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Creator of the Breaking Monero series and a compliance analyst at a cryptocurrency OTC desk here. This mixer was penalized for running an unlicensed MSB. This

by sgp_ 6y ago

Creator of the Breaking Monero series and a compliance analyst at a cryptocurrency OTC desk here. This mixer was penalized for running an unlicensed MSB. This is far more about that then it is about banning privacy technologies generally. For traditional Bitcoin mixers as in this case, someone receives money from users and then transmits money to many users. This is money transmission and requires registration with FinCEN and sometimes requires registration with states (though some states have exemptions for completely crypto to crypto transmission that doesn't touch USD or other fiat). Mixing in this case is interactive where there is a clear money transmitter. In Monero's case, the ring signature "mixing" (mixing is a terrible/misleading way to refer to ring signatures) is non-interactive, and there is no intermediary (eg: a mixer) acting as a money transmitter. Thus, there is nothing to fear from this specific enforcement action. I'm happy to answer other questions as well. But for money transmission to occur, an intermediary needs to accept customer funds. For a Monero transfer, there is no intermediary. Someone could build an MSB on Monero itself which would require registration, but using Monero to send funds directly to a merchant for one's own purchase, for example, is not money transmission.

beervirus 6y ago
Is this legal advice about the definition of "money transmitter"? It sure reads that way.
- sgp_ 6y ago
  Obviously not legal advice, but FinCEN's guidance is quite easy to follow here: https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20... > Providers of anonymizing services, commonly referred to as “mixers” or “tumblers,” are either persons that accept CVCs and retransmit them in a manner designed to prevent others from tracing the transmission back to its source (anonymizing services provider), or suppliers of software a transmittor would use for the same purpose (anonymizing software provider). > An anonymizing services provider is a money transmitter under FinCEN regulations. The added feature of concealing the source of the transaction does not change that person’s status under the BSA. > An anonymizing software provider is not a money transmitter. FinCEN regulations exempt from the definition of money transmitter those persons providing “the delivery, communication, or network access services used by a money transmitter to support money transmission services.” This is because suppliers of tools (communications, hardware, or software) that may be utilized in money transmission, like anonymizing software, are engaged in trade and not money transmission. Another resource: https://www.perkinscoie.com/en/news-insights/anti-money-laundering-regulation-of-privacy-enabling-cryptocurrencies.html https://www.perkinscoie.com/en/news-insights/anti-money-laun...
  - jdmichal 6y ago
    > Providers of anonymizing services, commonly referred to as “mixers” or “tumblers,” are either persons that accept CVCs and retransmit them in a manner designed to prevent others from tracing the transmission back to its source (anonymizing services provider), or suppliers of software a transmittor would use for the same purpose (anonymizing software provider). How does that not make Monero itself liable as an "anonymizing software provider"?
    - sgp_ 6y ago
      Well, you see what FinCEN says about those: > An anonymizing software provider is not a money transmitter. FinCEN regulations exempt from the definition of money transmitter those persons providing “the delivery, communication, or network access services used by a money transmitter to support money transmission services.” This is because suppliers of tools (communications, hardware, or software) that may be utilized in money transmission, like anonymizing software, are engaged in trade and not money transmission. In simple terms, the Monero developers are providing software (the Monero network, nodes, and wallet software) that can be used for money transmission, but the developers do not need to register as MSBs unless they also have a side company that conducts money transmission.
- 0xffff2 6y ago
  Nothing posted on a pseudo-anonymous internet forum is ever legal advice.
- wolco2 6y ago
  Have you paid for this advice? Are you a client? Was this directed at you? If not then this is opinion.
  - beervirus 6y ago
    > Have you paid for this advice? Payment is generally not required to establish an attorney-client relationship. > Are you a client? Was this directed at you? No, but I'm looking at it from the perspective of the poster it was directed at.
    - 6gvONxR4sf7o 6y ago
      At the very least, wouldn't an attorney be required to establish an attorney-client relationship? BTW here's some legal advice: don't jaywalk. I think it's illegal in some places.
      - gamblor956 6y ago
        No, a preexisting attorney-client relationship isn't always required. Offering advice pertaining to the application of laws or regulations to a specific person's facts is generally considered offering legal advice. Some states regulate this very heavily, others don't care as much. Generally, California tends to regulate this pretty heavily for lawyers (for purposes of creating an attorney-client relationships that can subject them to malpractice claims) but otherwise not at all for non-lawyers unless they specifically hold themselves out to be in the business of providing legal advice (very common with immigration issues). So, offering random advice on the internet wouldn't be an issue for a non-lawyer (but could be one for a practicing lawyer if they get too specific).
      - lkbm 6y ago
        My understanding (that is, I was told by a lawyer I know) is that if the person receiving the information thinks there's an attorney-client relationship, there is. Presumably there's some defense of "a reasonable person wouldn't have thought that", but this is why lawyers tend to be very diligent about saying "this is not legal advice".
