On March 18, 2013, the the U.S. Financial Crimes Enforcement Network released new interpretive guidance regarding “convertible virtual currency” for purposes of the Bank Secrecy Act (BSA). The BSA requires financial institutions in the United States to report cash transactions and suspicious financial activities that might signify money laundering, tax evasion, or other criminal activities. The Financial Crimes Enforcement Network is a bureau of the U.S. Department of the Treasury that combats money laundering, among other things.
Under the new interpretive guidance, “virtual currency” is defined as a medium of exchange that operates like a currency in some environments but does not have all the attributes of real currency (“real currency” is the coin and paper money of the United States that is designated as legal tender). “Convertible virtual currency,” then, is defined as virtual currency that has an equivalent value in real currency or that acts as a substitute for real currency.
Without getting into too much detail, the new interpretive guidance states that “exchangers” and “administrators” are “money transmitters” within the scope of the Bank Secrecy Act and its regulations, unless a limitation or exemption applies, if they either: (1) accept and transmit a convertible virtual currency or (2) buy or sell convertible virtual currency. In other words, these parties may be subject to the registration requirements, record-keeping requirements for certain transactions, and mandatory reporting requirements for certain suspicious activities that might signify money laundering, tax evasion, or other criminal activities. Under the new interpretive guidance, an “exchanger” is a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency, and an “administrator” is a person engaged as a business in issuing (putting into circulation) a virtual currency and who has the authority to redeem (to withdraw from circulation) the virtual currency.
However, a mere “user” of convertible virtual currency is not subject to the Bank Secrecy Act and its regulations. Under the new interpretive guidance, a “user” is a person that obtains virtual currency to purchase goods and services. In other words, merely using convertible virtual currency to purchase real or virtual goods or services does not make the person a “money transmission service” (so the person does not have the registration, reporting, or record-keeping obligations under the Bank Secrecy Act regulations).
One example of a popular convertible virtual currency is Bitcoin. Based on the definition of “convertible virtual currency,” the new interpretive guidance might also apply to the virtual currencies used in online video games and virtual worlds (e.g., if the video game or virtual world virtual currency has an equivalent value in real currency), bringing certain video game transactions within the scope of the Bank Secrecy Act and its regulations unless a limitation or exemption applies. According to a March 21, 2013, article in the Wall Street Journal by Jeffrey Sparshott, the “anti-money-laundering rules would apply depending on the ‘factors and circumstances’ of each business.”
This new interpretive guidance is another example of how much value is being converted into virtual currencies and how much these virtual currencies have become part of our daily lives. On May 18, 2009, John D. Sutter on CNN reported that at least $1 billion per year is transferred into virtual currencies each year, primarily for online video games. That’s amazing, and I can only imagine how much more value is converted into virtual currencies today. These virtual currencies, including Bitcoin and amounts in video games and virtual worlds, can have financial value and should be included as part of a person’s estate planning.
