The following post is a guest post by Joe Ciccolo, the Founder & President of BitAML. He can be reached at [email protected].
There’s a great deal of excitement around the bitcoin ATM space. And why not? Terminals are popping up all over the United States, and around the world. Since this time last year, the number of bitcoin ATMs has risen by over 55%. Of this growth, 20% has occurred in Q1 of 2016 alone. Every day, two new terminals come online somewhere in the world.
The appetite among both consumers and bitcoin ATM operators is undeniable. Consumers enjoy a simple, user-friendly, and familiar onramp. The sale of fiat paper currency for bitcoin can be completed within a matter of seconds. To the consumer, especially bitcoin regulars, these new age vending machines have become a popular alternative to bitcoin exchanges, which tend to suffer from longer processing times, stricter controls, and arguably colder customer service. For operators, the barriers to entry are much lower in comparison to most bitcoin business models, not just bitcoin exchanges. Rather than coding an app and developing cumbersome infrastructure, as an operator you simply purchase your technology from a bitcoin ATM manufacturer.
This is the complete list of Bitcoin ATM manufacturers available today. ATMs vary from one another in size, price and functinality. For example, some ATMs can only accept Fiat and dispense Bitcoins. Others also allow you to send in Bitcoins and get Fiat in return.
So All that’s left to do is find a location and plug ‘er in, right? Wrong! Ordering and taking delivery of your terminal should be one of the last steps in your business planning. AML compliance should be step one! Yes, that’s right, I said it…“AML compliance should be step one”. All too often, aspiring operators call me because their bitcoin ATM is arriving tomorrow and they heard something about needing AML compliance. Strange as this may sound, it happens all the time. While operating a bitcoin ATM is an exciting and potentially lucrative business, the terminal is not going to make you any money collecting dust in your apartment while you scramble to get your compliance affairs in order.
So, where does a future bitcoin ATM operator begin? Below are four key elements around which to build your compliance strategy prior to launch.
1. Identify and research money transmitter requirements in the state or states within which you plan to operator your terminal(s)
It’s important to understand that some states are friendlier to bitcoin ATMs, or bitcoin in general, than others. This could mean the difference between a comprehensive and costly state licensure process and an exemption under state money transmitter law. The differences are as vast as they are ever-changing. States continue to evolve their application of existing and antiquated money transmission law. As we speak, several states have pending legislation aimed at redefining money transmission so as to accommodate bitcoin companies. That said, it’s vital to understand the requirements in your state. For starters, the non-profit bitcoin research and advocacy group, Coin Center, publishes a helpful real-time state regulatory tracker.
2. Register as a money services business (MSB) with the Financial Crimes Enforcement Network (FinCEN)
It might be difficult to believe, but registering with FinCEN, the nation’s top money laundering watchdog, might be the easiest compliance task. It’s literally a “check-the-box” activity. Indeed, in contrast to the permission-based state licensure process, at the federal level, entities merely register with FinCEN via online portal. The process can typically be completed in under an hour.
While registering with FinCEN is a simple exercise, it comes with much responsibility. By checking the boxes, so to speak, you are agreeing to be regulated by FinCEN and thus meet certain requirements to the satisfaction of regulators. This includes, among other things, registering at the state-level, if applicable; developing and implementing an anti-money laundering (AML) program; retaining certain transactional information; and, reporting suspicious activity and transactions over $10,000.
3. Develop and implement an anti-money laundering (AML) program
FinCEN regulation requires implementation of a written AML program. An effective AML program is one designed to prevent your bitcoin ATM from being used to facilitate money laundering activities. Each AML program must be in writing and address, at minimum, the “four pillars” as follows:
Incorporate policies, procedures, and internal controls reasonably designed to assure compliance with the Bank Secrecy Act (BSA)
Designate a compliance officer responsible for day-to-day compliance with the BSA and AML program.
Provide ongoing, targeted training to appropriate personnel concerning their responsibilities under the AML program.
Provide for an independent review or audit of your AML program on an annual basis, at minimum
FinCEN provides bitcoin ATM operators with detailed information on each of the “four pillars”, including specific recordkeeping and reporting requirements.
