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CoverStory
Direct, who strategically places bitcoin
ATMs at high-traffic retail, restaurant
and hospitality locations nationwide, said "One way to think about it is that the technology
college students and travelers are frequent behind the bitcoin protocol has turned the
users and tend to spend money at retailers public Internet into a secure payments network
who offer bitcoin ATMs.
without banks, without interchange. ISOs still
According to Klamka, bitcoin is electronically have a role, as do PSPs, in order to offer bitcoin
uploaded into the machines, on the order of acceptance alongside cards, direct debits and other
$100,000 to $200,000 per month. "A customer
puts in cash and they get bitcoin sent to their alternative payments."
bitcoin wallet or their phone," he said. "They
hold up their phone, there is a QR code that – John McDonnell, Bitnet Technologies
gets scanned, and a few seconds later that
amount of bitcoin, less a fee, winds up on
their phone." "If the law of New York, and California's draft law are any
indication, the scope of application of state licensing laws
Two-way machines additionally allow bitcoin users to to virtual currency businesses is wide," said payments
hold up a QR code that has bitcoin value loaded onto it attorney Adam Atlas. "Consequently, if an ISO is to become
for redemption of the fiat currency of choice. Because a reseller for a virtual currency processor, for example,
demand for two-way machines is limited and regulations the ISO should ask whether or not the processor has the
for them are more stringent, Klamka does not place them. necessary licenses to operate in the states where the ISO
He said certain states such as California, Michigan, New wishes to sell the product." He added that the processor
Hampshire, Nevada and Texas tend to be more bitcoin should also indemnify the ISO for any claims the ISO may
regulatory-friendly. face if the processor is deemed to be inadequately licensed.
"When you are selling your own bitcoin from a machine, The ISO should also make an effort to understand
you are in the vending business," Klamka said. "When virtual currency itself and explain the risks inherent in
you are buying U.S. currency for digital currency, you are it to merchants. "Merchants who accept virtual currency
a money transmitter." That distinction makes operating as payment should also be told to consult with their
two-way machines an expensive, time-consuming accountants as to how to report that income," Atlas said.
proposition, since individual money transmitter licenses "I think it is incumbent on all in the payments industry to
must be obtained in the 48 states that require them. be familiar with virtual currency as it is likely to occupy a
real part of the economy sooner or later."
Regulatory weigh-in
Aware of the foothold virtual currencies are gaining in Taking action well ahead of the curve, IdentityMind
mainstream commerce, federal and state regulators are Global began offering anti-money laundering and know-
stepping in. Money services businesses and, in many your-customer management services to virtual currency
instances, virtual currency businesses must now register businesses several years ago and now has more than 30
with the U.S. Department of the Treasury through the digital currency clients globally.
Financial Crimes Enforcement Network (FinCEN) or face
possible penalties. "What we do is provide technology for those companies
to execute specifically their transaction monitoring and
In a precedent-setting case in May 2015, Ripple Labs was KYC," said Jose Caldera, Vice President of Marketing and
assessed a $700,000 civil penalty by FinCEN for its failure Products at IdentityMind. "Almost every country has some
to register as a money services business as a seller of form of regulation when it comes to money laundering,
virtual currency and allegedly failing to implement and and those regulations need to be followed." He noted
maintain an adequate anti-money laundering program. that movement of digital currency in the United States,
Canada, China and Western Europe is increasing, but it
In June, the New York State Department of Financial will take time for volume to reach full potential.
Services released the final framework for a bitlicense to
regulate virtual currency firms operating in that state. It Internationally, the climate for cryptocurrency is
contains key consumer protection, anti-money laundering changing. In July, virtual currency dodged a bullet
compliance and cyber-security rules now applicable to when the European Union's Court of Justice Advocate
cryptocurrency companies. California, Connecticut, exempted bitcoin trading from Europe's value-added tax.
New Jersey, New Hampshire, Texas and Wyoming are As the world continues to grapple with the decentralized
considering similar guidelines. trust inherent in cryptocurrency, it could boil down to
convincing enough people that "in math we trust" might
be the right choice, according to McDonnell.
