In response to the growing attention paid to “virtual currencies” of various types, FinCEN has issued guidance that attempts to clarify how FinCEN will apply the Bank Secrecy Act and its implementing regulations to this increasingly popular type of retail tender. The guidance is significant in that it provides the first such authoritative framework for analyzing virtual currencies such as Bitcoin and those used on certain online social gaming sites such as SecondLife.

The guidance follows on FinCEN’s   July 21, 2011 Final Rule on Money Services Businesses, and the July 29, 2011 Final Rule on Prepaid Access, and governs the administration, exchange and use of convertible virtual currencies.  Of note, the guidance provides that “administrators” and “exchangers” of “convertible virtual currencies” are now subject to regulation as “money transmitters”, while “users” of such currencies are not. The new guidance is merely interpretive.  It does not alter the definition of “money transmitter” nor does it supersede any of the existing exceptions to the definition of a “money transmitter” under federal law.

Real Currency vs. Convertible Virtual Currency

FinCEN defines “real” currency as (i) a jurisdiction’s coin and paper money that is (ii) designated as legal tender for that jurisdiction and (iii) is customarily used and accepted as a medium of exchange in the jurisdiction.  A “virtual” currency is “a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency.” “Convertible” virtual currency is a virtual currency that has “an equivalent value in real currency, or act[s] as a substitute for real currency.” Virtual currencies and convertible virtual currencies are not legal tender in any jurisdiction.

Administrators and Exchangers of Convertible Virtual Currencies Are Money Transmitters

According to FinCEN, an “exchanger” of a virtual convertible currency is a person “engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency” and an “administrator” is a person “engaged as a business in issuing (putting into circulation) a virtual currency, and who has the authority to redeem (to withdraw from circulation) such virtual currency.” Importantly, both entities fit the threshold definition of a “money transmitter” because they provide “money transmission services”, which is further defined as the acceptance or transmission by any means “of currency, funds, or other value that substitutes for currency [emphasis added] to another location or person by any means.” FinCEN considers a convertible virtual currency to be merely another form of value that substitutes for real currency.

Categories of Convertible Virtual Currency Activities

FinCEN divided the activities of administrators and exchangers regarding convertible virtual currencies to which FINCEN regulations apply into three categories:

  • Dealing in e-currencies and e-precious metals by transmitting funds between a customer and a third party that is not part of the currency or commodity transaction
  • Administering a centralized convertible virtual currency and facilitating the transfer of virtual convertible currency between locations, or from one person to another in a centralized repository; and
  • Transacting in a de-centralized convertible virtual currency by (i) creating units of a virtual convertible currency with no central repository and (ii) selling those units to another person for real currency or its equivalent; or by facilitating the exchange of a de-centralized convertible virtual currency from one person to a third party for currency, funds, or other value.


FinCEN also stated that because a convertible virtual currency is not a “real” currency, FinCEN’s Prepaid Access regulations do not apply to a person who accepts or transmits a convertible virtual currency. The definition of "prepaid access" under the regulations is limited to "access to funds or the value of funds." Similarly, FinCEN's regulations regarding dealers in foreign exchange do not apply to accepting real currency in exchange for convertible virtual currency (and vice versa) because those regulations only apply to the exchange of one real currency for another real currency.

FinCEN’s new guidance did not eliminate existing exceptions to the definition of a money transmitter.  According to FinCEN, determining if a person is a “money transmitter” still depends on the specific facts and circumstances surrounding a person’s activity. A person who accepts currency, funds or other value from one person and transmits such currency, funds or other value to another location or person, is still not a money transmitter if the person is:

  • A provider of network access services to money transmitters;
  • A provider of bill payment services between a creditor or seller;
  • An operator of clearance and settlement systems among regulated institutions;
  • A transporter of physical currency (such as armored car services and couriers);
  • A prepaid access provider; or
  • A person who accepts and transmits funds only integral to the sale of goods or the provision of services (other than money transmission services) by the person who is accepting and transmitting the funds.

In other words, even a person meeting the definition of an “administrator” or “exchanger” of a convertible virtual currency would not be subject to FinCEN regulation if one of the exceptions above applies.

For a copy of FinCen’s guidance on convertible virtual currencies, click here.

For additional information or questions about money transmitter law and virtual currencies, please contact the DWT Payments Team.