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US Government Trying to Kill Mt. Gox?

May 16, 2013

Sensationalism at its best, I think. Here's an affidavit filed by the US government in a move to seize all of the US-based assets of Mt. Gox, the largest Bitcoin exchange in the world.

Here's are the facts:

  • Mt. Gox is a Japanese company owned by Mark Karpeles (and perhaps others)
  • Mr. Karpeles opened a company in the US that is, as I understand, a wholly-owned subsidiary of Mt. Gox called Mutum Sigillum, LLC
  • Mutum Sigillum, LLC opened a bank account at Wells Fargo, stating it was not a money-transmitting business
  • One can use Dwolla (US company) to put funds into your Mt. Gox account, and the money goes from Dwolla to the Mutum Sigillum LLC
  • Mutum Sigillum LLC credits your account at Mt. Gox, transferring money between its account in Japan (held at Sumitomo Mitsui Bank) and its account in the US (held at Wells Fargo)

So, the US government decided that Mutum Sigillum LLC is a "money transmitter". But where was the money transmitted to? It was transmitted to that person's account at Mt. Gox. This is effectively more-or-less the same notion of wiring money from your bank account in the US to your bank account in Hong Kong, I suppose. Is this a money transmitter? The definition is this:

The term "money transmitting business" means any business other than the United States Postal Service which provides check cashing, currency exchange, or money transmitting or remittance services, or issues or redeems money orders, travelers' checks, and other similar instruments or any other person who engages as a business in the transmission of funds, including any person who engages as a business in an informal money transfer system or any network of people who engage as a business in facilitating the transfer of money domestically or internationally outside of the conventional financial institutions system (Source: 31 USC § 5330(d)(1))

It sounds like the company might be transmitting money, since it is sending money from a customer's account in one place to the customer's account in a different place. The US is trying to argue the company does currency conversion, but Mutum Sigillum LLC does not -- only Mt Gox does that, which is the company based in Japan. So that part of the complaint from the US is nonsense. But, they are still "transmitting money", perhaps. The issue I have with this is that they are not transmitting money to other people. They are merely moving it from one account that YOU own to another account YOU own. So, transmitted where? To yourself.

So perhaps it still qualifies as a money transmitter. But, then again, who actually transferred the customer's money to Mutum Sigillum LLC? Dwolla did. They have a money transmitter license, I guess. Mutum Sigillum LLC just transferred its OWN money to their OWN account in another country. How was this transmitted? They used Wells Fargo, which is either also a money transmitter or exempt as per the end of that definition, since they are a "conventional financial institution". (You have to love how big banks are given a break here.) So, who transmitted the money? The bank did.

So, Dwolla, the bank, and Mutum Sigillum LLC are ALL money transmitters? I can appreciate the first two being classified as such, since they move money from one entity to another entity. Mutum Sigillum LLC does not do that: they transferred funds to themselves: the beneficiary they list on their wire transfers is themselves. Further, Mutum Sigillum LLC used established money transmitters to transfer money: nothing is hidden or secretive in the transaction.

I'm having a tough time seeing how the government is in the right here. It looks to me like they just do not like Bitcoins, feel they are a threat, and are looking for every opportunity to kill it for whatever reason.

What about Dwolla? Are they a money transmitter? In their terms of service, they say, "You also understand that we are not acting as a fiduciary, trustee, money transmitter, or providing any type of escrow service with respect to your funds, but only acting as the receiver’s agent." So, they declare they are not. And they might be able to make the argument since there is a credit union behind them actually performing money transfers. (Like Mutum Sigillum LLC.) So, it's OK for Dwolla to not have a license, but Mutum does need one?

And one does have to ask: if the company is not in compliance with the law, rather than taking all of the money -- which includes customer funds! -- why did they not first notify them of a compliance requirement? The heavy-handed action makes it damned hard for any startup to build a business. After all, there was certainly no criminal intent here. They just want to allow people to buy and sell Bitcoins.

This leads me back to one argument: the government just does not like Bitcoins.

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