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More and more federal and state agencies are weighing in on virtual currency.  Here’s what they are saying:

Financial Crimes Enforcement Network (FinCEN):

  • FinCEN Statement on Providing Banking Services to Money Services Businesses (Nov. 10, 2014)
  • Request for Administrative Ruling on the Application of FinCEN’s Regulations to a Virtual Currency Payment System, FIN-2014 (Oct. 27, 2014)
  • Request for Administrative Ruling on the Application of FinCEN’s Regulations to a Virtual Currency Trading Platform, FIN-2014-R011 (Oct. 27, 2014)
  • Application of Money Services Business regulations to rental of computer systems for mining virtual currency, FIN-2014-R007 (Apr. 29, 2014)
  • Whether a Company that Offers Secured Transaction Services to a Buyer and Seller in a Given Sale of Goods or Services is a Money Transmitter, FIN-2014-R005 (Apr. 29, 2014)
  • Application of FinCEN’s Regulations to Virtual Currency Mining, FIN-2014-R001 (Jan. 30, 2014)
  • Application of FinCEN’s Regulations to Virtual Currency Software Development and Certain Investment Activity, FIN-2014-R002 (Jan. 30, 2014)
  • Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies (Mar. 18, 2013)

Jennifer Shasky Calvery, Director FinCEN:

U.S. Securities and Exchange Commission (SEC):

Internal Revenue Service (IRS):

David S. Cohen, Under Secretary of Terrorism and Financial Intelligence:

U.S. Immigration and Customs Enforcement:

U.S. Department of Homeland Security:

United States Senate, Committee on Homeland Security and Governmental Affairs:

U.S. Government Accountability Office (GAO):

Conference of State Bank Supervisors:

Financial Action Task Force (FATF):

Here’s is what the states are saying:

Alabama Securities Commission

California Department of Business Oversight:

California Assembly:

Connecticut Department of Banking, Securities and Business Investments Division:

Florida Office of Financial Regulation:

Kansas Office of the State Bank Commissioner:

Illinois General Assembly:

  • House Bill 5886 — Bill would amend the Transmitters of Money Act to define “virtual currency” as a medium of exchange that operates like currency in some environments, but does not  have all the attributes of real currency.

Maryland Commissioner of Financial Regulation:

Massachusetts Consumer Affairs and Business Regulation

  • National Study Finds Consumers Aware of Virtual Currency, but Have Concerns (Aug. 27, 2014)

State of Nevada Department of Business & Industry:

  • Nevada Financial Institutions Division issues consumer and investor guidance on virtual currency (Apr. 25, 2014)

New York State Department of Financial Services:

  • Excerpts From Superintendent Lawsky’s Remarks On Virtual Currency and Bitcoin Regulation in New York City (Oct. 14, 2014)
  • Proposed New York Codes, Rules and Regulations, Department of Financial Services, Virtual Currencies (Jul. 2014)
  • In the Matter of Virtual Currency Exchanges, Order Pursuant to New York Banking Law §§ 2-b, 24, 32, 102-a, and 4001-b and Financial Services Law §§ 301(c) and 302(a) (Mar. 11, 2014)

Texas Department of Banking:

  • Supervisory Memorandum ¾ 1037 (Apr. 3, 2014)

Washington State Department of Financial Institutions:

State Wisconsin, Department of Financial Institutions:

  • State agency warns consumers to be cautious with virtual currencies (Apr. 30, 2014)

Others:

Isle of Man, Department of Economic Development:

Here’s is what other countries are saying:

Canada’s Federal Government:

Isle of Man:

Swiss Financial Market Supervisory Authority (FINMA):

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Join members of Pillsbury’s leading Virtual Currency practice, partners, James Gatto, and Deborah Thoren-Peden, to understand and analyze some of the key legal and business issues related to Bitcoin and other crypto-currencies. This webinar will highlight the history of Bitcoin and other digital currencies and associated unique business models. They will also address the latest developments in digital currency regulation and enforcement.

Topics will include:

  • Background on Bitcoin and other crypto-currencies and the use of emerging, virtual currency-based business models
  • Overview of the virtual currency legal issues (federal, state, international)
  • Ramifications of recent IRS ruling
  • Update on FINCEN Guidelines
  • Recent enforcements and regulatory actions

bitcoins.png

 

 

 

 

Tuesday, April 22, 2014
12:00 pm PT
3:00 pm ET

Webinar

RSVP by April 21
Please register for this complimentary presentation to receive log-in/dial-in information.

