The US Financial Crimes Enforcement Network (FinCEN) has ruled that businesses using Bitcoin’s blockchain to transfer precious metals are considered money transmitters.
The ruling came in response to an inquiry from an unnamed company, which engages in the brokerage and storage of precious metals. It issues a “digital proof of custody”, registered on Bitcoin’s blockchain, through which the customer can then transfer ownership.
During the past year, numerous startups have sprung up offering consumers the ability to trade precious metals via Bitcoin’s technology, which may make what was once a cumbersome procedure far easier.
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FinCEN ruled that the company is both a money transmitter and a dealer in precious metals, precious stones, or jewels, and is thereby subject to the regulations of both regimes. For example, the business must assess the risk of money laundering arising out of non-exempt transactions and implement an anti-money laundering (AML) program to mitigate such risk. In addition, the company is subject to recordkeeping, reporting, transaction monitoring requirements.
FinCEN argued that the fact the Bitcoin blockchain powers the transfers does not absolve the business outside the realm of money transmitters. In a letter, it explained:
“The Company does not fall under the e-currencies or e-precious metals trading exemption from money transmission because, when the Company issues a freely transferable digital certificate of ownership to buyers, it is allowing the unrestricted transfer of value from a customer’s commodity position to the position of another customer or a third-party, and it is no longer limiting itself to the type of transmission of funds that is a fundamental element of the actual transaction necessary to execute the contract for the purchase or sale of the currency or the other commodity.”
The classification as a dealer in precious metals, precious stones, or jewels was more straightforward.