Lawyers Argue Bitcoin Needs Change in Money-Transmitting Laws

Lawyers have been speaking at Consensus 2016 about their belief that some money transmitting regulations need to be changed.

AccessTimeIconMay 4, 2016 at 6:48 p.m. UTC
Updated Sep 11, 2021 at 12:15 p.m. UTC

The lawyer representing Anthony Murgio in an ongoing case regarding his now-closed firm argued today why he thinks the law being used to prosecute his client needs to be changed.

Speaking on a panel with six other digital currency regulation experts during the final day of Consensus 2016, Brian Klein, a partner at law firm Baker Marquart, explained what he called the "most important" regulation pertaining to criminal money transmission that he said most people have never heard of.

Called the Prohibition of unlicensed money-transmitting businesses – 18 USC 1960, the statute includes three specific ways to violate the law and can be applied to a violator regardless of the person’s intent.

Klein said:

"I do happen to think it’s overly broad. I do think there needs to be specific intent."

Klein’s client, Anthony Murgio, was indicted for operating an unlicensed money transmission business in a case that involves allegations that he knowingly handled funds that were being used to pay a ransomware demand.

After a detailed review of the law’s requirements that money transmitters register with the state, with Fincen, and may not transport  funds for "some sort of" criminal purpose, Klein said he was currently working to get the law changed.

Simplifying the requirements

Following Klein’s address to an audience of about 30 people, Dana Syracuse, a former New York Department of Financial Services attorney who helped oversee the state’s creation of the BitLicense for regulating digital currencies, talked about why he thinks its important for future versions of digital currency controls to keep compliance demands to a minimum.

In addition to advocating for what is widely called an on-ramping of the law which amounts to less-demanding compliance requirements for new companies, Syracuse, now a partner at law firm Buckley Sandler, argued for the standardization of state-by-state demands.

Syracuse said:

"There really is a need for some sort of federal approach or some other uniform application."

Gray aspects of ownership

One of the reasons regulating bitcoin is no simple task, is the proliferation of transaction types and ways to store bitcoin.

The resulting complicated relationships between those who own bitcoin, those who might own bitcoin and a wide range of other parties potentially involved makes it unclear who has custody of the digital currency at any given time, according to Peter Van Valkenburgh, director of research at Coin Center, who also spoke on today's panel.

Ranging from multi-signature wallets that can create the appearance of multiple custody owners, to third-party service providers that hold keys on behalf of clients, to so-called 'n-lock' transactions that only complete at some point in the future, the lines of ownership are blurred, complicating regulatory procedure.

Multiple variations on custody status can also be implemented simultaneously, further complicating the task of sorting out who owns what at which time.

Van Valkenburgh argued that clarifying these fundamental questions of custody in the digital currency economy was essential to establishing viable, clear regulation.

He said:

"What we need is a careful thinking about how we define custody in this space where these different variables are possible."

Varied regulatory landscape

Other members of the panel included Reuben Grinberg, an associate at Davis Polk & Wardwell, who spoke on facilitating securities transactions with blockchain; Patrick Murck of the Berkman Center for Internet & Society at Harvard University, who spoke about how to trace ownership of digital assets and what kind of property rights can be claimed; and Elijah Alper, legal counsel at Wilmer Hale, who spoke about the unintended consequences of FINCEN’s guidance on "virtual currencies" implemented in October 2014.

Overall, the panelists demonstrated the broad set of regulations that already need to be considered by companies interested in getting into the digital currency business. While not all regulations are applicable to all companies in the digital currency business, knowing what controls one might bump into is a fundamental step for any company getting started.

Image via CoinDesk


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