A Bitcoin ATM is a machine that allows customers exchange cash for Bitcoins. Sometimes the functionality of such machines is one-sided, meaning that it is only possible to use a machine to buy Bitcoin with cash but not to sell Bitcoin for cash. Sometimes, the functionality is two-sided.
Because the business of operating a Bitcoin ATM has to do with people exchanging currencies, it needs to comply with certain financial regulations.
This article will discuss the regulations that exist in the United States. Such regulations can be divided into three categories: federal, state and local.
On the federal level, one of the most important laws that financial institutions need to comply with is the Bank Secrecy Act of 1970 (BSA), also known as the anti-money laundering law (AML) or the Currency and Foreign Transactions Reporting Act. According to the law, financial institutions in the United States have to keep certain records and file reports with the federal government to help the government identify and fight money laundering. Examples of reports include daily transactions that exceed USD$10,000 and various suspicious activity.
President Nixon signed the act into law in October of 1970 and since then various institutions tried to unsuccessfully fight the law, claiming that it was violating privacy rights. The Supreme Court has considered several cases and found that the law did not violate the Constitution or any of the amendments and eventually all the banks in the United States and other financial institutions had to comply with the law.
The law requires all financial institutions to file five different types of reports. These reports are foreign bank account reports, currency transaction reports, monetary instrument logs, designations of exempt persons, and suspicious activity reports.
Most of the reports go to FinCEN, which is an abbreviation for the Financial Crimes Enforcement Network. FinCEN is a part of the United States Department of Treasury. The goal of this bureau is to collect and analyze information about financial activities that can represent money laundering, financing of terrorism and various types of other financial crimes.
The federal government of the United States has launched the Financial Crimes Enforcement Network in 1990. In 2002, the bureau became a part of the United States Treasury and in 2012 the information system of the organization received an upgrade, making FinCEN’s portal work similarly to Google, meaning that the system allows searches across multiple units within the federal government and obtains more search results.
In July of 2011, FinCEN has updated the definition of what it considers money to prepare itself and other agencies to work with cryptocurrencies. In 2013, the agency has issued a memo about cryptocurrencies, in which it stated that exchanges and administrators of digital currencies were money transmitters for government reporting purposes. This means that those who provide money transfer and payment exchange services to the consumers in the form of cryptocurrency (and this includes those who run Bitcoin ATM businesses) have to comply with the same regulations as regular financial institutions and have to register with FinCEN, keep records and submit reports in the same way. When explaining the policy, the director of FinCEN said that basic money policies that apply to regular currencies also apply to cryptocurrencies.
In the February of 2012, FinCEN has announce that all financial institutions will have to start submitting most of the reports to FinCEN by July 2012. To do so, a business, including a Bitcoin ATM business, needs to register with FinCEN as a money services business or MSB.
When looking at individuals and organizations that use cryptocurrencies, the federal government divides them into three categories. These categories are users, exchanges and administrators of services. Users do not have to register with the federal government, exchanges and administrators do. Registration can be completed online and this page on the official FinCEN website has all the required information and instructions: https://www.fincen.gov/money-services-business-msb-registration Operating without a registration is a violation of the federal law.
Know Your Customer Policy
Apart from the exact compliance with the BSA, each operator of a Bitcoin ATM or a network of Bitcoin ATMs needs to create a KYC policy. KYC is short for “Know Your Customer.” It is a process of identity verification that helps businesses and the government make sure that consumers are who they say they are and that they do not engage in illegal activities such as money laundering or transactions to avoid taxes. Because of this, some people consider KYC to be a subset of anti-money laundering regulations that a business needs to follow and the abbreviation you will often see is KYC/AML, where AML is the abbreviation for anti-money laundering.