The Treasury Department's Financial Crimes Enforcement Network has issued new guidance, in the form of two administrative rulings it made public, on whether certain activities by individuals and companies that are related to virtual currencies, notably Bitcoin, trigger the Bank Secrecy Act's definition of a money services businesses or money transmitter, subjecting them to registration, reporting, and recordkeeping requirements.

The first ruling states that if a user creates or “mines” a convertible virtual currency solely for their own purposes, they are not a money transmitter under the BSA. The second ruling clarifies that a company purchasing and selling virtual currency as an investment exclusively for the its own benefit is also not considered to be a money transmitter.

The rulings further interpret guidance issued in March 2013. That guidance made it clear that, from FinCEN's perspective, an administrator or exchanger of conveyable virtual currencies that accepts and transmits it, or buys or sells it in exchange for legal tender or another virtual currency for any reason (including intermediating between a user and a seller of goods or services the user is purchasing on the user's behalf) is considered a money transmitter for regulatory purposes.

FinCEN frequently publishes redacted versions of administrative rulings issued to specific parties to offer additional regulatory interpretation and insight.  

The ruling entitled “Application of FinCEN's Regulations to Virtual Currency Mining Operations,” explains that how a user obtains a virtual currency may be described using a variety of terms, including “earning,” “harvesting,” “mining,” “creating,” “auto-generating,” “manufacturing,” or “purchasing.” The label applied to the process of obtaining a virtual currency is not material to the legal characterization under the BSA, FinCen says. What is material is what the person uses the virtual currency for, and for whose benefit.

FinCEN wrote that if a user mines Bitcoin and uses it solely for their own purposes, not for the benefit of another, they are not a money services businesses because these activities involve neither “acceptance” nor “transmission” of the currency. This is the case whether the user is an individual or a corporation, and whether they purchase goods or services for their own use, pay debts previously incurred in the ordinary course of business, or, in the case of a corporate user, make distributions to shareholders.However, a user wishing to purchase goods or services with Bitcoin it has mined, and pays it to a third party at the direction of a seller or creditor, may be engaged in money transmission.

The ruling entitled “Application of FinCEN's Regulations to Virtual Currency Software Development and Certain Investment Activity,” addresses the question of whether a company's occasional investment in virtual currency, and the production and distribution of software to facilitate those purchases, would make it a money transmitter under the BSA.

“The production and distribution of software, in and of itself, does not constitute acceptance and transmission of value, even if the purpose of the software is to facilitate the sale of virtual currency,” FinCEN wrote. As a result, the software would not make the company a money transmitter. However, any transfers to third parties at the request of the company's counterparties, creditors, or owners entitled to direct payments “should be closely scrutinized, as they may constitute money transmission.”

If the company were to provide services to others, including investment-related or brokerage services that involved accepting and transmitting virtual currency, additional analysis by FinCen would be necessary to determine its regulatory status and obligations.