The Uniform Money Services Act (UMSA), a model law passed by the Unified Law Commission and passed in whole or in part in multiple states, requires a license to “engage in a business of transferring money or advertising, attracting or retaining [one’s self] as a security for a money transfer ”.one A license is also required to do the same for currency exchange if the currency exchange business accounts for “revenue equal to or greater than [five percent] of the total revenue “of the business (although the sender of money usually does not need to obtain a currency exchange license to provide such services).2 The transfer of money is defined as “the sale or issue of payment instruments, held value, or the receipt of money or money value to transfer”.3 Currency exchange means “generating income from exchanging money from one government for money from another government.”four Most importantly, money is defined for UMSA purposes as “a medium of exchange that is authorized or accepted by the United States or a foreign government.”five Some states that have not accepted the UMSA use a similar language.
With El Salvador’s acceptance of Bitcoin as legal tender, it may have become a medium of exchange adopted by a foreign government. In simple terms, engaging in predicate money transfer or currency exchange transactions with Bitcoin can now be subject to money transfer and currency exchange laws in any state or territory that has adopted the UMSA definition of “money”. Thus, the requirements of these laws may apply even in jurisdictions where virtual currencies are not otherwise addressed in laws, regulations or guidelines. Accordingly, bitcoin businesses must carefully evaluate their business models to assess whether the services they provide would now be considered a money transfer or currency exchange in the US jurisdictions in which they operate. Sidley has a team that is assessing these and other indirect implications of Bitcoin’s legal tender in El Salvador, including securities and tax laws.
one Unif. Section 201 (a) of the Money Services Act (as amended in 2004).
2 Identifier. § 401 (a); see also § 401, cmt. 2.
3 Identifier. Section 102 (14).
four Identifier. § 102 (6).
five Identifier… Section 102 (12).