Carl Mullan is DGC’s founder, former editor and publisher of DGCMagazine with more than 50 past issues online. His new book, The Digital Currency Challenge – Shaping Online Payment Systems through US Financial Regulations, is now available on Amazon.
Late last week the Japan based exchange received an MSB license from US financial regulator FinCEN, license #31000029348132.
The exchange market leader had a run-in with US regulators earlier in the year when their US subsidiary, Mutum Sigillum LLC, had its bank account and Dwolla account shut down due to a lack of licensing. Soon afterwards the site changed their policies requiring all customers wishing to perform any USD withdraws/deposits to first verify their identity. As the majority of Mt. Gox’s businesses is in USD/BTC trades, their decision to appease US regulators is unsurprising.
Via the BitPay website…
Effective immediately, BitPay has temporarily stopped using Mt. Gox for determining the exchange rate for our invoices.
The rate calculation that BitPay uses for each invoice is now as follows:
1. Pull the full Level II market depth, on the bid side, from multiple exchanges.
2. Merge the market depths into one Consolidated Level II table.
3. Calculate the blended clearing price for the amount of the invoice, assuming an auto-routing market sell order across all exchanges, with zero commission.
BitPay is committed to offering the fairest possible rate to the buyer, while minimizing our counterparty risk.
In an announcement made late last week, Mt. Gox said that they have temporarily halted US dollar withdrawals from the exchange due to increased volume and the pressure this has placed on their banking partners.
Over the past weeks Mt. Gox has experienced rising volumes of deposits and withdrawals from established and upcoming markets interested in Bitcoin. This increased volume has made it difficult for our bank to process the transactions smoothly and within a timely manner, which has created unnecessary delays for our global customers. This is especially so for those in the United States who are requesting wire transfer withdrawals from their accounts.
The problem here is that Mt. Gox is operating as an unlicensed money transmitter.
With their recent guidance, FinCEN decided that virtual currency exchangers are money transmitters.
“An administrator or exchanger that (1)accepts and transmits a convertible virtual currency or (2) buys or sells convertible virtual currency for any reason is a money transmitter under FinCEN’s regulations.”
Mt. Gox is not a US company; however, it does a lot of business in the States and is not registered with FinCEN.
An informant working with a Homeland Security agent signed up for both Mt. Gox and Dwolla accounts. After making a few transactions, he was able to determine that his funds had gone through a Wells Fargo bank account owned by Mt. Gox and opened by the exchanges’ CEO Mark Karpeles. The account was opened by Mark in May 2011 who at the time signed a Wells Fargo form declaring that his business was not a Money Services business or a Money Transmitter. Of course this was almost 2 years prior to FinCEN’s guidance on the issue.
The Warrant states that Mt. Gox is in violation of 18 U.S.C. section 1960. The punishment for this can include fines and up to 5 years in prison.
Ars Technica obtained a copy of the warrant which can be read here.
The Department of Homeland Security appears to have shut down the ability to use Dwolla, a mobile payment service, to withdraw and deposit money into Mt. Gox, a Bitcoin trading platform. A Dwolla representative confirmed the move to Betabeat.
A representative for Dwolla told Betabeat that the company is “not party” to this matter and encourages those with questions to reach out to Mt. Gox or the DHS.
“The Department of Homeland Security and U.S. District Court for the District of Maryland issued a ‘Seizure Warrant’ for the funds associated with Mutum Sigillium’s Dwolla account (a.k.a. Mt. Gox),” he said. “In light of the court order, procured by the Department of Homeland Security, Dwolla has ceased all account activities associated with Dwolla services for Mutum Sigillum while Dwolla’s holding partner transferred Mutum Sigillium’s balance, per the warrant.”
Last November Mt. Gox and CoinLab, a small US based Bitcoin exchange, entered into an agreement “to service the Bitcoin exchange market in a mutually beneficial manner”. According to CoinLab’s formal complaint, the agreement allowed CoinLab an exclusive license in North America to use Mt. Gox’s software in providing exchange services, in return CoinLab would provide the Japan based Mt. Gox with access to its US banking relationships.
CoinLab alleges that Mt. Gox failed to uphold their end of the bargain and is requesting damages for breach of contract.