El Salvador’s Adoption of Bitcoin as Legal Tender May Bring Bitcoin Activity Within Scope of Money Transmitter Laws in More States | Insights
The Uniform Money Services Act (UMSA), a model law promulgated by the Uniform Law Commission and passed in whole or in part in several states, requires a license to “operate or solicit, solicit or hold money transfers.” [one’s self] as the provision of money transfers. “1 A license is also required for currency exchanges if the currency exchange transaction has “Revenue Equal To Or Greater” [five percent] “Total Revenue” of a company (although a money sender would generally not need a foreign exchange license to provide such services).2 Money transfer is defined as “selling or issuing payment instruments, stored value, or receiving money or monetary value for transfer”.3 Currency exchange means “receiving income from exchanging money from one government for money from another government”.4th It is critical that money be defined as “a medium of exchange approved or accepted by the United States or any foreign government” for the purposes of the UMSA.5 Some states that have not adopted the UMSA use a similar language.
With the introduction of Bitcoin as legal tender by El Salvador, it has arguably become a medium of exchange adopted by a foreign government. In plain English, participation in predicate money transmitter or currency exchange activities with Bitcoin can now fall within the scope of both money transfer and currency exchange laws in any state or territory that has adopted the UMSA definition of “money”. Therefore, the requirements of these laws could apply even in jurisdictions that have not otherwise positively treated virtual currency activity in any law, regulation, or policy. Accordingly, companies engaged in Bitcoin operations should carefully review their business models to assess whether the services they are providing would now qualify as a money transfer or currency exchange in the U.S. jurisdictions in which they operate. Sidley has a team evaluating these and other indirect effects of treating Bitcoin as legal tender in El Salvador, including on securities laws and tax laws.
1 Unif. Money Services Act Section 201 (a) (amended 2004).
2 I would. Section 401 (a); see also § 401, cmt. 2.
3 I would. Section 102 (14).
4th I would. Section 102 (6).
5 I would. Section 102 (12).