For companies trying to develop a thriving business in an industry where legal regulation is in flux — such as the digital currency known as bitcoin — navigating federal and state requirements can be daunting.
“The technology is ahead of the law,” said Jeremy Garner, a corporate and tax attorney with Bowie & Jensen LLC in Towson. “Lawmakers are trying to determine, do our existing laws apply, how does this fit within our existing laws, and do existing laws adequately cover it?”
Bitcoin, a “cryptocurrency,” was introduced six years ago, and Garner said he’s been working with clients on bitcoin-related matters fairly regularly for about the last year and a half.
“It’s not to the point where it’s a day-to-day thing, but there have been a handful of folks every couple of months,” he said.
His typical clients are not businesses interested in accepting virtual currencies as payment, he said. Instead, they’re companies that work behind the scenes to assist other businesses in developing their ability to accept bitcoins.
“These are people that have seen opportunities and had ideas, whether it’s creating software or providing services to deal with the administration of how businesses accept bitcoins and convert those into currencies — the technology and the financial industries aspect,” he said.
Bank Secrecy Act
The primary federal regulation these enterprises have to contend with is the Bank Secrecy Act, a federal law aimed at detecting and preventing money laundering, Garner said.
The law requires “money transmitters,” which now include businesses that help individuals exchange dollars or other currency for bitcoins, to register for a license and comply with certain record keeping and reporting requirements, he said.
Because those regulations were developed before the advent of bitcoin, the main issue for the government has been adapting them to address digital currencies, Garner said.
“What I’ve seen in my practice is questions about what kind of regulation there is over the virtual currency industry, from businesses that have developed software that deals with acceptance and transfer of bitcoin as part of their business model, or those that are just trying to get a lay of the land of what the legal landscape is, so that they don’t run afoul of any issues,” he said.
Then there are the state requirements, Garner said. Unlike some states, Maryland hasn’t enacted any regulations specifically aimed at bitcoin and virtual currencies. However, the Department of Labor, Licensing and Regulation issued an advisory message last year warning consumers about the virtual currency’s volatile nature.
“It’s basically a caveat emptor, buyer beware type of message where they’re saying, ‘Hey, this is a new thing that a lot of people aren’t necessarily familiar with; it can be volatile in terms of change in value,’ and just basically saying there are some issues you need to be aware of and that businesses that are involved in this may or may not be subject to regulation,” he said.
Garner said he handles the majority of the bitcoin-related inquiries that reach the firm, although understanding the legal pitfalls for businesses that deal with the bitcoin industry could become more commonplace among attorneys in the future.
Sen. Rand Paul’s recent announcement that he would accept bitcoin for campaign contributions to his 2016 presidential run, for example, indicates the digital currency is quickly becoming mainstream, Garner said.
“Assuming that the use of virtual currencies continues to increase and you see greater acceptance of them, I think people are going to have to have a growing awareness of how they work and just sort of the lay of the land,” Garner said. “Legally, even if they don’t have that as a primary focus, they’ll at least be able to sort of issue-spot.”