How to Trade Bitcoins and NOT Get Arrested

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Bitcoin is a decentralized currency that may not be fully regulated by the government yet, but is certainty monitored to various extents because of its vulnerability in the system. It is also important to point out that with the growth of Bitcoin around the world creates more pressure and attention on governments to create more regulations for this currency.

But just because there is no permanent ruling on Bitcoin by various governments at this moment, this doesn’t mean you are completely safe to use Bitcoin without doing some research on safe practices.

Before getting too far in this article, I want to point out that regulations are different in every country, and even state-to-state. Much of this information is useful for Bitcoin traders located in the United States, however it is also useful for anyone to read this article to understand the importance of regulations that you may or may not be aware of.

If you do a simple Google search on arrests with Bitcoin, you will find many cases of people being arrested for their activities in which they used Bitcoin. Some of these examples are drug operations, illegal gambling operations, and underground black market networking to move money. These are more serious offenses that should be pretty obvious to many of us with what not to do with Bitcoin, because it will catch up to you in a bad way.

Here is one pretty horrifying story about a man who got arrested in his house because he didn’t have a business license for trading Bitcoins. Another example is of course the story of Charlie Shrem.

With many of the obvious reasons out there that can get you arrested with using Bitcoin, we get to the not so obvious reasons. In many jurisdictions, more specifically in the United States, trading and selling Bitcoin can qualify you as a “Money Transmitter”. This would require you by law to register as a Money Service Business even if you do not own your own business. The Financial Crimes Enforcement Network, otherwise known as FinCEN, imposes the regulations. FinCEN is run by the United States Department Of Treasury.

After registering with this platform, you would also have to register with the BSA-E-Filing System. The BSA-E-Filing System is the main platform for filing all types of forms in regards to your Bitcoin activity. BSA stands for the “Bank Secrecy Act”. There has been changes over the years, but at this point in time you can actually file for your Money Service Business License through the BSA-E-Filing System on FinCEN’s website.

This can all seem really confusing especially if you are just starting out, but this information is really important to run a safe operation even if its small. I also want to stress again that this process is geared towards the United States, and other countries will have other platforms in place for this behaviour.

Many users including myself use Bitcoin as a means of trading and selling for a small profit. The most popular site many Bitcoin traders use is localbitcoins.com. If you are successful enough and can do enough volume, some traders are able to make a very large considerable amount of money per day.

Although this doesn’t seem like a stressful process, one day you could literally wake up to the FBI knocking on your door and taking you in for questioning. That sounds a little drastic, but that’s actually happened to a few traders on these platforms because they have failed to report required transactions and obtain their Money Service Business License.

Now that I’ve most likely scared some of you away from trading Bitcoin, let me reel you back in with some good things. First off, you have around 90+ days since your first Bitcoin trade to register as a Money Service Business. If you plan on trading and using this method to make some profits numerous times, you should register as soon as possible. If you find that this is a one-time thing that will most likely not happen again, then I wouldn’t waste your time going through this process, as you are not entirely considered a Money Service Business.

For those that do fall into the category of being a Money Transmitter, these regulations imposed are in place for good reasons and are actually for your protection. Imagine selling $2,000 worth of Bitcoin to a user who then goes on to become a wanted terrorist? If you did not report your transactions, and were not registered as a MSB with your own BSA/AML policy in place, you could get in some serious trouble and do hard time.

A BSA/AML policy in simple terms is called a Bank Secrecy Act, and Anti-Money Laundering policy. You are required as a registered Money Service Business to have this policy in place. The policy is an outline of your operation, and how you function, understand, and apply the laws of FinCEN and the government to your operation.

The BSA-E-Filing System is separate from a BSA/AML policy. The system allows you as a trader to physically report any suspicious activity, and currency transactions reports, and that’s really for protection and security. Here are some examples of real life cases where traders were arrested and prosecuted for failure to implement and follow legal procedures by law when it comes to Bitcoin.

Although most of the BSA-E-Filing System forms are not required for transactions under $2,000, if you get scammed, or suspect someone is using Bitcoin for illegal activity, you can still file a suspicious activity report and give the BSA system all the required information. This protects you as a trader especially if that user gets in some serious trouble with the law, or you simply want to report their behavior as fraudulent.

