Agent-of-the-payee and Crypto Seller MSB Status

1. Agent-of-the-payee up for comment in California: On February 8, 2019, the California Department of Business Oversight published an invitation for comments on possible amendments to the California Financial Code / Money Transmission Act concerning the agent-of-the-payee exemption. The exemption allows agents of the payee to be exempt from money transmitter status if they meet certain specific criteria, including contracting with the payee and accept funds for goods or services sold by the payee and received by the payor. The good news is that the exemption itself is not on the chopping block. Instead, DBO is wondering whether key defined terms should be narrowed or more precisely defined. Specifically, “goods or services” and “receive”. The invitation distinguishes between the types of goods sold at online marketplaces like Amazon and Airbnb (see agent language for each) and other goods sold at (perhaps less popular) marketplaces that handle housing, real estate, insurance etc… Any attempt to distinguish between one kind of payee, giving some the right to the exemption and others not, will create a flurry of requests for guidance and, perhaps, niche processors that try to walk a line between permitted processing and processing that needs a license. The deadline for comments is April 9, 2019.

Agent-of-the-payee is expressly available in only a handful of states, tolerated in many other states and downright confusing the the remainder of states that take a case by case approach. At least under the BSA, the availability of the exemption is fairly clear thanks to guidance produced as a result of an enquiry by our firm.

2. Florida Bitcoin Sellers Need MSB Licenses: In the long-observed Espinoza case, on January 30, 2019, the Florida Court of Appeals has ruled that simply selling Bitcoin in Florida was equivalent to selling payment instruments and therefore requires MSB licensure under Florida law. The court held that, unlike the BSA, the Florida statute does not require transmission to a third party for MSB activity to occur. The case yields the awkward outcome that Espinoza was not an MSB under the BSA but was one under the Florida statute. This ruling contradicts a number of guidance letters from the Florida DFS holding that merely selling Bitcoin was not MSB activity, including the cases of Grapefruit and Cryptobase. 

3. All Bitcoin Sellers Must Register with FinCEN as MSBs: In direct contradiction of the Espinoza case, the February 1, 2019 case of US v. Sterkiwheld that a mere seller of Bitcoin was an MSB under the BSA. Not only does this contradict the Espinoza case but it also puts in jeopardy FinCEN’s guidance exempting investors, who buy and sell for their own account.

 4. Security Policy Case Study. The now defunct virtual currency exchange,, fell apart because its CEO passed away in India with private keys controlling $250 million of crypto. This is a case study in why payments companies (not just crypto exchanges) need security policies and disaster recovery policies. It goes without saying, that no single person should have the unique keys to substantial reserves of client assets.

Adam Atlas Attorney at Law is licensed in New York and Quebec. This email is ATTORNEY ADVERTISING. Nothing in this e-mail should be construed as a legal opinion or commentary on laws other than in the two jurisdictions where the author is admitted.