4. Test your AML program, customer and transactional controls
Alright, you have a robust AML program in place. Now it’s time to test your AML controls before going live. Start by running some sample transactions from your bitcoin wallet through the terminal(s). Be sure to test your thresholds to ensure that proper know your customer (KYC) requirements are triggered, as well as any “red flag” indicators of potentially suspicious or unusual activity. Be sure to confirm that customer and transaction information is properly obtained and recorded. In so doing, document your findings, especially any subsequent changes to your AML program as a result of this testing.
The above elements should help you jump start your AML compliance, and ultimately the launch of your bitcoin ATM business. The importance of compliance from day one cannot be overstated. Further, compliance should grow with your business not be an afterthought or a mere check box in your overall business plan.
Compliance is in many ways an ethos; it’s how you conduct your business. That’s why BitAML has partnered with 99Bitcoins to deliver free educational compliance resources to new and aspiring bitcoin entrepreneur. This includes our most recent e-book, “An Introduction to Bitcoin ATM AML Compliance”. Like 99Bitcoins, we believe in translating bitcoin, or in this case bitcoin compliance, into plain English.
[embeddoc url=”https://99bitcoins.com/wp-content/uploads/2016/04/BitAML_basic-BTM_ebook.pdf” height=”700px” download=”all”]
I need to do an AML compliance in spain for Kraken exchange to link with our first crypto machine and i don´t know how to do it, can you help me on this? thanks!!
I’ve registered a personal account with Kraken and that was no problem; they just wanted the usual proof of ID stuff.
However, registering as a business for the purposes of running a BTM sounds like a different proposition.
I really think your best option will be to speak with Kraken directly. I suspect they will require some extra information due to your circumstances.
Hello, I read your blog really nice. Please keep sharing like this.
Hello, I have a few questions and hope you can answer them.
OK, here goes. I live in Aruba and we don’t have any regulations or laws or anything when it comes to Cryptocurrency. The Central bank really don’t like the Idea of Cryptocurrency cause they believe it will be bad for the local banks. Now one important question is how much % profit would there be left over after paying everybody? NOT the lease of investment in the machine.
I assume need to pay for the software, the company with the bitcoins (or other currency) Wifi/internet is needed. How much money is needed to put in the machine.
The most important question is is it worth it % wise?
A Bitcoin machine is of course e good money laundering form. If someone goes to the machine everyday and buys $50.000 in bitcoins, how are they going to monitor this?
Hope it was not to long…sorry.
No problem. I can’t really answer your question with any kind of specifity as pretty much everything depends on your situation. What machine you buy, how many clients it gets per day, how much your clients trade, your rental fees for the area and so on…
Luckily, there’s a calculator online to answer your question! You just plug in all the data you have and your best estimates and it’ll give you answers for profitability. Here’s the link:
do all the laws and compliances apply to small one way units like bitellers we wish to have one in our office? we are based in Tobago and dont want to get into anything we dont have too
I’m not sure of Bitcoin’s legal status in T & T, there is no info given on this link wich tracks such things:
Your central bank did issue a warning on the risks of Bitcoin some years ago, but no specific regulations were made.
Another thing to bear in mind is that the Biteller devices don’t accept all types of currency notes. You should check with the company that you local currency is supported, otherwise customers will have to pay with USD and the like.
What banks are creating business accounts for these ATM companies?
Hi Dax, the legal status of Bitcoin is different in each country, where the regulation is more tolerant, banks can open accounts for these companies too.
Thanks for the answer Zsofia, do you know of any in the United States specifically?
There are many crypto ATMs here but information on what banks they are using is especially difficult to find.
Unfortunately, I am not familiar with the local regulation, also the treatment of cryptocurrencies even different between the US states. You could reach out to an ATM provider and ask for their suggestion when choosing a bank for operation.
Are you saying that all operators of virtual currency vending machines are money transmitters?
Operating a cryptocurrency ATM can be considered as money transmitting service in couple of countries and US states. This is why it is advised at the beginning of the article to understand the local regulation before starting such a business.