PARTICIPANTS
James G. Gatto, Partner, Social Media, Entertainment & Technology – Pillsbury
Deborah S. Thoren-Peden, Corporate & Securities, Pillsbury

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The IRS has issued its first major ruling on the U.S.
federal tax implications of transactions in, or transactions that use, Bitcoin and other convertible virtual currencies.
The ruling stresses that it relates to convertible virtual currencies. The legal landscape with respect to Bitcoin and other convertible virtual currency continues to evolve at a more rapid pace. Last March, FinCEN issued its now famous virtual currency guidance. Shortly thereafter, a number of high profile enforcements ensued.  If history is any lesson, it is likely that following this ruling will likely will be followed by some tax enforcements. Therefore, miners, exchanges, businesses transacting in Bitcoin and others dealing with virtual currencies should promptly assess this guidance and ensure compliance.The IRS made clear that penalties apply for failure to timely comply. This should be of particular concern to the extent the ruling is applied retroactively.

Among other things the IRS has stated:

One of the most significant pronouncements of the notice is that the IRS has determined that virtual currency is treated as property for U.S. federal tax purposes and therefore  general tax principles that apply to property transactions apply to transactions using virtual currency.  The notice indicates that this means that:

  • Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.
  • Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply.  Normally, payers must issue Form 1099.
  • The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
  • A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.

Additional points made by the IRS include the following:

  • Convertible virtual currency is a virtual currency that has an equivalent value in real currency,
    or that acts as a substitute for real currency, such as Bitcoin
  • The sale or exchange of convertible virtual currency, or the use of convertible virtual currency to pay for goods or services in a real-world economy transaction, has tax consequences that may result in a tax liability.
  • Virtual currency is NOT treated as currency for purposes of determining whether a transaction results in foreign currency gain or loss under U.S. federal tax laws.
  • For purposes of computing gross income, a taxpayer who receives virtual currency as payment for goods or services must include the fair market value of virtual currency received as measured in U.S. dollars, as of the date that the virtual currency was received.
  • The basis of virtual currency received as payment for goods or services is the fair market value of the virtual currency in U.S. dollars as of the date of receipt.
  • For U.S. tax purposes, transactions using virtual currency must be reported in U.S. dollars using the fair market value of virtual currency  as of the date of payment or receipt.
  • If the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the virtual currency, the taxpayer has taxable gain. The taxpayer has a loss if the fair market value of the property received is less than the adjusted basis of the virtual currency.
  • A taxpayer generally realizes capital gain or loss on the sale or exchange of virtual currency that is a capital asset in the hands of the taxpayer and realizes ordinary gain or loss on the sale or exchange of virtual currency that is not a capital asset
    in the hands of the taxpayer (e.g., inventory and other property held mainly for sale to customers in a trade or business).
  • Mining virtual currency triggers gross income at the fair market value of the virtual currency as of the date of receipt.
  • If a mining of virtual currency constitutes a trade or business,
    and the “mining” activity is not undertaken by the taxpayer as an employee, the net earnings from self-employment (generally, gross income derived from carrying on a trade or business less allowable deductions) resulting from those activities constitute self-employment income and are subject to the self-employment tax.
  • Payments in virtual currency received for services performed as an independent contractor constitute gross income, if related to any trade or business carried on by the individual as other than an employee, at the fair market value (in U.S. dollars)  as of the date of receipt and constitutes self-employment income and is subject to the self-employment tax.
  • The fair market value of virtual currency paid as wages is subject to federal income tax withholding, Federal Insurance Contributions Act (FICA) tax, and Federal Unemployment Tax Act (FUTA) tax and must be reported on Form W-2, Wage and Tax Statement.
  •  Payments made using virtual currency is subject to information reporting to the same extent as any other payment made in property (e.g., payments in virtual currency with a value of $600 or more for fixed and determinable income including rent,
    salaries, wages, premiums, annuities, and compensation).
  • A person who in the course of a trade or business makes a payment of $600 or more in a taxable year to an independent contractor for the performance of services is required to report that payment to the IRS and to the payee on Form 1099-MISC, Miscellaneous Income.
  • Third party settlement organizations are required to report payments made to a merchant on a Form 1099-K, Payment Card and Third Party Network Transactions, if, for the calendar year, both (1) the number of transactions settled for the merchant exceeds 200, and (2) the gross amount of payments made to the merchant exceeds $20,000.
  • Taxpayers may be subject to penalties for failure to comply with tax laws (e.g., underpayments attributable to virtual currency transactions such as accuracy-related penalties under section 6662, and failure to timely or correctly report virtual currency transactions when required to do so under section 6721 and 6722).
    However, penalty relief may be available to taxpayers and persons required to file an information return who are able to establish that the underpayment or failure to properly file information returns is due to reasonable cause.Conclusion

    If you have any questions, Pillsbury has one of the leading virtual currency practices in the country. Our team of over 70 professionals includes a number of tax specialists.

