Illinois Regulator Seeks Comment on Proposed ‘Digital Currency Regulatory Guidance’

The Illinois Department of Financial and Professional Regulation (IDFPR) is requesting comment on its proposed “Digital Currency Regulatory Guidance” on decentralized digital currencies—including Bitcoin, Dogecoin, Litecoin, Ethereum, and Zcash. The proposed guidance seeks to establish the regulatory treatment of decentralized digital currencies under existing definitions of money transmission in Illinois, as defined in the Illinois Transmitters of Money Act (205 ILCS 657) (TOMA). Currently, digital currencies do not fit the statutory definitions of “money” and, therefore, do not independently trigger the licensing requirements of TOMA. However, some business activities involving decentralized digital currency that involve the receipt of “money” can trigger the licensing requirements of TOMA. Comments must be received by January 18, 2017 at 6:00pm EST and may be submitted by clicking here.

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IG Report Concludes that IRS Lacks Compliance Strategy For Virtual Currencies

On November 8, the Treasury Inspector General for Tax Administration (TIGTA) released a report evaluating the IRS’s strategy for addressing income produced via virtual currencies. The report which was completed on Sept. 21, but released Tuesday, observed that none of the agency’s divisions have yet developed any type of compliance initiatives or guidelines for conducting examinations or investigations specific to tax noncompliance related to virtual currencies. Accordingly, the TIGTA recommended that the IRS develop a comprehensive strategy for virtual currencies such as Bitcoin to help ensure compliance with tax law. The report also recommended that the IRS provide updated guidance to reflect the necessary documentation requirements and tax treatments necessary for the various uses of virtual currency and that the agency revise third-party reporting documents so that they identify how much virtual currency was used in taxable transactions. The IRS agreed with each of these three recommendations.

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BuckleySandler Attorney Joins Digital Currency and Ledger Defense Coalition

In October 2016, BuckleySandler Attorney Amy Davine Kim joined the newly founded Digital Currency and Ledger Defense Coalition (DCLDC). More than 60 attorneys will participate in the DCLDC, which was “founded to help protect individual constitutional rights and civil liberties in connection with regulatory and law enforcement scrutiny and efforts relating to digital currencies (e.g. bitcoin) and ledgers (e.g. blockchains).” The DCLDC intends to foster bitcoin and blockchain innovation through pro bono attorney referrals and by submitting amicus briefs on significant issues.

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Florida Judge: “Bitcoin Has a Long Way to Go Before it is the Equivalent of Money”

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.”

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North Carolina Passes House Bill 289, Enacts the Money Transmitters Act

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.

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