Cryptocurrencies And Money Transmitter Laws

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Evaluating the rules behind whether you, as a Bitcoin buyer or seller, are functioning as a money transmitter under state law can be baffling.  Cryptocurrencies and money transmitter laws coexist in mostly uncharted waters here at the dawn of 2020.  The following is a note examining both both the broad concepts and the specific provisions of money transmitter statutes as they pertain to cryptocurrencies (particularly Bitcoin) in New York, New Jersey, California, Florida and Wyoming.

Each of the United States has its own regulatory regime when it comes to money services businesses, particularly money transmitters.  While money transmission at the federal level is almost exclusively concerned with money laundering, the state laws’ greater complexity is derived in part from additional concerns on the part of state lawmakers, such as consumer protection.  For this reason, as I will describe below, there are a host of net worth, bonding and reporting requirements that make state law money transmission licensing and ongoing compliance daunting.

It is helpful to group the states conceptually into three different categories in order to evaluate how they treat cryptocurrencies.  The first group consists of the “silent” states, that is, those that have not specifically regulated or incorporated the unique characteristics of cryptocurrency into their statutory schemes.  That a state is “silent” could be considered “good” from one perspective if its silence means that that particular state was not inclined to regulate cryptocurrency (the minority view), but might be considered to be “bad” if the absence of regulation means uncertainty and the risk of being accused of operating an unlicensed money transmission business, which in most states is a criminal offense.  This latter point of view is, unfortunately, how I view the majority of the states we consider herein.

Apart from the silent states we have the “regulated” states, that is, those states that in one form or another have spoken definitively about how cryptocurrency fits into, or is excluded from, their existing money transmitter laws.  Among the regulated states we have two types, those in which regulation has, from most objective perspectives, advanced the ability to do business with cryptocurrency in that state (Wyoming), and those whose regulatory scheme has added next-to-impenetrable barriers for smaller firms looking to comply in good faith with state law (New York).  The third, somewhat more opaque category consists of states that have issued some form of guidance, in the form of pronouncements by public bodies, court cases, and the like, but have not adopted a single, uniform approach to regulating (or not regulating) cryptocurrency.  This latter category could be grouped with the “silent” states mentioned above, from the standpoint that these half measures, while perhaps a start, have introduced further uncertainly into the state regulatory landscape.

These laws are forever changing and evolving, and the difficult and stifling state of state laws is the source of much scholarly compliant.  It is absolutely worth knowing the contours of state money transmitter law, too, in order to cherry pick favorable jurisdictions that are likely to improve first.  Further, there are encouraging developments, particularly in Wyoming, with that state’s creation of a new type of federally chartered financial institution that may pave the way for more open banking relationships and more sane compliance regimes.

As we look through each state’s laws, despite the differences in the specifics of compliance there are nevertheless a number of unifying concepts that makes understanding easier.  Aside from being an interesting philosophical question in the cryptocurrency community, what constitutes “money” under state law is fundamental to understanding the states’ money transmitter statutes.  A central consideration is whether the state considers “money” as only including only that which is backed by a sovereign authority, or whether the statutory definition is more broadly concerned with value.  California, for example, does not include virtual currencies within its definition of what is “money”:  “’Money’ means a medium of exchange that is authorized or adopted by the United States or a foreign government.”  The term includes a monetary unit of account established by an intergovernmental organization or by agreement between two or more governments.   Wyoming, in contrast, does not define “money” per se, but rather includes “money or monetary value” within the scope of its definition of “money transmission”.

Next are the common regulatory characteristics.  Based on my research, in no state is acquiring a money transmitter license a matter of right, but rather a matter of “privilege”, which must be applied for.  In other words, each state ultimately exercises discretion in whether or not to grant the license, even one follows the application procedures perfectly.  Second, there is a sometimes-substantial application fee.  Third are net worth requirements (that is, applicants must show a minimum net worth in order to qualify to apply, ostensibly to protect consumers from thinly capitalized businesses more likely to disappear with their money).  Fourth are ongoing reporting obligations to the state, sometimes requiring submitting reports to the state as frequently as quarterly.  Fifth are ongoing “examinations”, which, at a minimum, may be conducted at the discretion of the state, and which the examined party is expected to pay for (!)  Sixth are the penalty provisions, which in some states makes unlicensed money transmission a criminal offense.  Some states have what we might term “add-on” provisions, such as the requirement to maintain anti-money laundering programs as part of state compliance, as is the case in Florida.

