Some basic rules for using ‘bitcoin’ as virtual money

Posted Jul 1, 2013 1:50 AM CDT. By Susan A. Berson. Techies know that “bitcoin” is a virtual currency generated by predetermined computers and recognized on traditional currency exchanges as BTCs. Of interest to investors and business owners, bitcoins have skyrocketed into mainstream popularity, as has their price.

No government is involved in creating bitcoins, and they are insulated from Cyprus-style bank lockouts. But before joining the BTC revolution, here are seven fundamentals to consider.

1.) Rules apply. Recent virtual currencies guidelines from the Financial Crimes Enforcement Network acknowledge the uses, while detailing the watchdog’s expectations.

“No new rules, no new regulations. We issued the guidelines to say how we see virtual currencies within the Bank Secrecy Act and record-keeping [and] reporting responsibilities,” says the director of FinCEN, Jennifer Shasky Calvery. “Virtual currencies are subject to the same rules as other currencies. … Basic money-services business rules apply here.”

FinCEN’s guidelines safeguard bitcoins from being used by money launderers. For example, an Austin, Texas, man selling a Porsche for bitcoins on Craigslist or a Houston lawyer announcing he’d accept bitcoin payments would not be “money transmitters” for the money-services business rules. Conversely, a trading exchange website could be subject to registering as a “money transmitter,” and to filing FinCEN anti-money-laundering reports and following its record-keeping requirements.

In contrast, Japanese-based bitcoin exchange Mt. Gox set up a U.S.-based bank account registered under the name of Mutum Sigillum in 2011. Last May, the Department of Homeland Security effectively shut down Mt. Gox’s operations for not registering itself as a money services business in accordance with FinCEN guidelines. Specifically, DHS got a court order restricting payments to the Mutum Sigillum/Mt. Gox account because it was involved with currency exchanges but failed to register as a money services business. - Read more here: http://www.abajournal.com/magazine/article/some_basic_rules_for_using_bitcoin_as_virtual_money