In what can could be the oddest development in the virtual currency’s relatively short history, a Utah maker of physical (offline) bitcoins has been put on notice by the U.S. Treasury that he is running an illegal money transmitting business.
The Treasury’s FinCen (Financial Crimes Enforcement Network) primarily works to detect money laundering and other financial crimes.
Mike Caldwell, the operator of Casascius Coins, creates collectible coins with bitcoin “private keys” hidden inside. He has shut his business after receiving a letter from FinCen, according to Wired.com
It seems that his unique business of turning a virtual currency into a (sort-of) real one qualifies him as a money transmitter.
Caldwell would need to register with federal authorities and likely get state licenses as well. But Caldwell told Wired that he hasn’t decided what to do. It’s a costly move to register in every state that regulates money transmission. And there are numerous regulatory hoops to jump through.
According to Wired’s report, Caldwell got a letter from FinCEN dated 15th November in which the Treasury division claimed that his business was a “money services business”.
Failing to register such a business can result in a fine of up to $5,000 per day and up to five years in prison. Seizure of funds relating to the unregistered business is also very likely.
Here’s how Caldwell operated until the FinCen warning arrived. Customers would send him bitcoins via the Internet. He would provide metal coins through the U.S. Postal Service. To spend or cash bitcoins, you need a private digital key — a long series of numbers and letters. Caldwell’s coins contain this key behind a tamper-resistant strip.
FinCEN uses anti-money laundering laws, including the Bank Secrecy Act, to require reporting and recordkeeping by banks and other financial institutions. “This recordkeeping preserves a financial trail for investigators to follow as they track criminals and their assets,” FinCen itself states on the agency’s website.
Here’s the message that Caldwell posted has posted on his website: “For the time being, I have suspended accepting new orders, pending resolution of some concerns I have as to regulatory issues. I am anticipating a possibility of having to prequalify buyers, and am holding off taking orders until I know for sure.”
Because he runs a bitcoin-only business, Caldwell says there’s no Casascius bank account for authorities to seize. But he adds that he has no desire to anger the feds, whether he agrees with them or not. So he’s cranking out his last few orders and talking to his lawyer. He says this may spell the end of Casascius coins. “It’s possible. I haven’t come to a final conclusion,” he says.