- gamblor956 6y ago
  Legal advice is regulated where it means applying the law to the specific facts of another person's case, because that is considered the "practice" of law. Applying the law to a generic set of facts, or to your own facts, is fine.
dcolkitt 6y ago
I wholeheartedly agree with your assessment. But at the end of the day, this defense is predicated on making a US federal judge understand all those technical details. I think the most commonsense reform is to have computer crime handled by specialized courts, much the same as tax law currently is. These domains are simply too complex to have them handled by legal generalists, who are expected to learn it all from first principles on each and every case.
- pas 6y ago
  Can't tax law cases eventually make it to the Supreme Court anyway?
  - jskdvsksnb 6y ago
    Anything can go to the supreme court if you try hard enough: https://www.law.cornell.edu/wex/mandamus https://www.law.cornell.edu/wex/mandamus But also yes, the Supreme Court has discretionary appeals jurisdiction over any federal case.
- bottled_poe 6y ago
  What do you think this is? Some kind of meritocracy?
josu 6y ago
>This mixer was penalized for running an unlicensed MSB. In addition to laundering money. But they were charged with money laundering too. "COUNT ONE (Conspiracy To Launder Monetary Instruments)" https://www.justice.gov/opa/press-release/file/1249026/download https://www.justice.gov/opa/press-release/file/1249026/downl...
onetimemanytime 6y ago
>>But for money transmission to occur, an intermediary needs to accept customer funds. For a Monero transfer, there is no intermediary. Someone could build an MSB on Monero itself which would require registration, but using Monero to send funds directly to a merchant for one's own purchase, for example, is not money transmission. They are huge fines and decades in jail sentences at play in money laundering. How sure are you? Not that anyone is going to do X or Y because someone in a thread said so, but things aren't as simple sometimes. Add the potential penalties and...
- sgp_ 6y ago
  Don't take my word for it. Read what FinCEN says directly: https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20...
hn_throwaway_99 6y ago
I don't necessarily disagree with you that the specifics of this case may not be exactly applicable to Monero. However, I think people are being woefully naive if they think that the US Government will be OK with people sending large sums of money anonymously. Whether it be through finding existing laws that can be applied, or just flat out changing the law to explicitly ban these types of transactions, I can guarantee that when people think they have found a technical loophole the law usually comes down on the side of "does what you're doing constitute behavior that the original legislation was meant to prohibit". Just look at what happened with Aereo [1], I think the same thing will (at least eventually) happen with cryptocurrencies where the ledger isn't fully traceable. [1] https://en.wikipedia.org/wiki/Aereo https://en.wikipedia.org/wiki/Aereo
- chris_wot 6y ago
  Indeed, it wouldn’t take much for them to legislate to make the whole ring signature mechanism illegal.
  - kenniskrag 6y ago
    Or you just can't exchange crypto currencies against dollars because the finance industry is already regulated and has to follow the rules.
    - bdcravens 6y ago
      All really has to happen is to make ACH transfers to cryptocurrency exchanges illegal. Banks will very happily comply with blocking those transactions.
    - krageon 6y ago
      You could just buy and sell them for cash, you don't need banks for that
      - kenniskrag 6y ago
        Depends on the country but if you exchange money you have to comply with regulatory rules.
A4ET8a8uTh0 6y ago
This. It should also be noted that government does not seem to know how to deal with privacy oriented coins ( ref#1 - discussion of current regime for crypto as seen by US AG ). That said, they seem to suggest ( page 41 ) that using Monero is inherently risky and prone to illicit activity and businesses allowing its use "should consider the increased risks". Knowing how banks read those types of documents, you can safely bet banks will simply refuse to bank anyone if there is even a whiff of transaction with Monero, Zcash, Dash. Ref#1:https://www.justice.gov/ag/page/file/1326061/download https://www.justice.gov/ag/page/file/1326061/download edit: Disclaimer. Do not be an idiot. I am just a guy on the internet. If in doubt, hire an actual lawyer.
- akimball 6y ago
  Gemini exchange seems to have no difficulty with banking. Coinbase seems to have no difficulty with banking.
  - A4ET8a8uTh0 6y ago
    You are not wrong, but the link I listed is relatively recent. Things like that rarely change that fast. Not to mention, both of your examples likely have working compliance units ( and FinCEN wants exchanges to be compliant ). The mixer FinCEN busted didn't and wasn't. Also, again, I am not a lawyer. In other words, I fully accept the possibility that I am wrong. However, I do know how conservative banks are.
  - RandomBacon 6y ago
    Kraken just started banking in the U.S. too, and they even list Monero.
  - _-___________-_ 6y ago
    Notably, Coinbase does not handle Monero.
3np 6y ago
Do you see CoinJoins as implemented by Samourai and Wasabi to be possibly liable in the same way?
3np 6y ago
I understand the argument with interactiveness, but even so, do you think it'd be unreasonable to think that Monero miners/node operators could be targeted?
trevyn 6y ago
>I'm happy to answer other questions as well. >This is money transmission and requires registration with FinCEN Could you clarify the practical constraints on this assertion? If I am an alien living on the moon and connected to the Internet with lasers, who is enforcing any "requirement" and how?