 

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Inside Bitcoins.png
Explore the Future of Bitcoins

After taking Inside Bitcoins to Las Vegas this past winter, this definitive Bitcoin event is returning to New York City, April 7-8 at the Javits Convention Center. Join us in New York City as our industry experts, business visionaries, and virtual currency veterans converge to analyze the first digital, decentralized, peer-to-peer based global currency. These thought leaders will also share their insights and knowledge on the implications of bitcoin, along with predictions on what lies ahead. Whether you’re a venture capitalist, lawyer, technologist, entrepreneur, regulator, cryptographer,
payment pioneer, or public policy expert, our agenda offers the latest intelligence for everyone and anyone interested in learning more about bitcoin.
Can bitcoin carve out a significant place for itself alongside today’s mainstream payment technologies? What technical and regulatory obstacles does bitcoin need to overcome? Will large-scale bitcoin mining help to push the price of bitcoins higher? Is bitcoin going to save the global economy, or is it today’s answer to 17th-century tulip mania? Be sure to attend Inside Bitcoins and get answers to all of your burning questions!

Who Should Attend?
Anyone with a vested interest in bitcoins and other virtual currencies, including:

  • Developers
  • Entrepreneurs
  • Financial professionals
  • Private equity, corporate, angel and venture capital investors
  • Banks and financial institutions
  • Brick-and-mortar merchants and online retailers
  • Credit and loyalty solution providers
  • Consultants
  • Daily deal and group buying networks
  • Data and payment processors
  • Legal professionals
  • Security solution providers
  • Founders of early stage and emerging growth companies

PARTICIPANTS

James G. Gatto, Partner, Social Media, Entertainment & Technology, Pillsbury
Deborah Thoren-Peden, Leader, Consumer &
Retail; Co-Leader, Privacy, Data Security & Information Use, Pillsbury

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Originally seen in
MoneyBeat – a Wall Street Journal blog.

One thing we can tell you about the Mt. Gox bankruptcy case: It won’t be like any other bankruptcy case you’ve seen.

MoneyBeat had a very enlightening and interesting talk with Christopher Mirick, a partner at the bitcoin1.pnginternational law firm Pillsbury Winthrop Shaw Pittman, operating in the firm’s Insolvency & Restructuring practice. He is also one of two educational directors at American Bankruptcy Institute’s international committee and co-author of the book “Strategies for Creditors in Bankruptcy Proceedings.”

One point he made,
that seems obvious in retrospect, is that there’s never quite been a bankruptcy case like this one. It involves a new technology, a company that seemed to operate with only a few employees and almost no presence in the countries across the globe where it did business, and questions of cross-border bankruptcy law.

What follows is a paraphrased version of our conversation.

How messy is this bankruptcy going to be?

It’s going to be “very messy,” Mr. Mirick said. There are a couple of things to think about. For one thing, Mt. Gox has creditors all over the world. Of their roughly 130,000 creditors, only about 1,000 are in Japan. According to Mt. Gox, they don’t have U.S. bank accounts. “So what’s a person in Illinois going to get? There’s nothing there,” Mr. Mirick said.  Mt. Gox did business in a lot of places where it didn’t have any physical existence. “What’s there to recover?”

Is your firm involved in the case?

Mr. Mirick said this kind of case would be “up our alley,” but the firm isn’t currently involved, although it does have a Tokyo office. “But we would jump at the chance.”

Why’s that?

“You’ve never had a case like this.” It involves a cutting-edge technology, and questions about cross-border enforcement of bankruptcy proceedings. Mr. Mirick pointed to Lehman Brothers, for comparison [a case that, we’d note is still being settled.] Unlike Mt. Gox, Lehman had entities in each jurisdiction where they operated. “This [Mt. Gox] is just like a couple of guys with some computers who happened to be in Japan, and handling half a billion dollars that went missing.”

What can a creditor hope to recover?

Mr. Mirick said creditors of Mt. Gox should be looking for a way to track the money and bring it back, if possible. They should also examine the timeline, for when the money first disappeared, he said. Was it three months ago? Six? “If they were making payments during that time, maybe you could claw some of that back.”

