of § 560.103(29), Fla. Stat. The judge dismissed the money-transmission-related charges, reasoning that (i) under the plain meaning of § 560.125(5)(a), a “money transmitter” would operate in a similar manner as a middleman in a financial transaction; and (ii) case law “requires that a fee must be charged to meet all the elements of being a money transmitter business.” The defendant, according to the judge, was not a middleman, but rather a seller. The judge further noted that the “difference in the price he purchased the Bitcoin for and what he sold it for is the difference between cost and expenses, the widely accepted definition of profit.” The judge also found that the defendant was not a “payment instrument seller” because bitcoin is not a payment instrument. The judge stated that “[b]itcoin has a long way to go before it is the equivalent of money,” and that “attempting to fit the sale of Bitcoin into a statutory scheme regulating money services businesses is like fitting a square peg in a round hole.” The judge further dismissed the counts of money laundering, ultimately concluding that “[w]ithout legislative action geared towards a much needed updated to the particular language within [the relevant statutes], this Court finds that there is insufficient evidence as a matter of law that this Defendant committed any of the crimes as charged, and is, therefore, compelled to grant Defendant’s Motion to Dismiss as to Counts II and III.”
Pennsylvania’s Secretary of Banking and Securities, Robin L. Wiessmann, issued guidance to businesses engaged in money transmission to inform them of significant changes that will be required for their businesses as a result of amendments to the Money Transmission Business Licensing Law. Governor Tom Wolf signed the changes into law on November 3, 2016 (Act 129 of 2016) and the new law became effective on January 2, 2017.
On June 30, North Carolina Governor Pat McCrory signed into law House Bill 289, submitted at the request of the Office of the North Carolina Commissioner of Banks (Commissioner).The Act, which enacts the newly revised North Carolina Money Transmitters Act, subjects certain virtual currency activities to licensure, as well as clarifies that the Act applies to activities that are for personal, family, or household purposes. Applicants seeking licensure must do so via the Nationwide Multistate Licensing System (NMLS) and in accordance with requirements set forth by the Commissioner. Regarding licensure, the “Commissioner has the discretion to require the applicant obtain additional insurance coverage to address related cybersecurity risks inherent in the applicant’s business model as it relates to virtual currency transmission and to the extent such risks are not within the scope of the required surety bond.” The Act purports to be effective as of October 1, 2015.
On June 2, the South Carolina Legislature unanimously passed House Bill 4554, the South Carolina Anti-Money Laundering Act. The Act is intended to “provide regulation and oversight of the money transmission services business most commonly used by organized criminal enterprise to launder the monetary proceeds of illegal activities, and to provide definitions, exclusions, procedures, and penalties.” Among other things, the Act outlines licensure requirements for persons engaging in the business of money transmission and/or currency exchange. Pursuant to the Act, the South Carolina AG (or Commissioner) “may conduct an annual examination of a licensee or of any of the licensee’s authorized delegates [(as defined by the Act)] on a forty-five day notice in a record to the licensee.” In addition, the Act delegates to the Commissioner the authority to suspend or review a license or order a licensee to revoke the designation of an authorized delegate. The Act will take effect either one year after it is signed by the Governor or upon publication in the State Register of final regulations implementing the Act, whichever occurs later.
On May 24, the Conference of State Bank Supervisors (CSBS) and the Money Transmitter Regulators Association (MTRA) published a report titled “The State of State Money Services Businesses Regulation and Supervision.” According to the report, money services businesses (MSBs) are losing access to traditional banking services, with many banks “indiscriminately terminating the accounts of MSBs, or refusing to open accounts for any MSBs, thereby eliminating them as a category of customers.” Evidence suggests that banks are terminating or refusing to open MSB accounts partially because of the regulatory scrutiny surrounding the industry and the concern of BSA/AML risks. However, the report recognizes that MSBs are an important part of the financial system at large: “[MSBs], and specifically money transmitters, play a vital role in providing financial services to consumers and small businesses across the country. Countless Americans use MSBs every day to pay bills, purchase items online or send funds to family members and friends domestically and abroad.” Acknowledging the significant role MSBs play in providing financial services to U.S. households, the CSBS’ and MTRA’s report is intended to provide an outline of the states’ system of supervision of MSBs, highlighting that “state regulatory requirements are focused on consumer protection, safety and soundness and adherence to BSA/AML requirements and enforcement through state supervisory programs.”