by sgp_ 6y ago

beervirus 6y ago

Is this legal advice about the definition of "money transmitter"? It sure reads that way.

sgp_ 6y ago
Obviously not legal advice, but FinCEN's guidance is quite easy to follow here: https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20... > Providers of anonymizing services, commonly referred to as “mixers” or “tumblers,” are either persons that accept CVCs and retransmit them in a manner designed to prevent others from tracing the transmission back to its source (anonymizing services provider), or suppliers of software a transmittor would use for the same purpose (anonymizing software provider). > An anonymizing services provider is a money transmitter under FinCEN regulations. The added feature of concealing the source of the transaction does not change that person’s status under the BSA. > An anonymizing software provider is not a money transmitter. FinCEN regulations exempt from the definition of money transmitter those persons providing “the delivery, communication, or network access services used by a money transmitter to support money transmission services.” This is because suppliers of tools (communications, hardware, or software) that may be utilized in money transmission, like anonymizing software, are engaged in trade and not money transmission. Another resource: https://www.perkinscoie.com/en/news-insights/anti-money-laundering-regulation-of-privacy-enabling-cryptocurrencies.html https://www.perkinscoie.com/en/news-insights/anti-money-laun...
- jdmichal 6y ago
  > Providers of anonymizing services, commonly referred to as “mixers” or “tumblers,” are either persons that accept CVCs and retransmit them in a manner designed to prevent others from tracing the transmission back to its source (anonymizing services provider), or suppliers of software a transmittor would use for the same purpose (anonymizing software provider). How does that not make Monero itself liable as an "anonymizing software provider"?
  - sgp_ 6y ago
    Well, you see what FinCEN says about those: > An anonymizing software provider is not a money transmitter. FinCEN regulations exempt from the definition of money transmitter those persons providing “the delivery, communication, or network access services used by a money transmitter to support money transmission services.” This is because suppliers of tools (communications, hardware, or software) that may be utilized in money transmission, like anonymizing software, are engaged in trade and not money transmission. In simple terms, the Monero developers are providing software (the Monero network, nodes, and wallet software) that can be used for money transmission, but the developers do not need to register as MSBs unless they also have a side company that conducts money transmission.
0xffff2 6y ago
Nothing posted on a pseudo-anonymous internet forum is ever legal advice.
wolco2 6y ago
Have you paid for this advice? Are you a client? Was this directed at you? If not then this is opinion.
- beervirus 6y ago
  > Have you paid for this advice? Payment is generally not required to establish an attorney-client relationship. > Are you a client? Was this directed at you? No, but I'm looking at it from the perspective of the poster it was directed at.
  - 6gvONxR4sf7o 6y ago
    At the very least, wouldn't an attorney be required to establish an attorney-client relationship? BTW here's some legal advice: don't jaywalk. I think it's illegal in some places.
    - gamblor956 6y ago
      No, a preexisting attorney-client relationship isn't always required. Offering advice pertaining to the application of laws or regulations to a specific person's facts is generally considered offering legal advice. Some states regulate this very heavily, others don't care as much. Generally, California tends to regulate this pretty heavily for lawyers (for purposes of creating an attorney-client relationships that can subject them to malpractice claims) but otherwise not at all for non-lawyers unless they specifically hold themselves out to be in the business of providing legal advice (very common with immigration issues). So, offering random advice on the internet wouldn't be an issue for a non-lawyer (but could be one for a practicing lawyer if they get too specific).
    - lkbm 6y ago
      My understanding (that is, I was told by a lawyer I know) is that if the person receiving the information thinks there's an attorney-client relationship, there is. Presumably there's some defense of "a reasonable person wouldn't have thought that", but this is why lawyers tend to be very diligent about saying "this is not legal advice".
gamblor956 6y ago
Legal advice is regulated where it means applying the law to the specific facts of another person's case, because that is considered the "practice" of law. Applying the law to a generic set of facts, or to your own facts, is fine.

dcolkitt 6y ago

I wholeheartedly agree with your assessment. But at the end of the day, this defense is predicated on making a US federal judge understand all those technical details. I think the most commonsense reform is to have computer crime handled by specialized courts, much the same as tax law currently is. These domains are simply too complex to have them handled by legal generalists, who are expected to learn it all from first principles on each and every case.

