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Anti-Money Laundering Law
Under federal law, if you operate a bitcoin exchange or bitcoin ATM, the Bank Secrecy Act (“BSA”) requires you to have a formal anti-money laundering (“AML”) program in place. You must identify your customers, monitor their transactions and file reports on any suspicious activities.
Bankruptcy trustees are now administering bitcoin assets in bankruptcy estates. In February 2016, a bankruptcy court ruled that bitcoin was not considered U.S. currency for purposes of a potential avoidance of a pre-bankruptcy transfer under 11 U.S.C. § 550(a).
Since 2015, the Commodity Futures Trading Commission (“CFTC”) has defined bitcoin and other virtual currencies as commodities that are subject to CFTC prohibitions on interstate fraud and manipulation. In 2017, the CFTC determined that, ICO tokens can be regulated as derivatives contracts.
Estate Planning Law
Each state has its own laws governing trusts, estates and probate administration. If you want to convey virtual currency to your heirs, you will need to include in your estate planning documents the private keys of your accounts and certain specific instructions to the personal representative or successor trustee.
Money Transmitter Licensing Law
In most states, a bitcoin exchange is deemed to be a money transmitter that is subject to the same state licensing and regulation requirements as other money transmitters. In certain states, bitcoin ATM vendors are exempt from state licensing requirements.
Complex federal and state securities laws can apply to the sale of ethereum-based tokens that are “investment contracts.” As a result of these laws, initial coin offerings (“ICOs”) are frequently only made to wealthy “accredited investors” under the SEC Rule 506 private offering exemption.
Virtual currency, such as bitcoin, is taxed by the IRS as “property.” It is not treated by the IRS as currency for tax purposes. Consequently, you will need to (i) keep detailed records and (ii) pay taxes on any gains realized when you either sold bitcoin for cash or purchased a product with bitcoin. More >