From the creditors’
point of view, Mr. Mirick said, somebody has to be blamed, whether it’s the Mark Karpeles, the directors, or the officers. That person or people may have insurance, if not assets, and creditors may be able to go after that, he added.

“But, for a company without physical assets, the ability to get a recovery is quite limited.”

 

Link to story: http://blogs.wsj.com/moneybeat/2014/03/05/mt-goxs-bankruptcy-case-will-be-unlike-any-other/

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MPL pic 2.jpgMany of us have been focused on cyber-security, especially in the wake of the recent data breaches over the holidays, among other things.  Two Maryland Law Enforcement Officers are leveraging the power of social media and the Internet to enable you to “Secure What’s Yours.”   In 2013, acting on their vision, they introduced an innovative approach to reuniting owners with their tangible personal property that was stolen or is missing, e.g., iPhones, Androids, laptops, iPads, TVs, etc., working with law enforcement officers across the nation.

My Property Locker‘s database allows its users to register valuables that are serialized or contain identifiable marks, enabling them to add pictures of the items along with a copy of their purchase receipts.  Its Apple and Android apps also allow users to scan product UPC codes as part of the registration process. If an item is stolen or comes up missing, the owner can report the loss to My Property Locker — according to My Property Locker, in 2011, there were an estimated 9,063,173 property crimes offenses across the nation, totaling an estimated $15.6 billion in losses.  Law enforcement officers across the U.S. are able to register with credential verification and to use the Police Advanced Search function to identify the owners of stolen or missing items.  Law enforcement officers and the property owners are then able to work together to reunite the owner with their stolen or lost property.  And, My Property Locker is free to consumers.

My Property Locker reports that it has been endorsed by the Maryland Crime Prevention Association and the Virginia Crime Prevention Association.  Additional information about My Property Locker is expected to be available on Officer.com.

Additional Sources:  YouTube, My Property Locker Tutorial – How to add/remove property; Facebook, My Property Locker; iTunes App Store; Google play Android App

Photo:  Courtesy of My Property Locker, All Rights Reserved

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On February 12, 2014, the National Institute of Standards and Technology (NIST) released the final version of its Framework for Improving Critical Infrastructure Cybersecurity (the “Cybersecurity Framework” or “Framework“) and the companion NIST Roadmap for Improving Critical Infrastructure Cybersecurity (Roadmap). The final version is the result of a year-long development process which included the release of multiple iterations for public comment and working sessions with the private sector and security stakeholders. The most significant change from previous working versions is the removal of a separate privacy appendix criticized as being overly prescriptive and costly to implement in favor of a more general set of recommended privacy practices that should be “considered” by companies.

Continue Reading →

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Both the Central Bank of Russia and the Russian Prosecutor General’s Office explained that the rouble is the country’s sole official currency and that the production of alternative monetary products, such as Bitcoin and other virtual currencies, is illegal under current law.  Russian regulators also warned that anyone who exchanges virtual currency for national or foreign currency, goods, or services will be treated as if they are potentially involved in suspicious activities, money laundering, or terrorism financing.

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Although many of you are obviously fascinated by the fast-paced virtual currency industry, trying to read a news article or blog can sometimes be incredibly difficult due to the sheer number of acronyms and terms of art commonly used by industry participants. The author of the attached document endeavored to capture the key acronyms, abbreviations and definitions relevant to the VC industry to assist you so that you can keep up with key developments. Still have questions or additional acronyms, abbreviations or definitions that you would like us to add? Please contact the author, Amy Pierce, or any of our Social Media & Games attorneys.

Check out our helpful guide here: Virtual Currency – Acronyms Abbreviations and Key Definitions

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The United States Attorney’s Office for the Southern District of New York announced the forfeiture of approximately 29,655 Bitcoins in connection with the seizure of the Silk Road website.  The Silk Road operated as a marketplace for illicit goods and services before it was shutdown in October 2013.  At the time the U.S. Attorney’s Office seized the Silk Road website and its servers, a large number of Bitcoins was found in a digital wallet stored on the website’s servers.  Since the seizure, no claims have been filed for the wallet, and on January 16, 2014, United States District Judge J. Paul Oetken held that the wallet was deemed forfeited to the U.S. Government.

A spokesman for the U.S. Attorney’s Office stated that it has not yet been determined how the Bitcoins will be liquidated.  Since the seizure of the Bitcoins, the value of the virtual currency has grown with the market’s increasing demand.  At the present exchange rate, the Bitcoins are valued at approximately $28 million, approximately 4x their value at the time of the seizure.

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