Bitcoin ATM Regulations, Requirements, and Compliance
With the increase in the use of cryptocurrency and more businesses are adopting the use of cryptocurrencies such as Bitcoin as an accepted mode of payment, more people are looking to venture into Bitcoin ATM businesses. Because of this several regulations and requirements at the state and federal levels that you need to observe to ensure you remain compliant.
The federal laws regarding Bitcoin ATMs are covered under the Bank Secrecy Act. However, state laws tend to vary from state to state but still require you to develop and implement an Anti-Money Laundering program. To ensure you are fully compliant, you may have to contract legal and accounting services from the relevant professionals.
What are Bitcoin ATMs and how do they Work?
Bitcoin ATMs are automated teller machines that allow customers to buy and sell Bitcoins. These machines have a close resemblance to the traditional bank ATM, albeit with a few differences. These ATMs are anonymous and have strict transaction limits. To transact, these ATMs use a QR code connected to the customer’s Digital Wallet where the Bitcoins are dispensed. Bitcoin ATMs are connected to the internet round the clock, giving customers access to the latest cryptocurrency exchange rates.
Starting a Bitcoin ATM Business
As stated before, several businesses have adopted the use of various crypto-currencies as an acceptable means of payment. It’s this increasing popularity that makes investing in Bitcoin ATMs a viable business venture. Despite the increasing need for Bitcoins and Bitcoin ATMs, it is best to carry out adequate research. Running a Bitcoin ATM business goes beyond setting up a kiosk. The most important factors you need to consider are the regulations and requirements needed to stay compliant both at state and federal levels.
Another option is to Host an ATM in your business for monthly payment, and the provider manages all the regulations.
Federal Regulations for Crypto Currency ATMs
The U.S. Treasury’s Financial Crimes Enforcement Network is the governing body responsible for regulating cryptocurrency ATMs as well as overseeing the implementation of the Bank Secrecy Act. According to FinCEN, Bitcoin ATMs are classified as a money-service business, which falls under financial institutions. The governing body further categorizes virtual currency MSBs as exchangers; this means. To operate a BTM, you need to register with FinCEN.
Registering your business with FinCEN is relatively easy, with most of the services being done online. However, you are required to register within 180 days of establishing your MSB and renewing the license after every two years. To register with FinCEN, you need to be compliant with the BSA, which are laws put in place to detect and prevent financial crimes such as money laundering, terrorist financing, and tax evasion, among many others.
After registration, you are required to collect your identification information, report specific information to relevant agencies when called upon and keep a record of all transactions. To stay compliant, you will need to implement programs such as KYC and AML.
KYC and AML Compliance Program
As stated before, the most important aspect of setting up a Bitcoin ATM business is being able to remain compliant. After registration, a BTM operator is required to develop and implement A Know Your Customer and Anti-Money Laundering compliance program. These programs should be presented in written documents that should be ready upon request. You can effectively explain the measure you are taking to prevent money laundering, tax evasions, and other financial crimes through these documents.
An AML program has five principles, including:
- Independent audits that review your AML program to maintain it.
- Development of internal policies, procedures, and controls to ensure BSA compliance.
- Training the staff to ensure they are well-versed in their responsibilities.
- Implementing risk-based procedures to conduct ongoing customer due diligence.
- Appoint an AML compliance officer who oversees the development and implementation of the program.
Your KYC program plays an important role in your AML program; through this program, your business will be able to identify and verify customer identification. A KYC program can also be termed as a control procedure used to eliminate risks associated with financial crimes. In most cases, a Bitcoin Operator should require their customers to provide their phone numbers for identity verification; however, they may request a photo ID when a transaction exceeds a given amount.
A BTM operator can choose to leverage an AML compliance software. This way, they can develop a robust AML program that easily meets their KYC procedures and identifies their customers. This software can keep you up to date with all the regulations and requirements, helping you avoid regulatory penalties.
Before launching your Bitcoin ATM and going live, it’s advisable to test all the AML controls, go through the machine’s capabilities and conduct a few trials. During this phase, check if all suspicious activity indicators are operating optimally. You should also check if all the customer information and transactions are being recorded properly. By implementing these programs, you are responsible for reporting any or all suspicious activities. Failure to observe any other compliance programs may force you to shut down your Bitcoin ATMs.
Bitcoin transfers are originally decentralized and anonymous; however, Bitcoin ATMs are still considered payment services. This means there are co9mpliance laws that need to be observed at the state level. As mentioned, these laws tend to vary from state to state. Despite the disparities, each BTM operator is required to get a money transmitter license. Keep in mind that acquiring this license may be difficult in some states compared to others. For example, you need a Bit License in New York State but don’t need one in Montana.
To get a money transmitter license, a BTM operator is required to present the following:
- A completed license application that shows the business’s address, operators’ social security number, tax identification number, and net worth statement.
- Application fees
- Meeting the state’s minimum net worth requirement.
- Completed background check
- Security, such as surety bond- presenting a form of security helps ensure the operator observes the state money transmitter regulations. The state determines the value of this security and can range from $100,000 to $500,000.
Before launching your Bitcoin ATM, it’s best to research the individual state laws, regulations and requirements. In some states, a cryptocurrency ATM is allowed to buy and sell cryptocurrencies, while in some states, you can only buy. You should ensure your machine is compliant to avoid breaking the law.
When to Visit the IRS
The IRS is a federal agency FinCEN uses to enforce BSA compliance laws. When it comes to MSBs, the IRS is the main investigative agency tasked with monitoring Bitcoin ATMs. This agency randomly chooses Bitcoin ATMs to audit. They also sent subpoenas to BTM operators requesting compliance documentation. Despite an operator’s full compliance, the IRS may request documentation regarding BSA programs.
To ensure compliance, it’s best to keep all your documentation on BSA programs are in order. Compared to major financial institutions, Bitcoin ATMs have limited resources. However, it’s best to observe all the federal and state regulations to avoid legal action.
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