The United States District Court in Maryland has issued a Seizure Warrant against a company called Mutum Sigillum (which seems to be Latin and mean something like “silent seal”). The Warrant authorizes to seize funds of Mutum Sigillum stored at the Dwolla account No. 812-649-1010.
Dwolla operates an online payment service that is open only to residents of the United States. See their Terms of Service, which state:
Dwolla may only be used in connection with United States Financial Institutions: User funds must originate at a United States Financial Institution, and Dwolla will only instruct Veridian to transfer funds to a United States Financial Institution associated with the appropriate Dwolla User.
Mutum Sigillum is an American company owned by Mark Karpeles, who also owns the World’s largest Bitcoin exchange Mt.Gox, located in Japan right next door to my university.
The warrant is accompanied by an affidavit (a sworn statement of facts) by a Special Agent of “Homeland Security Investigations, U.S. Immigration and Customs Enforcement”. This Affidavit is not only a statement of fact, but it also explains some legal theories behind the application for the Seizure Warrant.
The Affidavit establishes that a “Confidential Informant (CI-1)” residing and banking in Maryland was able to send some funds to himself, with Mutum Sigillum and Mt.Gox involved in the process.
In detail: CI-1 opens accounts at Dwolla and at Mt.Gox. CI-1 funds his Mt.Gox over Dwolla. CI-1 buys some Bitcoins at Mt.Gox. CI-1 sells Bitcoins on Mt.Gox, getting back to dollars at his Mt.Gox account. CI-1 directs Mt.Gox to send these dollars to his Dwolla account, where they are right now.
So, the Affidavit has shown that CI-1 was able to send these dollars to himself over this elaborate process.
But, unless I am missing something here, that is not what one could reasonable describe as “transmitting money”. You would need some other party that actually receives funds for that.
This is similar to sex. You are supposed to do it with someone else involved.
The relevant American statute, 18 USC § 1960, helpfully provides a definition of “money transmitting”.
(2) the term “money transmitting” includes transferring funds on behalf of the public by any and all means including but not limited to transfers within this country or to locations abroad by wire, check, draft, facsimile, or courier;
“Transfer funds” means getting them to someone else. The only one doing that in this case is Dwolla. Both CI-1 and Mutum Sigillum are just normal users of the money transmitting service Dwolla provides.
The recent FinCen Guidance of March 2013 makes in principle the same point:
The term “money transmission services” means “the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means.” (Emphasis added).
CI-1 transferred the funds to himself. No other person involved. And he transferred them from Maryland to Maryland. No other location involved.
The above analysis is just common sense. Mt.Gox is a user of money transfer services, not a provider. If they were still dealing in “Magic the Gathering” cards that would be even more evident. But the fact that they are operating an exchange in Bitcoin doesn’t change that fact.
The March FinCen “Guidance” has some more specific language on Bitcoin, which is rather confusing. Here it is:
A person that creates units of this convertible virtual currency and uses it to purchase real or virtual goods and services is a user of the convertible virtual currency and not subject to regulation as a money transmitter. By contrast, a person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter. In addition, a person is an exchanger and a money transmitter if the person accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency.
One could indeed read this as meaning that in the opinion of FinCen, operating an exchange (like Mt.Gox) does, means that they are also in the business of transmitting money.
If so, such an opinion is entirely without merit.
Sure, if CI-1 buys a Bitcoin from some other third party (TP), then Mt.Gox transfers that Bitcoin from TP to CI-1, and the dollars in CI-1′s account to TP.
But that is an exchange of things of equal value, at the market price when that exchange happens. It transfers exactly zero funds from CI-1 to TP, and exactly zero funds from TP to CI-1.
Even if it was possible to somehow get away with this overly broad construction of 18 USC § 1960 the Application for the Seizure Warrant seems to assume, there is the added question why a Japanese company operating in Shibuya, Tokyo, would be obliged to follow this American law. Didn’t the American occupation of Japan end in 1952?