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The ABCs of bitcoin ATM regulation and compliance in the US

If you are planning to operate a bitcoin ATM business in the U.S., there's a lot more to consider than simply buying a kiosk and setting up shop. You need to stay compliant, both on the federal level and the state level.

The ABCs of bitcoin ATM regulation and compliance in the USBitcoin kiosk made by General Bytes. Photo provided.


| by Amy Castor — Editor, Networld Media Group

If you are planning to operate a bitcoin ATM business in the U.S. — where 60% of the world's bitcoin ATMs are located — there's a lot more to consider than simply buying a kiosk from General Bytes, Genesis Coin or Lamassu. You need to stay compliant, both on the federal level and the state level. 

However, the cost and the work involved in staying compliant may be more than some bitcoin ATM operators bargain for, especially if they are only operating one or two kiosks, so it pays to do your homework. What follows is a rundown on the basics, but you may want to set up your business first, according to one lawyer.

"We recommend that you form a corporation or an LLC and have the nuts and bolts of operating as a business down before you start talking about the specifics of bitcoin ATM regulations," Bill Repasky, a lawyer with Frost Brown Todd, a Louisville, Kentucky, law firm that provides legal counsel for bitcoin ATM operators, told ATM Marketplace in an interview. 

When you are ready to roll, the federal level of regulations most directly applicable to bitcoin kiosk operators are spelled out in the Bank Secrecy Act, or BSA for short, a law requiring financial institutions to assist U.S. government agencies in detecting and preventing money laundering.

Registering with FinCEN

According to the Financial Crimes Enforcement Network, the government agency tasked with interpreting the BSA, the definition of a financial institution fits traditional banks, but also includes several subcategories, including one known as a money-services business, or MSB. 

FinCEN considers a bitcoin ATM operator to be an MSB, and all MSBs have to register with FinCEN. This is the easy part. It only takes about 30-45 minutes to fill out form 107 online. Just remember, you have to register within 180 days of establishing an MSB and renew every two years.

Once you register with FinCEN, you are obligated to comply with the BSA. Among other things, that requires a bitcoin ATM operator to establish an anti-money laundering compliance program, which is a written document that explains your overall plan to thwart money laundering and the financing of terrorist activities.

As part of your AML compliance program, you need to appoint a dedicated AML compliance officer, the principal figure responsible for overseeing the effective development and implementation of you firm's AML program. You also have to maintain superior reporting and record-keeping capabilities to ensure that you are collecting the appropriate information for all transactions and filing the proper reports.

An integral part of any AML program is knowing who your customer is. Know-your-customer, or KYC, is the business process of identifying and verifying the identity of customers, so you can spot risky ones and prevent fraudulent transactions before they start.  

In terms of reporting, BSA requires you to monitor customer transactions and file a currency transaction report for any transaction (daily aggregate amount) over $10,000. You also need to file a suspicious activity report for any transaction that might signify money laundering, tax evasion or other criminal activities.

"A suspicious activity could be something in the nature of structuring transactions at a bitcoin ATM that appear designed to evade the $10,000 CTR limit, or It could be a customer providing information that indicates that they are a person of interest to the U.S. government," Repasky explained.

Additionally, the Office of Foreign Assets Control, or OFAC, keeps a database of individuals acting for or on behalf of targeted countries. Included in your AML compliance report, you also need to outline how you are monitoring that list.

Your AML compliance program should also spell out how you plan to train and retrain your staff on BSA/AML rules and procedures. Putting together a compliance program is a big job, one that will likely require hire outside help.

"Typically a bitcoin ATM operator will work with an outside consultant or a lawyer to create the BSA compliance program," Repasky said. "Then they will begin contracting with vendors who can provide the necessary services to comply with the BSA programs, such as collecting information and running it through the OFAC list."

Say 'hello' to the IRS 

FinCEN governs BSA protocol and enforcement. However, various other agencies that are all part of the FinCEN operation have been assigned specific duties for enforcing compliance with the BSA, and for MSBs, the primary investigative authority is the IRS, Repasky said. In fact, the IRS has already made it clear that it is monitoring bitcoin ATM activity and looking into compliance.  

"If you're a bitcoin ATM operator and someone is going to randomly select you for an audit, it is most certainly going to be the IRS," he said. "What we're seeing now is that the first round of IRS subpoenas have gone out to the bitcoin ATM operators asking for compliance documentation. They went out beginning in the spring and through the summer. They are requesting a boatload of information from the bitcoin ATM operators regarding their BSA programs." 

Repasky believes that trying to round up that information is going to be an eye-opening experience for both bitcoin ATM operators and the IRS. Bitcoin ATM operators simply are not set up the same way as banks or a Wester Union. They don't have the same resources, staff and record keeping abilities as large financial institutions.

"Too often, the smaller bitcoin ATM operators don't collect (the transaction information), don't have the capacity to collect it, don't retain it — and they will be in trouble, honestly," he said.  

State licensure

In every state that a bitcoin ATM operator conducts business, they need to look at the laws for acquiring a money transmitter license. Those laws vary from jurisdiction to jurisdiction, and are often in flux. Regardless, it's critical to maintain compliance. 

"If you run a bitcoin ATM in a state that requires a license, even if you do everything else correctly, but you don't have that license, it is a punishable, imprisonable federal offense," Repasky warned. 

Some states have strict licensing requirements. New York, for instance, requires licensing for virtual currency financial intermediaries through its BitLicense, created by the New York State Department of Financial Services. Other states have taken the initiative, either through statute or regulatory interpretation, to say that the act of transmitting money doesn't affect virtual currencies.

And some states have a blended program. In Texas, for example, if you have a bitcoin ATM that is a standalone device and you personally stock it with bitcoin, you do not need a Texas money transmitter license, Repasky said. But if your machine is connected to a virtual currency exchange, where bitcoin is purchased directly off the exchange, you are required to have a money transfer license to operate in the state.

Most states also require a surety bond to run bitcoin machines, which is a form of protection that ensures the company will abide by money transmitter regulations while it is conducting day-to-day business. Getting a state license approved generally takes three to six months, but can be a year or more in a few states. 

"The cost of state licensing can can be onerous from a financial and a compliance standpoint," Repasky said. "In some cases, it is actually the make-or-break decision on whether a bitcoin operator will operate in that state."  


Amy Castor

Amy Castor has more than 20 years of experience in journalism and mass communications. In the last several years, she has gotten particularly interested cryptocurrencies, blockchain technologies and other evolving forms of payment. Her work has appeared in consumer and trade publications throughout the U.S., including CoinDesk, Forbes, and Bitcoin Magazine. She is now the editor of ATMmarketplace.com and WorldofMoney.com

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