Now that you are aware of some of the things that happen with trading and selling Bitcoin, lets review step by step what you should consider to abide by the law.

1)        View the rules and regulations set by your jurisdiction when it comes to Bitcoin or Digital Currency. For example, the above article relates more towards the regulations imposed in the United States, so if you live in a different country you should do some research!

2)        Determine whether your activities with Bitcoin qualify you as a money transmitter or a money service business.

3)        Register yourself as a Money Service Business with the BSA-E-Filing system through FinCEN.

4)        Develop a BSA/AML policy. You should google these terms to become more affiliated with their importance. This really narrows down as having a step by step policy explaining that you know the rules and regulations of the law, and how you abide by them as a Money Service Business. Coinbase and other exchanges will require this policy once their team catches on that your activities are amongst a Money Service Business.

5)        Learn about the forms that are located in the BSA-E-Filing System. CTR’s, SAR’s are the two main forms for reporting transactions. Being associated with this system is really important, as this is your means of functioning legally as a company. Keep in mind that even small traders can use this tool to operate when it comes to reporting suspicious activity if someone is a fraud, or scams you.

At the end of the day, most of us really strive to find ways to make some extra money using Bitcoin. Selling and trading is one of the most popular methods, and making sure you are operating legally will actually make you a more recognized trader that people will want to work with. This topic can truthfully go on for 40 pages of details, however every trader is different, therefor what one person may do, is not necessarily the same for everyone. This is why I urge anyone to find out their rules and regulations in their own jurisdiction.

If anyone has specific questions or needs guidance in to this matter, you can always seek out an accountant or a lawyer. This can be very expensive, so I have been in the works of a new website overhaul which specifically helps Bitcoin users in this subject matter without the insanely high costs to speak to a lawyer. It is also required to have a third party review your BSA/AML policies, so you can even reach out to me if its in regards to that. I myself even had to reach out to another company to have my policies reviewed and edited.

Even if you just have simple questions, just shoot me an email through the contact page on the temporary website listed above. You can also leave a comment on this page as well. If you have any additional details about regulations in your country or jurisdiction, please post them! It’s always good to educate not only myself outside of what I know, but everyone else as well.

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Ofir Beigel

Owner at 99 Coins ltd.
Blogger and owner of 99Bitcoins. I've been dealing with Bitcoin since the beginning of 2013 and it taught me a lesson in finance that I couldn't get anywhere else on the planet. I'm not a techie, I don't understand "Hashes" and "Protocols", I designed this website with people like myself in mind. My expertise is online marketing and I've dedicated a large portion of 99Bitcoins to Bitcoin marketing.

6 Comments

  1. Hi guys I’m from brazil so I have a question: if I trade or sell bitcoins at CoinBase (or any bitcoin exchange located in US) or in LocalBitcoins, do I’m required to register as a MSB even if I’m not a US resident? (I live in brazil) if so, what are the alternatives to trade or sell bitcoins legally without registering as a MSB? using an exchange located in my country? what? Thanks

  2. ok, and where is the anonymity and decentralization in this?

    also, is bitcoin recognized as a currency in the united states? NO!
    then all the article above is pure BULLSHIT!

    you were paid to either scare people off or forced to be “registered” so they can easily be monitored, huh?

    • Ofir Beigel on

      I’m not sure all Bitcoin users are in it for the anonymity. My guess is that some are in it just for profit. Of course following this process will basically remove the anonymity for the currency. Regarding your other point, I’m not sure I understand what you’re getting at – meaning why is the fact that Bitcoin isn’t recognized as a currency in the US make this complete BS ?
      Also, I’m not sure you’re right about this, take a look here: https://en.wikipedia.org/wiki/Legality_of_bitcoin_by_country#United_States.

      And finally, no. I am not paid to scare off anyone, the whole point of this article was to get people acquainted with the current status. I strongly feel that this status should change (I have a feeling you do as well).

    • BTC User, Bitcoin by the regulations of FinCEN is considered a “transfer of funds”, that is why traders are required to register as a money service business atleast in the United States. It does not need to be considered “currency” for the means of reporting and registering. In regards to anonymity, thats becoming extremely difficult especially when most of the large exchanges come with strict KYC policies, some even requiring you to be a MSB just to use their platform. The IRS also wants their money if you’re making a considerable amount without reporting.

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