It's worth noting that at least a couple of exchanges have gone through the appropriate hoops with the US Federal government. I think the Mt. Gox thought that they were immune because they are based in Japan.
Its interesting to me that typically this would be a simple "hey you filled out the forms wrong" kind of thing and the officers would go down and change their paperwork and correct any missing licenses, pay whatever penalties etc. This however is blown up as a 'big deal' which suggests that at least some folks would rather have you believe that the concept of bitcoin is illegal.
I'd guess that every single such violation is prosecuted if detected - money laundering is not that rare, and in accounting/financial/company tax matters pretty much all mistakes (unless detected in pre-signing validation) are treated as punishable/fineable violations, not "correct your paperwork" matters. And as a company officer, there quite a few papers that you are required to sign where you may face jail if they're not true.
Also, seizing/freezing any money-laundering or tax-evasion related funds is common practice - first ensure that the money isn't going away, and then release it when/if all the violations are cleared.
That sounds nice, but really, look at what you have to do before you actually go to jail as a "company officer"
The same would be true for any bi-directional virtual curency, really. Since Blizzard does this in Diablo 3, I wonder if they've gone through this process.
Why do you think that? A currency exchange is a business for grownups. Grownups with lawyers and accountants who can fill in forms correctly.
So when something comes up, you see if you can "resolve" it simply. So in this case the forms get updated, the Mt. Gox guys become registered as an MSB and go through the paperwork to meet the necessary standards, and if they can't they shut down. The enforcement interests of the state are served. Similarly if you are accused of violating a law the prosecutor will often offer you a plea deal of some form. This is effectively saying "Ok, let's assume I can prove all of this and your guilty and you will be fined and possibly go to prison. I'm willing to forego that lengthy process if you simply admit wrongdoing to this set of charges and accept this sentence for it." Of course sometimes the prosecutor has a different agenda and they want to "send a message" to people who might consider a similar path. This ranges from the small, police officers citing seatbelt violations, to the absurd like telling Aaron Schwartz he would spend 30 years in prison.
A friend of mine who was registering his business as a consultant in Santa Clara county screwed up and put down his business as "consulate." He signed the document that said that was what he was trying to do, and not surprisingly it is illegal to represent yourself as a diplomat when you aren't one. But he didn't get a DHS agent throwing him down in the street, he got a call from the County clerk when the State Department returned the application saying essentially "wtf?" They had a laugh, he updated and amended the form and didn't serve any prison time. :-)
Generally, its been my experience that "the man" isn't really out to get you. And maximizing compliance with the existing laws of the land trumps prosecuting every single violation. So skipping the first step [1] of just calling up and getting clarification seems unusual to me, given my experience with folks who prosecute people for a living.
[1] This is an assumption on my part, for all I know they may have called and said "Did you really mean to say 'no' here? Looks like you should have said 'yes'." And he may said "I said 'no' and I meant it."
I think you are looking at it from the perspective of the crime being misrepresentation on the form. That's not the crime at issue, though.
The crime at issue is actually operating the money transmitting business without the required licenses, the representation on the form that he was not operating a money transmitting business may be evidence that there was a deliberate attempt at concealment or something like that, but its not the fundamental prohibited act.
Saying "yes" on the form wouldn't have made things less criminal, just more easily detected.
So there are two outcomes:
1) Mt Gox gets shut down, its creators go to prison.
State enforces the rules which is good, but also cuts out some economic growth (people lose their jobs, retail space leases get broken, etc etc)
2) Mt Gox gets brought into compliance.
State enforces the rules (now they are in compliance when before they weren't) economic contribution remains intact so people still have their jobs Etc.
Universally governments prefer #2 over #1, for violations involving process compliance, because #2 costs less and doesn't impact tax revenues long term. They insure future compliance with fines and/or periodic audits.
All bets are off if innocent civilians are endangered or gross damage to the property occurs etc. Or, like in Enron's case, the tax payers are massively ripped off. So when Walmart creates rules that make their workers work overtime that isn't paid, the response is a fine and regular audits. Not shutting down Walmart or locking their stores where violations occurred.
The whole theory of government is predicated on ensuring compliance rather than locking everyone up. The latter isn't scalable and its not the best thing for the people being governed.
Part of ensuring compliance is ensuring that people take reasonable care to comply before being caught not complying. That involves imposing consequences for people failing to comply when they have reasonable notice from which they should have known the requirements, whether or not they actually did know.
"Does your business
accept funds from customers
and
send the funds based on customers' instructions
(Money Transmitter)?"
No, while the FinCEN guidance on the application of money service bureau laws and regulations including those specific to money transmitting businesses to participants in various roles with regard to virtual currency systems summarized the FinCEN's understanding of application of existing law to that domain, the applicable statute requiring licensing for money transmitters, and defining what "money transmitting" means (which is the basis for the seizure warrant), existed for quite some time prior.
Well, as we stand in May of 2013 perhaps it's obvious that Mt. Gox should have identified themselves as a Money Transmitter and Money Service Business. Let's agree on two things though:
1. There's a fuzzy line as to who should have to get a license for this. For instance, the person that sold me Roman denarii for U.S. dollars on EBay might have to get a Money Service Business license with a strict interpretation of the law.
2. Literally two years ago in May of 2011 when Mt Gox filled out the forms, Bitcoin was not considered by most people to be a "currency". When most people think of currency exchange, they're thinking of U.S. dollars, Euros, Swiss Francs, British Pounds, etc. Is Parker Brothers responsible for registering as a Money Service Bureau because they exchange U.S. Dollars for Monopoly Money?
There's a fuzzy line as to who should have to get a
license for this. For instance, the person that sold me
Roman denarii for U.S. dollars on EBay might have to get
a Money Service Business license with a strict
interpretation of the law.
From the FinCEN[1]:
"An activity threshold of greater than $1,000 per person per day in one or more transactions applies to the definitions of: currency dealer or exchanger; check casher; issuer of traveler's checks, money orders or stored value; and seller or redeemer of travelers' checks, money orders or stored value. The threshold applies separately to each activity -- if the threshold is not met for the specific activity, the person engaged in that activity is not an MSB on the basis of that activity."
Literally two years ago in May of 2011 when Mt Gox filled out the
forms, Bitcoin was not considered by most people to be a "currency".
[1] - http://www.fincen.gov/financial_institutions/msb/definitions...
This isn't even close to as cut and dry as you are trying to make it sound.
[Can] Corn be a "store of value". What about gold? Or oil?
The whole point of the 'Money Services Business' designation which Bitcoin just ran into is to enforce standard regulations for all 'Financial Institutions'. The definition of 'Financial Institutions' already includes brokers, broker-dealers, exchanges, etc.[1]
So [is] a corn broker considered a money exchanger/transmitter?
It's all there. The concept of a 'bitcoin' isn't actually very original, people have invented dozens of currencies and other schemes to launder money and avoid taxes. Whether or not that was Bitcoin's intent, it's going to have to play by the rules as if it were.
[1] - http://www.fincen.gov/financial_institutions/msb/definitions... [2] - http://www.ecfr.gov/cgi-bin/text-idx?c=ecfr&SID=b49834e1...
But the US dollar has been considered a currency for a long time (longer, in fact, that the "Money Transmitter" rules at issue in the warrant have been in place), and certainly before May 2011. And that's the currency whose transmission is at issue in the warrant.
Further, the issue is not incorrect forms filled out in 2011, but unlicensed money transmission business continuing to be conducted into 2013.
Seems like this is more applicable (although still a stretch) as they receive USD and then forward them on to BTC sellers.