[ExI] State crackdown on Bitcoin?

James Clement clementlawyer at gmail.com
Sun Jun 23 23:36:29 UTC 2013

 Bitcoin Foundation Receives Cease And Desist Order From California

[Disclosure: Author serves on Board of Directors for Bitcoin Foundation.]

Directly following last month’s Bitcoin 2013 conference event in San Jose,
CA that brought decent revenue into the state, California’s Department of
Financial Institutions decided to issue a cease and desist warning to
conference organizer Bitcoin Foundation for allegedly engaging in the
business of money transmission without a license
proper authorization.

If found to be in violation of California Financial Code, penalties can be
severe ranging from $1,000 to $2,500 per violation per day plus criminal
prosecution which could result in fines and/or imprisonment. Additionally,
it is a felony violation of federal law to engage in the business of money
transmission without the appropriate state license or failure to register
with the U.S. Treasury Department. Convictions under the federal statute
are punishable by up to 5 years in prison and a $250,000 fine.
The Bitcoin Foundation is a nonprofit corporation registered in Washington,
D.C. with mailing address in Seattle, WA. As a nonprofit, its mission is to
standardize and promote the open source Bitcoin protocol and they receive
generous support from individuals and corporations to advance those
objectives.  The foundation also boasts significant international membership

One activity that the foundation does not engage in is the owning,
controlling, or conducting of money transmission business. Furthermore,
that activity would also be against the original charter of the foundation. As
general counsel for the Bitcoin Foundation, Patrick Murck has lead
responsibility for corresponding with the California Department of
Financial Institutions.

At this stage, it’s difficult to tell whether or not it was a general
blanket action and if other bitcoin-related entities received cease and
desist letters from California. If Bitcoin Foundation was not the only
recipient, then expect other companies to come forward in the days and
weeks ahead.

The issued letter was signed by State of California Senior Counsel Paul T.
Crayton and the letter was copied to Department of Financial Institutions
Deputy Commissioner Robert Venchiarutti, who also serves on the Board of
Directors of the Money Transmitter Regulators Association
ironically a national *nonprofit* organization dedicated to the efficient
and effective regulation of the money transmission industry.

Recently, the State of Illinois also issued
cease and desist letter to mobile payments processor Square for failing to
have the proper licensing in accordance with the state’s Transmitters of
Money Act. Prepaid card provider NetSpend and six other payments companies
also received  <http://digitaltransactions.net/news/story/3907>Illinois
cease and desist orders. If this practice grows among states, it could have
a potentially significant “chilling effect
on financial services innovation, especially upon lawful businesses that
are designing infrastructure to support and grow the Bitcoin technology.Freedom
of choice in currencies is probably the most important free speech issue of
our time.

For similar but not wholly unrelated reasons, the Electronic Frontier
Foundation and several law school clinics established the collaborative
archive*Chilling Effects Clearinghouse*
2001 to protect lawful online activity from harassing legal threats related
to intellectual property.

Harkening back to the saga
FaceCash and Aaron Greenspan, this new far-reaching action from
California’s financial regulator apparently now scoops up nonprofit
scientific and educational organizations. California, the cradle of
technological innovation and home to the inspiring Silicon Valley venture
capital community, is now focusing its sights on the futuristic Bitcoin.

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