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California Accuses Bitcoin Foundation of Unlicensed Money Transmission

Op-ed - California Accuses Bitcoin Foundation of Unlicensed Money Transmission

An article on by Bitcoin Foundation Board Member and Secretary Jon Matonis announced today that the Bitcoin Foundation had been the recipient of of a “cease and desist” letter from the State of California’s Department of Financial Instututions(DFI). The letter alleges that the “BitCoin Foundation” is operating as a money transmitting business without “proper authorization.” It proceeds to threaten “APPROPRIATE ACTION” if the Foundation fails to “CEASE AND DESIST FROM CONDUCTING THE BUSINESS OF MONEY TRANSMISSION” in the State of California, and requires a response in writing within 20 days. It isn’t clear as to whether the countdown started from the 30 May date, or from the letter was received(the letterhead shows “CERTIFIED MAIL, RETURN RECEIPT REQUESTED.”

While the letter provides no explanation for how the Foundation can be considered a money transmitter, simply stating that the matter has “come to the attention of the Commissioner” of the DFI, one possible link is the Bitcoin 2013 convention, organized by the Foundation in San Jose, California on 17-19 May. The letter, dated 30 May, also coincides eerily with a similar notice from the State of Virginia that led Virginia-based Tangible Cryptography to suspend its operation of

The California letter, signed by Paul T. Crayton, Senior Counsel, goes on to list several potential punitive outcomes that could result by non-compliance, including fines and prison time. Curiously, the relevant US Code sections attached to the letter for “convenient reference” appear to have been sloppily printed off from Cornell University’s legal reference website, complete with sidebar ads asking “Don’t have a CFO?” and another from Google proclaiming “Websites are now free for California business,” indicating that Google’s location specific advertisement targeting is working just fine.

There is no indication that any of the Foundations activities meets the California Financial Code’s definition of what constitutes “money transmission.” Quoting from the Code, “(o) “Money transmission” means any of the following: (1) Selling or issuing payment instruments. (2) Selling or issuing stored value. (3) Receiving money for transmission.” Furthermore, the California Financial Code defines “Money” as a “means a medium of exchange that is authorized or
adopted by the United States or a foreign government.” The definitions of a “payment instrument” and a “stored value” are equally applicable to anything the Foundation has indicated involvement with as a non-profit organization.

With the rational behind the letter unclear, speculation has run rampant on reddit, bitcointalk, and twitter, with theories about the cause ranging from the fact that bitcoin ATM’s were operating at Bitcoin 2013, to a larger, systematic attack on bitcoin. What’s clear is that the letter leaves much to ask, and much unanswered.