Department Focuses on Transfers of Virtual Currency

On August 8, 2022, the District of Columbia Department of Insurance, Securities and Banking (the Department”) issued a Bulletin on money transmission (the “Bulletin”).  The Department issued the Bulletin to ensure that parties “engaging in or planning to engage in money transmission with Bitcoin or other virtual currency used as a medium of exchange, method of payment or store of value in the District,” understand that such transactions “require a money transmitter license.”

In support of its position, the Department highlights the July 2020 decision of the U.S. District Court for the District of Columbia in United States v. Larry Dean Harmon, 474 F.Supp.3d 76 (D.D.C. 2020).  In Harmon, the court noted that the D.C. Money Transmitters Act of 2000 (“MTA”), D.C. Code §26-1001 et seq., does not define the term “money.”  The court therefore relied on the common definition of the term “money,” namely a “medium of exchange, method of payment or store of value.”  Finding that Bitcoin was a medium of exchange under this definition, the court determined Bitcoin was “money” for purposes of the MTA.

The court also noted that the MTA specifically defines some specialized banking and financial terms, but the term “money” was left undefined.  In the court’s view, this demonstrated a lack of legislative intent for the term “money” to have a specialized definition for purposes of the MTA.   As such, the court reasoned that the goal of the MTA is to regulate all kinds of transfers of funds, whether fiat currency, virtual currency or cryptocurrencies.  The Harmon case was the first case in the District of Colombia targeting virtual currency mixer operations.  The second case, following in the wake of Harmon, was the arrest of Roman Sterlingov as an unlicensed money transmitter for his alleged role as the founder and operator of Bitcoin Fog, a cryptocurrency “tumbler” or “mixer” aimed at concealing the source of funds.

Treating cryptocurrencies as money, the Department states in the Bulletin that it “views the transactions where entities receive for transmission, store, and/or take custody, of Bitcoin and other virtual currencies from consumers via kiosks (aka BTMs), mobile applications and/or online transactions, as engaging in the business of ‘money transmission.’  Such entities require a money transmitter license to operate in the District.”  The Department also states that the application process for a money transmission license is “fact-driven, and whether an entity is considered a money transmitter requiring a license to operate in the District depends on the facts and circumstances of each applicant, including, but not limited to, the applicant’s proposed business plan and proposed flow of funds.  Additionally, information about an applicant’s business model may also be required in order to make a determination on whether to grant a money transmitter license.”

Finally, the Department states that it “does not view transactions where entities proposing to sell and buy Bitcoin and other virtual currencies and cryptocurrencies from consumers in exchange for cash payments via kiosks and/or online transactions as engaging in the business of ‘money transmission.’”

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