Are in-person Bitcoin sales a crim? Is it OK for U.S. residents to use sites like localbitcoins.com? To answer both questions: In some instances, yes it is; in others, no it’s not. Everything depends on frequency and jurisdiction.
Bitcoin Business Crimes: The SEC’s Stance
We’re in the midst of a cryptocurrency boom. Unfortunately, inchoate fintech regulations make for unclear transactional parameters. This year alone, at least four U.S. citizens have pleaded guilty to improper fiat-to-crypto currency exchanges. As such, people are asking: “If the SEC hasn’t officially declared Bitcoin and other altcoins to be securities in and of themselves, why are Bitcoiners getting busted?”
For starters, even though the SEC hasn’t officially declared all digital currencies intrinsic securities, financial vehicles and ICOs featuring cryptocurrency components often fall under the securities umbrella. In fact, the agency recently published an alert regarding the potentially risky nature of initial coin offerings and further outlined registration requirements for digital currency investment opportunities.
“Operating An Illegal Money Transmission Business”
In 2013, the U.S. Financial Crimes Enforcement Network instituted licensing requirements for Bitcoin re-sellers. The rule specifically targeted parties selling cryptocurrencies “as a business.” Some states, like New York, followed the network’s lead and passed Cryptocurrency licensing laws.
The “as a business” stipulation is crucial. A single transaction doesn’t amount to a business, but frequents transactions are another story. A Palo Alto-based attorney, with whom Motherboard.com spoke, explained: “If you come to me and ask to buy $100 worth of Bitcoin and I sell that to you, in no state is that sole activity considered to be money transmission. It must occur in a sufficient frequency and volume and you have to accept all comers. It’s a fact-based test.”
So, what’s the bottom line? Well, first and foremost, the law is a case-by-case journey. Just as no two people are exactly alike, neither are any two lawsuits. A minuscule detail can radically alter an outcome. Caveats aside, and generally speaking, the SEC probably (not definitely) won’t consider one-off, in-person Bitcoin sales probably businesses. Two or more, though, may land you in the company category, which would require registration.
People Have Landed In Legal Trouble Over In-Person Bitcoin Sales
Earlier this summer, a grand jury accused two Arizona men with “operating an unlicensed money transmitting business” between 2013 and 2017. Motherboard sniffed around and found a localbitcoins.com account bearing one of the defendant’s aliases. According to the media outlet, the account in question conducted over a hundred transactions. Again, every time an individual engages in an in-person token sale, the likelihood of being classified as regulation-bound business increases.
Similarly, a man in New York offered a legal mea culpa after “conducting over 100 bitcoin transactions ‘locally and across the United States.’” And in Detroit, the long arm of the law grabbed someone suspected of laundering $2.4 million in tokens through another business account.
Not All States Are Clamoring For Cryptocurrency Regulation
Some states, like New York and Washington, have embraced a regulatory approach to cryptocurrency sales; others are choosing a different path. In the not too distant past, a Florida judge tossed an in-person Bitcoin sales case because “selling bitcoins isn’t the same as transmitting money to a third party.” Who knows, maybe Bitcoin will be for the Sunshine State what Gambling was for Las Vegas.
Pearson, J. (2017, July 18). People Keep Getting Charged With a Crime for Selling Bitcoin. Retrieved September 26, 2017, from https://motherboard.vice.com/en_us/article/j5qa7y/people-keep-getting-charged-with-a-crime-for-selling-bitcoin
Britschgi, C. (2017, July 04). Phoenix Neurologist is Charged With Selling Bitcoin Without a License. Retrieved September 26, 2017, from http://reason.com/blog/2017/07/04/phoenix-neurologist-is-charged-with-sell