Lawmakers have become increasingly focused on bitcoins as the virtual currency has gained popularity and value in recent months. But judging by a recent cease-and-desist notice sent to the Bitcoin Foundation, some government types may be taking the "shoot first, ask questions later" approach to dealing with the non-traditional currency. California's Department of Financial Institutions (CFI) has warned the nonprofit it "may be engaged in the business of money transmission" without a license or proper authorization.
The trouble with the accusation is that the Bitcoin Foundation doesn't buy or sell bitcoins at all -- which may explain why the accusation is prefaced with "may be." Even if the foundation manages to convince lawmakers that it's doing nothing illegal, organizations that do engage in buying and selling may need to brace for some legal battles.
The Bitcoin Foundation touts itself as a non-profit organization focused on standardizing and promoting the open source Bitcoin protocol. "One activity that the foundation does not engage in is the owning, controlling, or conducting of money transmission business," according to Jon Matonis, who serves on the Bitcoin Foundation board of directors.
Nevertheless, the foundation has to convince the CFI that it's not engaging in the illicit activities laid out in CFI attorney Paul Crayton's letter. Otherwise, it faces fines of up to $2,500 per violation per day plus criminal prosecution for violating federal laws, resulting in up to 5 years in prison and a $250,000 fine.
Matonis lamented lawmakers' increased targeting of not just bitcoins but other forms of digital currency and payments. "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," he wrote. "Freedom of choice in currencies is probably the most important free speech issue of our time."
Among recent examples of lawmakers targeting digital currency:
- The State of Illinois issued a 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 have received cease-and-desist orders from the state.
- U.S. authorities shut down online payment processor Liberty Reserve for allegedly laundering $6 billion.
- Tokyo-based Mt. Gox was the target of a seizure order issued by the U.S. District Court in Maryland for failing to register as a money-transmitting business. The exchange used an account linked with Dwolla, a payments company, to transfer money from U.S. citizens to Japan, although Dwolla was not accused of wrongdoing.
- The Financial Crimes Enforcement Network (FinCEN) not long ago published guidelines on bitcoins, which "made it pretty clear that the government viewed anyone operating a Bitcoin ATM as a money transmitter," according to Wired's Robert McMillan.
This story, "Bitcoin miners, beware: Lawmakers are fixating on digital currency," was originally published at InfoWorld.com. Get the first word on what the important tech news really means with the InfoWorld Tech Watch blog. For the latest developments in business technology news, follow InfoWorld.com on Twitter.