pas 6y ago
Can't tax law cases eventually make it to the Supreme Court anyway?
- jskdvsksnb 6y ago
  Anything can go to the supreme court if you try hard enough: https://www.law.cornell.edu/wex/mandamus https://www.law.cornell.edu/wex/mandamus But also yes, the Supreme Court has discretionary appeals jurisdiction over any federal case.
bottled_poe 6y ago
What do you think this is? Some kind of meritocracy?

josu 6y ago

>This mixer was penalized for running an unlicensed MSB. In addition to laundering money. But they were charged with money laundering too. "COUNT ONE (Conspiracy To Launder Monetary Instruments)" https://www.justice.gov/opa/press-release/file/1249026/download https://www.justice.gov/opa/press-release/file/1249026/downl...

onetimemanytime 6y ago

>>But for money transmission to occur, an intermediary needs to accept customer funds. For a Monero transfer, there is no intermediary. Someone could build an MSB on Monero itself which would require registration, but using Monero to send funds directly to a merchant for one's own purchase, for example, is not money transmission. They are huge fines and decades in jail sentences at play in money laundering. How sure are you? Not that anyone is going to do X or Y because someone in a thread said so, but things aren't as simple sometimes. Add the potential penalties and...

sgp_ 6y ago
Don't take my word for it. Read what FinCEN says directly: https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20...

hn_throwaway_99 6y ago

I don't necessarily disagree with you that the specifics of this case may not be exactly applicable to Monero. However, I think people are being woefully naive if they think that the US Government will be OK with people sending large sums of money anonymously. Whether it be through finding existing laws that can be applied, or just flat out changing the law to explicitly ban these types of transactions, I can guarantee that when people think they have found a technical loophole the law usually comes down on the side of "does what you're doing constitute behavior that the original legislation was meant to prohibit". Just look at what happened with Aereo [1], I think the same thing will (at least eventually) happen with cryptocurrencies where the ledger isn't fully traceable. [1] https://en.wikipedia.org/wiki/Aereo https://en.wikipedia.org/wiki/Aereo

chris_wot 6y ago
Indeed, it wouldn’t take much for them to legislate to make the whole ring signature mechanism illegal.
- kenniskrag 6y ago
  Or you just can't exchange crypto currencies against dollars because the finance industry is already regulated and has to follow the rules.
  - bdcravens 6y ago
    All really has to happen is to make ACH transfers to cryptocurrency exchanges illegal. Banks will very happily comply with blocking those transactions.
  - krageon 6y ago
    You could just buy and sell them for cash, you don't need banks for that
    - kenniskrag 6y ago
      Depends on the country but if you exchange money you have to comply with regulatory rules.

A4ET8a8uTh0 6y ago

This. It should also be noted that government does not seem to know how to deal with privacy oriented coins ( ref#1 - discussion of current regime for crypto as seen by US AG ). That said, they seem to suggest ( page 41 ) that using Monero is inherently risky and prone to illicit activity and businesses allowing its use "should consider the increased risks". Knowing how banks read those types of documents, you can safely bet banks will simply refuse to bank anyone if there is even a whiff of transaction with Monero, Zcash, Dash. Ref#1:https://www.justice.gov/ag/page/file/1326061/download https://www.justice.gov/ag/page/file/1326061/download edit: Disclaimer. Do not be an idiot. I am just a guy on the internet. If in doubt, hire an actual lawyer.

akimball 6y ago
Gemini exchange seems to have no difficulty with banking. Coinbase seems to have no difficulty with banking.
- A4ET8a8uTh0 6y ago
  You are not wrong, but the link I listed is relatively recent. Things like that rarely change that fast. Not to mention, both of your examples likely have working compliance units ( and FinCEN wants exchanges to be compliant ). The mixer FinCEN busted didn't and wasn't. Also, again, I am not a lawyer. In other words, I fully accept the possibility that I am wrong. However, I do know how conservative banks are.
- RandomBacon 6y ago
  Kraken just started banking in the U.S. too, and they even list Monero.
- _-___________-_ 6y ago
  Notably, Coinbase does not handle Monero.

3np 6y ago

Do you see CoinJoins as implemented by Samourai and Wasabi to be possibly liable in the same way?

3np 6y ago

I understand the argument with interactiveness, but even so, do you think it'd be unreasonable to think that Monero miners/node operators could be targeted?

trevyn 6y ago

>I'm happy to answer other questions as well. >This is money transmission and requires registration with FinCEN Could you clarify the practical constraints on this assertion? If I am an alien living on the moon and connected to the Internet with lasers, who is enforcing any "requirement" and how?