For each of our selected states, therefore, we follow the following order of analysis: (1) how does the state define “virtual currency” (the term most often used at the state level), “money” and “money transmission”, and does cryptocurrency fall within those definitions?; (2) if cryptocurrency is considered money, what types of activities constitute “money transmission”, requiring a money transmitter license?

New York

As many are aware, in an effort to regulate cryptocurrency related businesses the Superintendent of The New York State Banking Department created the “BitLicense” by regulation.  These regulations pertain to “virtual currency business activity” taking place within the state.  The BitLicense regime exists on top of and in addition to New York’s money transmitter law.

We consider the BitLicense provisions first.  The definitions section provides the following relevant definitions:

(g) New York means the State of New York;

(h) New York resident means any person that resides, is located, has a place of business, or is conducting business in New York;

(p) virtual currency means any type of digital unit that is used as a medium of exchange or a form of digitally stored value.  Virtual currency shall be broadly construed to include digital units of exchange that: have a centralized repository or administrator; are decentralized and have no centralized repository or administrator; or may be created or obtained by computing or manufacturing effort. Virtual currency shall not be construed to include any of the following:

  • digital units that:

(i) are used solely within online gaming platforms;

(ii) have no market or application outside of those gaming platforms;

(iii) cannot be converted into, or redeemed for, fiat currency or virtual currency; and

(iv) may or may not be redeemable for real-world goods, services, discounts, or purchases;

(2) digital units that can be redeemed for goods, services, discounts, or purchases as part of a customer affinity or rewards program with the issuer and/or other designated merchants or can be redeemed for digital units in another customer affinity or rewards program, but cannot be converted into, or redeemed for, fiat currency or virtual currency; or

(3) digital units used as part of prepaid cards;

(q) virtual currency business activity means the conduct of any one of the following types of activities involving New York or a New York resident:

(1) receiving virtual currency for transmission or transmitting virtual currency, except where the transaction is undertaken for non-financial purposes and does not involve the transfer of more than a nominal amount of virtual currency;

(2) storing, holding, or maintaining custody or control of virtual currency on behalf of others;

(3) buying and selling virtual currency as a customer business;

(4) performing exchange services as a customer business; or

(5) controlling, administering, or issuing a virtual currency.

23 CRR-NY 200.3(a) then provides us with the fundamental requirement that:  “No person shall, without a license obtained from the superintendent as provided in this Part, engage in any virtual currency business activity…”

From the statutory language above we can conclude the following:  (1) Bitcoin is almost certainly a “virtual currency”; (2) a wide range of activities qualify as a “virtual currency business activity … involving New York or a New York resident”, most specifically, “transmitting virtual currency”, “storing, holding, or maintaining custody or control on behalf of others”, and “buying and selling virtual currency as a customer business.”  This may be the case notwithstanding that the Bitcoin one receives is mostly from sources outside of New York, if the remission of fiat currency is to a New York resident.

The BitLicense application and compliance processes are onerous.  The application fee is $5,000.00.  The capital requirements are determined by the Superintendent and set in an arbitrary amount “sufficient to ensure the financial integrity of the licensee and its ongoing operations based on an assessment of the specific risks applicable to each licensee.”  Such amount could range from tens to hundreds of thousands of dollars.  The checklist for the documents and information to be submitted with the application runs ten pages and includes everything from credit reports of the company principals to flow-charts and diagrams of one’s exact business processes.  The applicant must have a number of existing processes already established, including anti-fraud, anti-money laundering, cyber security, privacy and information security policies.  The applicant must post a bond and agree to a host of supervisory and oversight provisions on the part of the state, including seeking government approval of any change of control of the company and submitting to an examination by the Department “not less than once every two years”.  Quarterly and annual financial statements are required.