41
Direct, who strategically places bitcoin
ATMs at high-traffic retail, restaurant
and hospitality locations nationwide, said "One way to think about it is that the technology
college students and travelers are frequent behind the bitcoin protocol has turned the
users and tend to spend money at retailers public Internet into a secure payments network
who offer bitcoin ATMs.
without banks, without interchange. ISOs still
According to Klamka, bitcoin is electronically have a role, as do PSPs, in order to offer bitcoin
uploaded into the machines, on the order of acceptance alongside cards, direct debits and other
$100,000 to $200,000 per month. "A customer
puts in cash and they get bitcoin sent to their alternative payments."
bitcoin wallet or their phone," he said. "They
hold up their phone, there is a QR code that – John McDonnell, Bitnet Technologies
gets scanned, and a few seconds later that
amount of bitcoin, less a fee, winds up on
their phone." "If the law of New York, and California's draft law are any
indication, the scope of application of state licensing laws
Two-way machines additionally allow bitcoin users to to virtual currency businesses is wide," said payments
hold up a QR code that has bitcoin value loaded onto it attorney Adam Atlas. "Consequently, if an ISO is to become
for redemption of the fiat currency of choice. Because a reseller for a virtual currency processor, for example,
demand for two-way machines is limited and regulations the ISO should ask whether or not the processor has the
for them are more stringent, Klamka does not place them. necessary licenses to operate in the states where the ISO
He said certain states such as California, Michigan, New wishes to sell the product." He added that the processor
Hampshire, Nevada and Texas tend to be more bitcoin should also indemnify the ISO for any claims the ISO may
regulatory-friendly. face if the processor is deemed to be inadequately licensed.
"When you are selling your own bitcoin from a machine, The ISO should also make an effort to understand
you are in the vending business," Klamka said. "When virtual currency itself and explain the risks inherent in
you are buying U.S. currency for digital currency, you are it to merchants. "Merchants who accept virtual currency
a money transmitter." That distinction makes operating as payment should also be told to consult with their
two-way machines an expensive, time-consuming accountants as to how to report that income," Atlas said.
proposition, since individual money transmitter licenses "I think it is incumbent on all in the payments industry to
must be obtained in the 48 states that require them. be familiar with virtual currency as it is likely to occupy a
real part of the economy sooner or later."
Regulatory weigh-in
Aware of the foothold virtual currencies are gaining in Taking action well ahead of the curve, IdentityMind
mainstream commerce, federal and state regulators are Global began offering anti-money laundering and know-
stepping in. Money services businesses and, in many your-customer management services to virtual currency
instances, virtual currency businesses must now register businesses several years ago and now has more than 30
with the U.S. Department of the Treasury through the digital currency clients globally.
Financial Crimes Enforcement Network (FinCEN) or face
possible penalties. "What we do is provide technology for those companies
to execute specifically their transaction monitoring and
In a precedent-setting case in May 2015, Ripple Labs was KYC," said Jose Caldera, Vice President of Marketing and
assessed a $700,000 civil penalty by FinCEN for its failure Products at IdentityMind. "Almost every country has some
to register as a money services business as a seller of form of regulation when it comes to money laundering,
virtual currency and allegedly failing to implement and and those regulations need to be followed." He noted
maintain an adequate anti-money laundering program. that movement of digital currency in the United States,
Canada, China and Western Europe is increasing, but it
In June, the New York State Department of Financial will take time for volume to reach full potential.
Services released the final framework for a bitlicense to
regulate virtual currency firms operating in that state. It Internationally, the climate for cryptocurrency is
contains key consumer protection, anti-money laundering changing. In July, virtual currency dodged a bullet
compliance and cyber-security rules now applicable to when the European Union's Court of Justice Advocate
cryptocurrency companies. California, Connecticut, exempted bitcoin trading from Europe's value-added tax.
New Jersey, New Hampshire, Texas and Wyoming are As the world continues to grapple with the decentralized
considering similar guidelines. trust inherent in cryptocurrency, it could boil down to
convincing enough people that "in math we trust" might
be the right choice, according to McDonnell.
41
