The following is an interview of BitAML Founder & President, Joe Ciccolo, originally published on CoinIdol. In it, Joe discusses the regulatory compliance implications for newly released portable bitcoin ATM devices.
The Portable Bitcoin ATM presented by LocalBitcoins in October 2016, may cause MSB compliance issues. In a conversation with CoinIdol.com, Anti-Money Laundering specialist Joe Ciccolo advised potential consumers to heed four warnings before they begin doing business with the portable Bitcoin ATM (BTM).
On October 13, the first images of LocalBitcoins Portable BTM leaked on the LocalBitcoins forum. This technology makes doing business extremely efficient and simple. Anti-Money Laundering specialist Joe Ciccolo claims that portability causes several problems with regulation:
“[This product] presents some potential issues should the operator make this device available to prospective users in different states. It’s tempting given the portability of the device (versus a Bitcoin kiosk), and many of us travel for events, conferences, etc. [However] FinCEN requires state-level licensure with each state in which an MSB does business.”
1. Registration with FinCEN requires the BTM operator to list in their registration all states within which they do business. If you are a Money Service Business (MSB), you must register with The Financial Crimes Enforcement Network (FinCEN). If you do not, your business will be considered an unlicensed MSB. An Unlicensed MSB owner can face up to five (5) years in prison and will have to pay a plethora of fines.
2. FinCEN requires obtaining state licensure within each state in which they do business. In essence, the portable BTM would be confined by state which to a degree restricts its biggest feature – mobility. The emphasis of the LocalBitcoins portable BTM is its portability. As you are beginning to see , you cannot just pick up the portable BTM, travel a distance, and then resume doing business as if you never relocated, especially when crossing state lines.
3. State licensure requirements vary. The process of obtaining state licensure to be considered an MSB varies from state to state. Different states have different interpretations of compliance. For example, in Georgia, if you are a BTM operator, your business/service is not considered an exchange, in this case, you do not have to register as a money transmitter. However, if that same individual in Georgia was to relocate to New York, problems would arise. You can think of it like this, state licensure is permission based, state regulation is complementary to FinCEN. To obtain state licensure, you submit a form along with its filing fee, then you wait for the state to conduct a background check and a review of you and your company.
4. There are three core aspects that dictate one’s AML risk profile: customer base, products/services, and geography (risky location). Movement of the portable device would necessarily impact customer base and geography, even in the same state. An AML risk profile is a risk assessment taken of your business. First, you look at risk factors and then you develop controls based on compliance revolving around customer base, product/service, and geography. Regarding geography, risks vary by location. With the portable BTM you can easily change your geographical setting [physical] and resume doing business. When you relocate, your customer base will change to a new customer base that hasn’t been reviewed for risk assessment–MSB regulations have not been designed for this type of activity.