Even if the BitLicense requirement did not apply, we must consider next what types of business activities would fall within the scope of New York’s Money Transmission Statute.  Curiously, New York’s money transmitter statute defines neither “money” nor “money transmission” in the definitions section of the Transmitters of Money part of the New York Banking Code, although “money transmission” is defined elsewhere:  “(a)  The term money transmission shall include all instruments sold or issued including travelers checks, money orders, checks, drafts, orders, wire or electronic transfers, facsimile transfers and shipments by courier for the transmission or payment of money.”

This definition neither expressly includes nor excludes virtual currency, however, that may be a moot point as it pertains to any part of a business that handles fiat currency.  So, for example, the remission of fiat funds to a Bitcoin seller, whether directly or indirectly, could constitute (or is) a wire, or an “electronic transfer” within the meaning of the money transmission statute, giving rise to the need to get a Money Transmitter’s License in New York.

New Jersey

New Jersey falls within the bounds of a mostly “silent” state when it comes to whether cryptocurrency trading falls within its money transmitter statutes.  As set forth in the definitions section of its money transmitter statute:

“Money” means a medium of exchange authorized or adopted by the United States or a

foreign government as a part of its currency and that is customarily used and accepted as a

medium of exchange in the country of issuance.

“Money transmitter” means a person who engages in this State in the business of:

(1) the sale or issuance of payment instruments for a fee, commission or other benefit;

(2) the receipt of money for transmission or transmitting money within the United States or to locations abroad by any and all means, including but not limited to payment instrument, wire,facsimile, electronic transfer, or otherwise for a fee, commission or other benefit; or

(3) the receipt of money for obligors for the purpose of paying obligors’ bills, invoices or

accounts for a fee, commission or other benefit paid by the obligor.

Section C.17:15C-4 sets forth the requirement that money transmitters need to be licensed:

4. a. No person, other than a person exempt from the provisions of this act pursuant to

    section 3, shall engage in the business of money transmission without a license as provided in

    this act.

    In New Jersey (like many states), “money” is restricted to media of exchange that are created, authorized and adopted by sovereign powers.  In these states cryptocurrencies are arguably not “money” and therefore could be argued to fall outside of those statutes regulating money transmitters.


    Despite being a global hub for technology companies, California is perhaps behind the times when it comes to adopting a crypto-friendly legislative scheme.  As with the other states we start with what defines “money” and/or “money transmission”.  The California Code pertaining to Money Transmitters is found at the 2018 California Financial Code, Division 1.2, Sec. 2000 et seq.:

    (k) “In California” or “in this state” means physically located in California, or with, to, or from persons located in California.

    (o) “Monetary value” means a medium of exchange, whether or not redeemable in money.

    (p) “Money” means a medium of exchange that is authorized or adopted by the United States or a foreign government. The term includes a monetary unit of account established by an intergovernmental organization or by agreement between two or more governments.

    (q) “Money transmission” means any of the following:

    (1) Selling or issuing payment instruments.

    (2) Selling or issuing stored value.

    (3) Receiving money for transmission.

    (u) “Receiving money for transmission” or “money received for transmission” means receiving money or monetary value in the United States for transmission within or outside the United States by electronic or other means. The term does not include sale or issuance of payment instruments and stored value.

    California provides that:

    • A person shall not engage in the business of money transmission in this stateor advertise, solicit, or hold itself out as providing money transmission in this state, unless the person is licensed or exempt from licensure under this chapter or is an agent of a person licensed or exempt from licensure under this chapter.

    Under this statutory scheme it is likely that the receipt and transmission of either Bitcoin OR fiat money could fall within the money transmitter statute.  Here, “monetary value” includes any “medium of exchange” (including, it would appear, Bitcoin), and “money received for transmission” includes “monetary value”.  Further, the definition of “in this state” precludes unlicensed money transmission, or the advertising thereof, even if one does not have a physical or permanent presence in California.


    Florida falls within the category of states that, while technically “silent”, may include cryptocurrency not within the definition of a “currency”, but rather in the context of whether “receiving … monetary value … for the purpose of transmitting the same” within the definition of money transmission.  The significance of this is that receiving either fiat or Bitcoin for the purpose of transmitting it in Florida probably falls within the money transmitter statue, requiring a license.

    As set forth in the Florida Statutes:

    560.103 Definitions.—As used in this chapter, the term:

    (11) “Currency” means the coin and paper money of the United States or of any other country which is designated as legal tender and which circulates and is customarily used and accepted as a medium of exchange in the country of issuance. Currency includes United States silver certificates, United States notes, and Federal Reserve notes. Currency also includes official foreign bank notes that are customarily used and accepted as a medium of exchange in a foreign country.

    (17) “Foreign currency exchanger” means a person who exchanges, for compensation, currency of the United States or a foreign government to currency of another government.

    (21) “Monetary value” means a medium of exchange, whether or not redeemable in currency.

    (22) “Money services business” means any person located in or doing business in this state, from this state, or into this state from locations outside this state or country who acts as a payment instrument seller, foreign currency exchanger, check casher, or money transmitter.

    (23) “Money transmitter” means a corporation, limited liability company, limited liability partnership, or foreign entity qualified to do business in this state which receives currency, monetary value, or payment instruments for the purpose of transmitting the same by any means, including transmission by wire, facsimile, electronic transfer, courier, the Internet, or through bill payment services or other businesses that facilitate such transfer within this country, or to or from this country.

    (emphasis supplied).

    Florida Statutes Sec. 560.204(1) provides that “[u]nless exempted, a person may not engage in, or in any manner advertise that they engage in, the selling or issuing of payment instruments or in the activity of a money transmitter, for compensation, without first obtaining a license under this part.”


    Wyoming stands out as the single most cryptocurrency-friendly state in the US.  A package of recent legislation reflects a climate of forward-thinking legislators that listened to experts in the field in creating these new laws.  The following statutory provisions govern money transmission in Wyoming:

    (xii) “Monetary value” means a medium of exchange whether or not redeemable in money;

    (xiii) “Money transmission” means to engage in business to sell or issue payment instruments, stored value or receive money or monetary value for transmission to a location within or outside the United States by any and all means, including but not limited to wire, facsimile or electronic transfer;

    (xxii) “Virtual currency” means any type of digital representation of value that:

    (A) Is used as a medium of exchange, unit of account or store of value; and

    (B) Is not recognized as legal tender by the United States government.

    40-22-103. License required.

    • … no person shall engage in the business of money transmission without a license. The division shall regulate money transmitters and carry out the provisions of this act.
    • A person is engaged in the business of money transmission if the person advertises, offers or provides services to Wyoming residents, for personal, family or household use, through any medium including, but not limited to, internet or other electronic means.

    40-22-104. Exemptions.

    (a)          This act shall not apply to:

    (vi) Buying, selling, issuing, or taking custody of payment instruments or stored value in the form of virtual currency or receiving virtual currency for transmission to a location within or outside the United States by any means;

    Under this statutory scheme two things are clear:  (1) the general rule is that the transmission of “money or monetary value” still requires a money transmitters’ license, however (2) the receipt and transmission of virtual currency is expressly excluded from the entire money transmitter statute.  To the extent that one receives and then subsequently transfers Bitcoin, one may do so freely in Wyoming without a license.

    The package of legislation as a whole is indeed encouraging from a “business climate” standpoint.  In addition to the above provision (among others that, for example, make clear that one can have property rights in one’s digital currency under UCC law), a provision that creates a new type of Special Purpose Depository Institutions intended to handle crypto-related business and assets should be very interesting in the upcoming years.  These institutions are intended to bridge the gap between the traditional financial system (including connection to the federal reserve) and the crypto world.  Further, Wyoming has created a regulatory “sandbox” not unlike what Switzerland and Canada have done to avoid quashing FinTech developments and new ideas.

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